Fill rate

Fill rate - probability that any given randomly selected demand will be immediately satiate from available inventory. It is described by following formula (L. Ling 2007, p. 187):

$FR=1.0-{\frac {E(US)}{Q}}$

Where:

Q - quantity of order or lot size

E(US) - expected units short per replenishment cycle

Next to fill rate there is also one measure of item performance - backorder. It describes the number of unfilled demand at an exact period of time. Whenever it is unable to fill the demand, backorder is established. It lasts until reorder or reparation of failed item. These two measures are related but also different in important ways. Fill rate is concerned only with what happens at a time demand takes place. Backorder measures number of demands which have not been fulfilled in any part of time. It is important to appreciate differences between these two. If the stock level on an item is increased, fill rate will increase but backorder will decrease. It is possible to have a system with both low fill rise and background but reverse situation would never exist (C.C. Sherbrooke 2004, p. 25-27).

Inventory managers are into fill rate because it is easy to measure. They only need to take into consideration what happens at the time every demand takes place - was it filled or not. Furthermore, numerical value is important - 95% fill rate is acceptable in their application, lower values cause complaints of customers (C.C. Sherbrooke 2004, p. 28).

Item Fill Rate and Order Fill Rate

According to A. M. Beitler, P. A. Gupta and S.A. Ehap :

• Item fill rate is used to measure if buyer has a single item of each PO. It is a rare situation because usually buyer order multiple items to reduce transaction processing cost.
• In scenario above a more appropriate is order fill rate. It can be estimated by calculating the product of the item fill rates for all line items in particular order ( e.g. if the order has four lines items for four different items with an item fill rate of 80% for each, the order fill rate will be - 0.8*0.8*0.8*0.8= 40.96%)( 2006, p. 36).

Examples of Fill rate

• Fill rate in retail stores is the percentage of customers' orders that can be fulfilled with the inventory on hand. For example, if a store has 100 items and receives an order for 90 of them, the fill rate is 90%.
• Fill rate in online stores is the percentage of orders placed that can be fulfilled immediately. For example, if an online store receives 100 orders and can fill 90 of them immediately, the fill rate is 90%.
• Fill rate in warehouses is the percentage of orders received that can be fulfilled with the existing inventory. For example, if a warehouse has 200 items in stock and receives an order for 150 of them, the fill rate is 75%.

Advantages of Fill rate

Fill rate is an important metric used to measure the performance of an inventory system. It is the percentage of customer orders that can be filled with available inventory. The following are some advantages of fill rate:

• Increased customer satisfaction: Customers will be satisfied with the quick delivery of their orders, leading to an increase in customer loyalty.
• Reduced stock-outs: Knowing the fill rate will help companies better manage their inventory, leading to fewer stock-outs and minimizing losses.
• Improved inventory planning: Fill rate helps companies to better plan their inventory and make better decisions about stocking levels and the timing of orders.
• Increased efficiency: Companies can streamline their operations and increase their efficiency by better understanding their fill rate.

Limitations of Fill rate

Fill rate is an important metric used to measure the efficiency of supply chain management. However, it has several limitations:

• First, it may not accurately represent the real performance of the supply chain. This is because it is a static measure that does not take into account any changes in demand or supply over time.
• Second, it does not consider the costs associated with fulfilling demand. If an item is sold out, but the demand can be satisfied with a different item, the fill rate will not reflect that.
• Third, it does not take into account any inventory shrinkage due to pilferage, spoilage, or obsolescence.
• Fourth, it does not factor in any external factors that may influence the demand, such as seasonality or changes in the macroeconomic environment.
• Finally, it does not give any insight into the effectiveness of the inventory management system itself.

Other approaches related to Fill rate

One of the other approaches related to Fill rate is inventory management. This approach involves the management and forecasting of inventory needs, ordering and tracking of inventory, and the optimization of inventory levels across multiple warehouses and vendors. It also involves the management of lead times, safety stock levels, and the optimization of supply chains. Other approaches include demand forecasting, inventory optimization, supply chain optimization, and inventory replenishment. Additionally, real-time tracking of inventory and demand can be used to improve the accuracy of fill rate estimates. Finally, enterprise resource planning systems can be used to manage and forecast inventory needs across the entire enterprise.

In summary, there are a variety of approaches that can be used to improve fill rate estimates. These include inventory management, demand forecasting, inventory optimization, supply chain optimization, inventory replenishment, real-time tracking of inventory and demand, and enterprise resource planning systems. Each of these approaches can be used to provide more accurate fill rate estimates and help businesses better manage their inventory.

Fill rate — recommended articles

Optimum size of the order — Stock turn — Cycle stock — Ordering cost — Reorder level — Economic batch size — Maximum stock level — Order point — Inventory value

References

• Autry Ch. W., Bell J. E., Hill A. V., Goldsby T. J. (2013) Managing the Global Supply Chain (Collection) FT Press, New Jersey
• Beitler A. M., Gupta P. A., Ehap S.A. (2006) Purchase Order Management Best Practices: Process, Technology, and Change Management J. Ross Publishing, Fort Lauderdale (USA)
• Gimeno A, Oliveira A. (2014) Executing the Supply Chain: Modeling Best-in-Class Processes and Performance Indicators FT Press, New Jersey
• Ling L. (2007) Supply chain management: concepts, techniques and practices enhancing the value through collaboration, World Scientific Pub Co Inc, Singapore
• Park I., Rim s. (2008) Order picking plan to maximize the order fill rate Department of Industrial Engineering, Ajou University, Suwon (Republic of Korea)
• Rollins M., Sandberg R. (2013) The Business of Android Apps Development: Making and Marketing Apps that Succeed Apress, New York
• Sherbrooke C.C. (2004) Optimal Inventory Modeling of Systems: Multi-Echelon Techniques Springer Science & Business Media, Boston
• Teunter R. (2009) Note on the fill rate of single-stage general periodic review inventory systems Department of Management Science, Lancaster University Management School, Lancaster

Author: Dominika Kuraś