Tipps & Resources

How to Measure and Improve Order Cycle Time for Ecommerce

David appel
By David Appel
11 August, 2023

Order cycle time indicates your fulfillment process efficiency. Learn how to measure, analyze, and improve your average time to boost customer satisfaction.

an ecommerce shop owner checking the orders she has received online

To win in B2C commerce, you need to be SIMPLE and FAST.  Order cycle time is a crucial part of that fulfillment process. It greatly impacts customer satisfaction and retention, key differentiating factors in the competitive world of ecommerce. A high order cycle time can also affect your ability to scale.

Measuring your order cycle time helps you evaluate the efficiency of your processes and identify ways to improve them. So, what is order cycle time, and what can you do to improve it?

Measuring ecommerce order cycle time

You can use the following formula to calculate your order cycle time:

an image showing the formula for order delivery cycle time
Original image created by write

You might calculate order cycle time over a specific period, such as a quarter, month, or year. Total orders shipped refers to the number of orders you shipped out within the given time period.

It’s worth noting that there are a few different ways of defining “order cycle time”. For example, you can understand it to be the time between the customer placing an order and receiving it. Alternatively, you can also call this lengthier version “customer order lead time”, and therefore understand order cycle time as one element of that overall lead time. 

For simplicity, we’re going to define “order cycle time” as the time taken to process a customer order and get it ready to send, excluding shipping and delivery.

Breaking the whole process down into sections, order cycle time, therefore, includes:

Order processing time 

This is the time it takes your team to handle the order right from the moment the customer places it on your website. An order management system typically processes order information, confirming the items are in stock and determining the most suitable location to ship from. 

The order is then sent to the warehouse, where it’s picked, packed, and prepared for shipping. You can measure this process with KPIs, such as orders picked per hour.

Shipping time

Shipping time is usually defined as the time it takes from an order being placed, to the customer receiving the item. Orders may be shipped directly to the customer, or they might be combined with other orders going to nearby locations to reduce the total number of shipments. 

A useful metric is on-time shipping rate—the percentage of orders that ship from your business on time.

a stock image of a delivery man in a way to deliver some packages
Free to use image sourced from Pexels​​​​​​​

Delivery time​​​​​​​

This is the total transit time for your parcels, covering the period when orders are on their way to the customer. Unless you have your own delivery team, you won’t have much control over this process. 

That said, you can log the time when the parcel was collected from your warehouse and ask for updates from the carrier as it’s transported via land, sea, or air. It’s important to track last-mile delivery, as this is where customer expectations are highest.

Analyzing order cycle time

Once you have measured order cycle time, you must analyze the results to see where things are going right and wrong.

Analyze KPI data 

Because order cycle time affects other KPIs, such as on-time shipping rate and order lead time, you can use it to evaluate the efficiency of your entire fulfillment process. 

There are several KPIs for different parts of the order cycle process. Warehouse KPIs include productivity and logistics metrics, such as orders picked per hour and the number of orders returned due to inaccurate contents. From here you can begin to compare what the promised vs the actual order cycle time is.

Other relevant KPIs include fill rate (the percentage of customers who can immediately buy the desired item due to instant stock availability) and customer satisfaction scores. Compare your order cycle time to industry benchmarks or standards you’ve set for yourself.

You can also look at Takt time, the rate at which you must manufacture a product or order to meet customer demand. By measuring how frequently you receive customer orders, you can figure out the speed required for cycle time. 

Although it can be good to collect as much data as possible, you should assess which KPIs will be your main focus depending on your business and how it’s set-up. For example, if your stock is usually immediately ready to go, it might make more sense to focus on your fill rate, rather than your Takt time.

stock image of a computer showing some statistic data
Free to use image sourced from Unsplash

To track these KPIs, it’s worth utilizing an enterprise resource planning system. Such software makes data on your business processes easy to find and analyze.

It offers insight into your processes by giving you access to relevant data, from sales and inventory to purchasing and manufacturing. By getting a complete picture of the supply chain and monitoring relevant KPIs in one place, you can vastly improve your efficiency and keep up with customer demand.

Identify areas of improvement

If your order cycle time is not in line with your company goals, you need to identify areas for improvement. Check each part of the process and find the bottlenecks that are slowing everything down.

For instance, if there are inaccuracies in picking and packing, look at the order transmission process. How does the warehouse team receive details of the customer order from your ecommerce website, and are those details correct? You could also improve picking and packing with automation and staff training.

