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In 2020, U.S. online store sales rose 43% from the previous year. Shipping a container from China to the U.S. costs 12 times more in 2022 than it did two years ago. And industrial warehouse rent was up an average of 25% last year from the prior year.
Although business growth is fantastic, the current situation presents an incentive for warehouses to deliver the most timely deliveries in order to meet demand. This is a huge opportunity for improving efficiency in storage and reducing the time required to transport goods to customers.
Order cycle time is the average time between when an order is received and when it is shipped. It is an important key performance indicator (KPI) because longer order cycle times have negatively impacted businesses’ ability to attract and retain customers. Order cycle time can be improved by reducing travel time, shifting resources around the facility to the areas of the most activity, understanding order profiles, and prioritizing replenishments before they happen.
A customer order cycle occurs after an order is placed. Retail customers can pick up their purchases from their store inventory, representing their end demand.
Komkrich Marom / Shutterstock.com
Order Cycle Time Formula
Total order cycle time is calculated with the formula “time the order was received by customer” minus the “time the order was placed” divided by the “total number of orders shipped.” It could also be calculated as: order cycle time = (delivery date - order date) / total number of orders shipped.
Order cycle time is measured by first collecting customer details, including the delivery date, order date, and the total number of orders shipped. These details are then input into the order cycle time formula. Some businesses record this data in a database or spreadsheet. However, an automated system may help collect information faster.
The first step in the calculation is subtracting the delivery date from the order date. This information may be calculated for different periods. For example, businesses may measure their customer order cycle time monthly or quarterly.
Once you have the order cycle time results, compare them to your company's goals. This way, you can identify any areas of improvement. You also might record the data, recalculate each month and compare any progress.
Online shoppers must also deal with wretched fulfillment and shipping delays as a result of supply chain disruption during the pandemic. Customer experience is a key component in managing delivery expectations. The customer can have a more efficient ordering cycle if the online shop communicates clearly. For example, a customer who orders bespoke furniture may want to spend some months waiting for the perfect design or color. Sometimes lengthy orders are required that can increase the product cachet.
Order Cycle Time Examples
Order cycle time is an important part of customer satisfaction across many different industries, including manufacturing, procurement, supply chain management, and logistics.
Cycle Time in Manufacturing
Manufacturing cycle time is the time needed to finish manufacturing one unit or batch from beginning to end. It is the time it takes the product to go through its entire manufacturing process, from raw materials to finished end product.
The steps of manufacturing order cycle time are the effective cycle time. These steps can include loading and unloading, time for changeover, and processing time. Effective cycle time in manufacturing is one of the many important KPIs that measure productivity.
In manufacturing, inventory cycle time refers to the time spent in ordering, production, and delivery. This is often referred to as the order cycle time. The customer may be a consumer, retailer, or distributor.
Order Cycle Time in Procurement
Purchase order cycle time is a crucial measure in procurement. It is measured as cycle time in hours from receiving the purchase requisition line item to the purchase order’s conveyance to the vendor.
This calculation must include all actions related to processing a purchase order, such as data input, the time it takes the supplier to confirm receipt, and the time it takes to send confirmation of the price and delivery.
Order Cycle Time in Supply Chain Management
In supply chain management, cycle time is the period of time necessary to complete a supply chain process. Order cycle time is the time a fulfillment warehouse needs to process an order, from the order’s reception to passing it to a carrier to deliver to the customer.
Order cycle time gauges how efficient the fulfillment process of supply chain management is. Examining this key performance indicator will show where order processing may need improvement and help with developing strategies to optimize fulfillment.
Order Cycle Time in Logistics
In logistics, order cycle time is an important KPI for managers to track. A shorter order cycle time can significantly improve customer relationships. A shorter cycle time also means improved efficiency and makes the business more competitive in the marketplace. Therefore, minimizing the order cycle time in logistics is often critical to ensuring customer satisfaction.
Order Cycle Time vs. Lead Time
As explained above, order cycle time is the time needed for a customer to receive an order. It is the time between the order date, so when the order is received and processed, and when the order is processed and completed. It is a key performance indicator for businesses.
Lead time refers to the time needed for a product to go through an entire value stream. In other words, it’s the amount of time from placing a product order to when final payment for the delivered is received. Lead time calculation begins when the customer places an order. Therefore, even if a company is fully aware of its lead and cycle times, a customer can only experience the lead time.
Related Metrics and KPIs
Order cycle time and lead time are both supply chain metrics. Another related supply chain KPI is takt time. Takt time is the rate at which a business must produce a product to meet customer demand. It cannot be measured with a stopwatch the way cycle time can. Rather, one can calculate it with this formula:
Takt = Net Available Time / Customer Demand
Another supply chain metric is the fill rate. Fill rate is the portion of customers that can immediately buy the item they want through instant stock availability. These customers are satisfied because there are no backorders or missed sales issues. The order can instantly be filled. The fill rate gives managers the exact fraction between supply and demand. The overall inventory performance must be improved if the fill rate is low.
The fill rate is calculated by averaging the number of properly serviced requests over the total request number.
Image Credit: nullplus / Shutterstock.com
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