Order Cycle Time: Definition, How to Measure, and How to Enhance - ChicagoShipper

In today’s very competitive e-commerce market, providing exceptional customer experiences is one of the best ways for businesses to differentiate themselves from the competition. There are numerous ways for brands to provide a positive customer experience, one of which is to optimize the order management process to improve order fulfillment and order accuracy rates. 

You may be wondering, “How can I do this?” 

An important step in streamlining the order management process is to improve order throughput time. In this article, we’ll look at what order cycle time is, its relevance, and how you can improve it for your company. 

Order Cycle Time Definition 

Order cycle time is the average time it takes to ship an order from the time it is placed, excluding shipping time. As a result, it is one of the most important KPIs to monitor in your order fulfillment process because it allows you to assess the efficiency of your operations. 

Importance of Order Cycle Time 

Order cycle time is an important metric for measuring the efficiency of your fulfillment process because it influences other KPIs such as on-time shipping rate and order lead time. The shorter the order cycle time, the faster the company responds to customer orders. 

  • Customer Satisfaction Evaluation 

Your order cycle time can have an impact on customer satisfaction, either positively or negatively. A long order cycle frequently leads to fulfillment delays and longer delivery times, resulting in more dissatisfied customers. A short order cycle time, on the other hand, allows you to provide seamless fulfillment experience (and even offer 2-day shipping), which can contribute to higher levels of satisfaction. 

  • Identifying Problems in the Supply Chain 

Knowing your company’s order cycle time can help you identify supply chain issues that can cause delays in the order processing process. The long order cycle indicates that the supply chain process needs to be reviewed to identify inefficiencies and unnecessary steps that need to be optimized or removed altogether. 

Manual order receiving, for example, can be time-consuming and error-prone, resulting in a longer order cycle time. 

  • Assessing Readiness to Scale 

When expanding your business,  order cycle time is a good indicator of your readiness for the next step. To grow your business, you need an efficient supply chain that can process more orders without impacting overall performance. A short job cycle time probably means that you are ready to expand your business. 

Calculating Order Cycle Time 

Order cycle time is determined by several elements of your order-to-cash process, from order date to ship date. 

It can be computed using the following order cycle time formula: 

Order Cycle Time = (Delivery Date – Order Date) / Total Orders Shipped 

The components of this equation are fairly self-explanatory. The delivery date is the day the order was delivered to the customer, whereas the order date is the day the order was placed. This calculation may be performed by businesses for a specific time period, such as a month or a quarter. The total number of orders shipped refers to the total number of orders shipped in a given time period. 

Tips to Enhance Order Cycle Time 

To reduce order cycle time, you may need to optimize various aspects of your supply chain processes. 

  • Warehouse Flow Enhancement 

Warehouse bottlenecks can be the main reason for long order processing times. For example, can an order picker easily find an item? Can our shelf racks be moved quickly because they are properly spaced? Is the fulfillment bay too far from the picking area? All of these obstacles can slow down the picking and packing process. 

You can reduce order cycle time by identifying these inefficiencies. Begin by measuring your warehouse KPIs and looking for ways to improve them. To make the most of available space and improve picking efficiency, you may need to optimize your warehouse setup and use warehouse slotting. 

  • Establish Protocols and Boundaries 

It is critical to improving the process by establishing clear protocols and procedures to guide your fulfillment staff. This could include limiting the size of picking batches to speed up the process and get orders from the shelves to the parking bay as quickly as possible. You can also set guidelines on where and how to keep returned items so that you can easily sort and select them later. In addition, setting inventory backorder limits is an important step in avoiding out-of-stocks and backorders that can slow down your order cycle time. 

Also, see how you are currently dealing with delivery delays. In addition to providing employees with real-time e-commerce order tracking, you need to establish policies on how to handle information in the event of delivery exceptions. For example, clearly record when and how to follow up if an order is stuck in a particular location. 

To set realistic expectations, it’s also important to be transparent with your customers about your shipping policies, such as shipping cutoff times. 

  • Re-measure the Cycle Time 

Order duration can fluctuate over time, especially due to supply chain changes and disruptions. For example,  unexpected delivery exceptions can result in significantly longer order cycle times than usual. Alternatively, after implementing an automated system to improve the receiving process, you may find that the time required for your order is significantly reduced. 

In addition, the busy acquisition and sorting of e-commerce returns can interfere with warehouse workers who need to process large numbers of returns to focus on fulfillment tasks. There are many variables throughout the supply chain that can affect this order cycle time. 

This metric can be influenced by a variety of factors throughout your supply chain. It is critical to continuously monitor and reassess your order cycle time. This allows you to determine whether your supply chain processes need to be reviewed and improved to speed up the process. It’s also a great way to see if the improvements you’ve made are effective at shortening your cycle time. 

  • Fulfillment Should be Outsourced 

Leaving the fulfillment process to the experts is the simplest way to shorten your order cycle time. Outsourcing order processing to an external logistics partner is an effective way to quickly receive, receive, pack, and ship orders. Ideally, look for a technology-enabled 3PL that can automate key parts of the fulfillment process. 

In this way, orders are automatically received at the warehouse and fulfillment center as soon as the customer places an order. 

This allows the order to be processed automatically so that the order can move quickly through the fulfillment pipeline and be shipped to the customer in just a few hours. In addition, automating the process reduces the need for manual entry, improving order accuracy while minimizing the risk of error.