If you’re facing regular stockouts, your inventory management system needs an overhaul. If your customer service team is constantly fielding requests for order updates, consider implementing chatbots or sending automated communications.

Highlighting inefficiencies

Evaluating your order cycle time will reveal inefficiencies in your processes. This might include a badly-designed warehouse layout where staff waste time moving between stations or stock being put in the wrong place, making it difficult to locate items quickly.

stock image of a man working on a factory
Free to use image sourced from Pexels

 Other issues might include:

  • Stock stored incorrectly, causing damage or spoilage.
  • Incorrect/incomplete information being passed to pickers.
  • Disorganized staff scheduling.
  • Using unsuitable or wasteful packaging.
  • Manually writing address labels.
  • A messy returns process.

Oftentimes, these problems can stem from the same issue: the lack of an automated system where data from all processes is synced and available in real time.

Improving ecommerce order cycle time

Once you’ve highlighted the problems and identified areas to prioritize, here are some ways to improve order cycle time.

Streamline order processing

Make sure that you maximize space in your warehouse and the various stations are designed with a logical flow. Refine your receiving and put-away system so that everything is in the right place, with clear protocols for the correct storage of fragile or perishable items.

Introduce automated processes for picking and packing, such as barcoding and RFID tags for easy location. Make sure that pick lists are generated directly from customer orders, and you optimize packaging for weight and protection.

Consider using kitting to pre-package items that are commonly ordered together and streamline processes with batch or wave picking. Batch picking sees workers simultaneously pick orders with the same SKUs, while wave picking involves picking batches of orders within a warehouse zone and passing them to pickers in the next zone.

a graphic showing the steps of a order processing
Image Sourced from dokka.com

Improve inventory management

If you frequently run out of popular items, or they become damaged or otherwise unsalable, you’re going to disappoint customers. It’s vital that you keep enough stock on hand to fulfill orders, but avoid the issues associated with overstocking.

Accurate demand forecasting will help you achieve this, while ERP cloud software with built-in inventory management will show you real-time data from all sales channels—so you don’t tell people an item’s in stock when it isn’t. Stock control also reduces backorders and minimizes customer returns, both of which cause further bottlenecks.

Reduce lead times

Every section of a supply chain process has its own lead time. But here, we’re talking about the time between sending a purchase order to your supplier and the supplier delivering the items to your warehouse. You can reduce this lead time by maintaining strong relationships with suppliers.

Choose ones that are reliable in getting goods to you on time, favoring local firms to minimize transport time and cost. Use a network of suppliers in case there’s an issue with one of them. They should let you know early if there’s likely to be a delay, giving you time to source goods from an alternative supplier.

Improve shipping and logistics

It’s best to use auto-generated shipping labels to reduce address errors and save time. If orders don’t require any input from your warehouse team, such as kitting or bundling, you could use cross-docking—where goods arrive from the supplier and are loaded straight onto a delivery vehicle.

If you don’t have an in-house delivery team, partner with reliable shipping carriers. Offer customers a range of shipping options and prices, and invest in a system that automatically chooses the most suitable carrier for each order. Make sure the carrier sends you real-time tracking data.

You could also try drop-shipping to cut out a stage of the order process, and consider outsourcing operations to a third-party logistics firm (3PL).

a stock image of a logistic process
Free to use image sourced from Freepik​​​​​​​

Enhance communication with customers

Customers want to be kept in the loop at all times. Send them confirmation of their order, and update them when it’s dispatched and scheduled to be delivered. You could even set up direct communication with the last-mile delivery carrier for more accurate timings and help with locating the address.

If there’s a problem or delay, keep customers informed. Apologize and provide a realistic timeframe for when the order will be ready. You should also follow up after delivery—it’s an opportunity to thank them for their custom and ask for feedback. Communication is a big part of the customer experience.

In summary

As we’ve seen, order cycle time is a reliable indicator of efficiency in your overall fulfillment processes. It highlights bottlenecks and shows you which operations need improvement. You can then make changes that keep warehouse workers and customers happy.

While the wider supply chain can experience issues outside your control, order cycle time is something you can keep a handle on. Remember that the results can fluctuate depending on other factors, so measure regularly to make sure you’re on the right track.

David appel

About the author

David Appel

David Appel is Global Head of the SaaS Vertical for the largest technology company on the London Stock Exchange, Sage. Over time as a Sales and GTM leader, his organizations have earned the business of >2,000 SaaS and Software companies, growing at 40%+/year. He previously ran Direct Sales at Bill.com, led NetSuite’s Software Vertical, and was part of IBM’s Corporate Development team.

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