Your order cycle time, which represents the speed at which your company can fulfill customer orders, is a crucial metric to track and optimize continuously because it directly affects customer satisfaction and your ability to compete.
So today we’re going to dive into what it is, what it isn’t, why it’s important and 7 research-backed and actionable strategies to minimize it.
Whether you are just starting out as an ecommerce seller, consistently hitting six figures monthly or find yourself anywhere in between, keep reading to enjoy the practical steps we lay out in this new guide.
What is Order Cycle Time?
In supply chain terms, cycle time refers to the amount of time it takes your business to complete a process.
Therefore, your order cycle time refers to the amount of time it takes your company to process an order or complete the order fulfillment, but beginning from the moment a customer places the order up until you send it out for shipping, but excluding the actual shipping time.
What are the steps involved in the order cycle process?
We can break down the concept of order cycle time into five stages which include;
1. Order receiving and processing
Order cycle time commences once the order reaches your warehouse and after a customer completes checkout. If your warehouse is integrated with your ecommerce platform, you can minimize the time spent here because transmitting the order will take only a few seconds.
After confirming the order, you will generate a pick list using your warehouse management system and assign the order details to the picker whose job is to locate and pull the correct SKUs or Stock Keeping Units to fulfill the order.
Once the correct SKUs are picked, your picker will hand them over to a packer who ensures the products are correctly packaged, labeled and sealed.
The shipping station or outbound dock is the final stage of the order cycle. At this point, you send the package to a shipping carrier such as UPS or FedEx to deliver it to your customer’s destination.
NOTE: When products are made to order and not kept in stock, your order cycle time may take much longer. When this is the case, order cycle time includes the duration it takes to source the raw materials and manufacture the item according to the customer’s specifications.
Why is order cycle time important?
Your order cycle time can either have a negative or positive effect on customer satisfaction.
On one hand, a lengthy order cycle times will result in longer delivery times and occasional delays, which lead to frustrated customers. And on the other, a short and streamlined order cycle time enables you to offer competitive delivery times and a seamless fulfillment experience, which contributes to higher customer satisfaction rates.
Detecting bottlenecks in your fulfillment process
Knowing your company’s order cycle time will help you detect issues that could be causing fulfillment delays. A longer than average order cycle time indicates there are inefficiencies you need to optimize or processes you need to review completely.
For instance, receiving and processing orders manually, which is time-consuming and susceptible to errors, leads to longer order cycle durations so discovering that your fulfillment process suffers from it is the first step in finding a fix for it.
Gauging your readiness to scale
If you plan to scale your business, your order cycle time serves as a good benchmark of whether or not you’re ready to take that next step. Scaling an ecommerce company requires an efficient supply chain that is ready to handle more orders than you already do without sacrificing on performance. So having a short and competitive cycle time tells you you’re likely ready to scale your operations.
What is the Order Cycle Time Formula?
Order cycle time is usually measured in seconds. And you can calculate it with the formula below:
Order cycle time = Number of hours of order fulfillment × 3600 seconds ÷ the total number of orders shipped that day
To put this into perspective, let’s calculate the order cycle time in a 10-hour period for a fulfillment center that shipped 2000 orders. Going by our formula, we’ll calculate:
(10 hours×3600 seconds) ÷ 2000 or 36,000 ÷ 2000 = 18 seconds
Therefore, the order cycle time for this fulfillment center in that 10-hour period is 18 seconds.
What’s the difference between Order Cycle Time, Order Lead Time and Takt Time
As you optimize your supply chain operations, it’s important not to confuse order cycle time with two similar and often-confused metrics which are lead time and takt time.
What is Order Lead Time
Order Lead time refers to the time it takes from the order date to when the customer receives their delivery.
If you’ve been following closely, you’ll notice that this definition is similar to order cycle time, with the difference being that lead time ends when the customer receives their order, meaning shipping time is included.
Some businesses use both definitions interchangeably, but a more suitable definition for when the customer receives their order is order lead time because shipping transit has little to do with your warehouse efficiency; therefore, it isn’t a component of your order cycle time.
What is Takt Time
Takt time is a supply chain metric that measures the frequency at which you receive customer orders and is used to calculate the minimum speed needed for order cycle time. Similar to order cycle time, the formula for takt time is;
The number of order handling hours x 3600 divided by the total number of orders.
