The Perfect Order Metric is Not Sufficient

The Perfect Order is often recognized as the highest level of customer service. It can be defined in different ways, but the traditional definition includes four elements: order completeness, timeliness, condition, and documentation. In other words, to be considered perfect, an order must be delivered to the customer’s distribution center (DC) complete, on time, free of damage, and accompanied by the correct invoice and other documentation. 

Achieving strong performance on the perfect order metric is not easy, but companies have improved their performance in this area over the past decade, according to survey results from the Grocery Manufacturers Association (GMA). However, although the perfect order metric (as traditionally defined) is still an important benchmark and indicator of customer service, it is no longer sufficient for consumer goods manufacturers!

The Grocery Manufacturers Association and the Food Marketing Institute use a seven-element formula to calculate the Perfect Order Index:

• Percentage of cases shipped vs. cases ordered
• Percentage of on-time deliveries
• Percentage of data synchronized SKUs
• Order cycle time
• Percentage of unsaleables (damaged product)
• Days of supply
• Service at the shelf

A paradigm shift is occurring in the fast moving consumer goods-to-retail supply chain. A manufacturer’s job is not done when the goods arrive at the retailer’s DC. The job of a manufacturer, in collaboration with its retail partner, is to ensure strong in-stock performance at the retail shelf. In short, a consumer only cares if a product is on the shelf, not whether or not there’s inventory at the retailer’s DC. 

In some ways, this shift is unfair. A manufacturer does not have full control of shelf-level performance. However, it is clear that through a combination of better electronic communication with retailers, better leveraging of downstream data, a more optimal DC network (eg., warehouses closer to major metropolitan areas), and better short term forecasting and distribution allocations, manufacturers can greatly influence shelf-level in-stock performance. 

We have been talking about the “first moment of truth” for almost a decade. The first moment of truth is what a consumer sees on the store shelf – or does not see if there are replenishment failures. We still have a long way to go.