5 Critical Drop Ship KPIs for Retailers to Track
In an earlier article, we discussed how drop shipping allows retailers to expand SKUs and revenue without incurring inventory costs and headaches. While there are still some challenges with drop shipping, it’s now a standard business practice for retailers. In fact, at least 86% of retailers say they’d like to get more suppliers involved with their drop ship processes.
The Current State of Drop Ship
The responsibility to implement drop shipping among trading partners typically falls to EDI and eCommerce managers. Much like any EDI integration project, onboarding drop ship suppliers is a complex process, including outreach, testing, and EDI compliance management.
The foundation of any drop ship compliance program should be agile technology systems capable of automating communications and monitoring order and inventory statuses. Once that's been established, it's time to start tracking important drop shipping metrics.
When putting together a successful drop shipping program, there are some Key Performance Indicators (KPIs) we suggest to help retail EDI and eCommerce managers reach their business goals. Tracking these will ensure that your suppliers are doing their job. Plus, meeting your drop ship KPI targets can build the foundation you need to increase customer retention and grow your eCommerce business.
Retailers: Make Drop Shipping Less Complex
Drop Shipping Metrics to Watch
1. Inventory Feed Score
With drop shipping, a supplier maintains ownership of the fulfillment process and must set aside inventory, packaging materials, and other resources. That also means that the supplier is responsible for updating their inventory availability as part of your drop ship program.
To meet your customers' expectations, you as a retailer need to have real-time visibility into inventory levels, and make sure that all suppliers are accurately updating their inventory. An inventory feed score is a great metric to track how often and accurately your suppliers are providing inventory updates. Remember, inaccurate inventory numbers on your eCommerce store can create post-checkout frustration and cause you to lose any number of customers.
Sears responds to inventory feed issues in an interesting way. If an order is canceled because it's out of stock or discontinued-- but that information is not reflected on the product page-- that item's inventory will automatically be set to zero. If a seller neglects to update their inventory at least every 90 days, their items will be considered expired and removed from the eCommerce store entirely.
2. Order Acknowledgment Speed
One of the pain points retailers have long noted is the period of time it takes for suppliers to send order acknowledgment documents. This step sets the rest of the drop ship process up for success. Slow EDI PO acknowledgments can reflect longer lead times and slower shipping. Since we know that online store customers expect fast fulfillment and transparency about where their order is, this is a crucial eCommerce metric to keep an eye on.
3. Shipment Speed
With drop shipping, you are always on the clock. Customers expect to receive their order fast and in an orderly way with the capability to view each step of the transaction, from order confirmation to shipment status. If your drop ship deliveries are consistently late, you could end up with negative reviews that prevent your business from acquiring new customers.
Amazon breaks this drop shipping KPI into two key metrics: on-time shipment rate and on-time delivery rate. The on-time shipment rate tracks the percentage of Seller-Fulfilled orders that were shipped on or ahead of the promised ship date. The on-time delivery rate tracks the perfect of those orders that reached the customer by the promised delivery date.
These metrics are so important that the Seller Fulfilled Prime program requires a 99% on-time shipment rate and a 97% on-time delivery rate to stay in the program.
4. Order Fill Rate
An order fill rate provides a benchmark that shows how many customer orders are filled from available stock. Orders that are canceled or include back-ordered items will diminish customer satisfaction. Make sure the supplier’s order fill rate falls within an acceptable range.
For Walmart suppliers, order fill rate falls under the "order defect rate" drop shipping KPI. The order defect rate measures the number of orders that were late, resulted in a customer complaint, were returned, or were canceled by the seller. To meet Walmart's successful drop shipping standards, suppliers must maintain an Order Defect Rate of less than 2%.
5. Purchase Order and Shipment Tracking Invoice Match
Your suppliers want to get paid on time and that means a clean order-to-shipment-tracking-number-to-invoice match. As with the rest of your compliance program, seamless order to small parcel shipment tracking to invoice documentation should be standard throughout the drop ship process. Retailers should monitor trends to identify supplier issues like product, price, or quantity issues using purchase order and invoice match.
Both suppliers and retailers can minimize matching issues by choosing an integrated EDI solution with three-way matching and automated alerts.
Accelerate Your Drop Ship Growth
Leading retail EDI and eCommerce managers have established extensive drop shipping KPIs to ensure consistent performance across their vendor base. To make performance tracking simpler, drop shipping retailers should invest in automated drop ship solutions. Not only can these streamline the transfer of order data to your suppliers; the best drop shipping solutions also include tailored dashboards for KPI tracking. If your business works with a diverse supplier base, you can also choose to use a supplier enablement solution to standardize communications and measure vendor performance.
To build a successful drop shipping program, you need to define and track core KPIs that impact customer satisfaction. For more information on how TrueCommerce can help, contact us today.
About the Author: Peter is Vice President of Product Management-Retail with over 25 years of experience helping organizations in Retail and CPG leverage B2B integration throughout their supply chain by using data standards and technology to automate complex order and fulfillment process.
Peter is actively involved in industry trade and standards groups such as NRF, GS1 and RVCF. In addition, he is currently an advisory board member to the Center for Supply Chain Research at Lehigh University where he actively participates in industry research. Peter is a veteran of the U.S. Navy and attended Central Texas College and Embry Riddle Aeronautical University where he studied aviation and business management.