So, for example, if on average a warehouse receives 750 orders in every 8-hour order handling window, they receive a new order every 38.4 seconds meaning they have a takt time of 38.4 seconds. Therefore, they will need an order cycle time of 38.4 seconds or less to meet customer demand and fulfill all those orders on the same day.
Now that we understand what order cycle time is and what it isn’t, let’s cover 7 ways you can minimize your order cycle time without sacrificing accuracy.
7 Ways to Improve Order Cycle Time
1. Assess Your Warehouse Flow.
Thoroughly review the path SKUs take as they move from shelves to shipping stations to identify any inefficiencies that might be affecting them.
For example, are pickers having a hard time locating products? If so, invest in barcode scanners and place a barcode on every item that sits in your warehouse.
Are storage racks spaced too close and making it difficult for pickers to move around? Or is your packing and fulfillment station located too far away from the picking area?
If so, reconsider your warehouse layout and rearrange it to make it easier for workers to move around and for each stage of fulfillment to flow into the next.
Generally, these kinds of bottlenecks slow your staff and make it harder to pick and fulfill orders on time, which in turn increases your order cycle time. To help you out, here’s a comprehensive list of warehouse inefficiencies. Go over them to identify issues affecting your operation.
2. Use Kitting to Prepackage Orders Commonly Bought Together.
Kitting is the process of pre-packaging multiple SKUs together before a customer places an order. This approach works best for products that are commonly purchased together or for items you market as sets, such as matching clothing or seasonal bundles.
Kitting helps your business reduce order cycle time because instead of locating and picking several items to fulfill an order, you can store the group products together and pick them from a single site when it’s time to fulfill the order.
3. Eliminate Paper and Manual Data Entry.
By getting rid of paper processes such as handwritten pick lists, packing slips, and invoices wherever they exist, you effectively reduce delays caused by misplaced or lost lists and paperwork that carries typos, misspelling, and wrongly-written details.
4. Track Inventory in Real-Time with a Robust IMS.
If you don’t have correct data over what’s in your fulfillment center, such as stock levels, your operation is prone to delay-causing errors such as stockouts and backorders.
As a solution, upgrade to an inventory management system that allows your warehouse team to view inventory levels in real time, forecast demand against current supply, and calculate your economic order quantity or EOQ, which tells you how much to reorder at any given time in order to prevent out-of-stock messages when customers finally place orders.
5. Implement Warehouse Slotting.
Warehouse slotting is a process of organizing inventory in the most efficient manner so space requirements and travel time for warehouse staff are minimized. This system is pretty simple when you understand the fundamentals which are;
- Arranging inventory from top-selling to low-selling or placing fast-moving stock within the closest reach.
- Storing items that often ship together next to each other.
- Adjusting stock locations during peak demand seasons or holidays to accommodate increased demand.
6. Consider Using a Batch or Wave Picking System.
Two other methods of reducing picking times and thus order cycle times is batch and wave picking.
Batch picking involves batching orders with the same SKUs into a separate pick list so warehouse workers pick identical orders at the same time. In the appropriate scenarios, this is much faster than sending pickers repeatedly to pick orders piece by piece.
The second, wave picking, reduces fulfillment time by having pickers locate SKUs of identical orders in the same warehouse zone. They then hand off the orders to the picker in the next zone so overall each picker has a shorter walking path to pick orders.
Deciding between the two can be difficult, but with the right 3PL, you don’t need to know the difference because we’ll tailor a hybrid solution that gives you the most efficient order cycle time.
7. Continue Measuring Your Order Cycle Time.
Your order cycle time will fluctuate over time, especially with changes in your fulfillment process or disruptions in your supply chain.
For example, after switching to an automated pick list system from a paper list system, you may notice your order cycle time is much shorter. Or after a sharp increase in your average order volume, you may notice your order cycle time drastically increases because your fulfillment team is too busy accommodating the increase in workload.
By constantly monitoring these changes to your order cycle time, you can make informed decisions and reviews into your supply chain processes and decide on improvements to adapt to new changes. Plus, it’s a good way to understand whether recent changes you made are effective or detrimental to improving your order cycle time.
To sum up, your ecommerce order cycle time refers to the average time it takes you to fulfill an order and send it out for shipping. And by implementing the strategies we’ve outlined today your business can significantly reduce your order cycle times, ready products for last mile delivery faster and improve your customer satisfaction rates.
With that said, if you’d love to learn more actionable ecommerce tips and tricks like how to resolve WISMO (where is my order) queries from customers, head over to the Globallyfulfill blog where we publish new guides and articles every week.