The Missing Order Fulfillment Metric: RSO
Tuesday, May 1, 2018

The Missing Order Fulfillment Metric: RSO

Retail Shipments to Order ratio is a measure of a retailer's order fulfillment efficiency

Data is king. We all know that this is true in today’s retail world, but the one order fulfillment metric no one seems to be talking about is RSO.  RSO Ratio stands for a business’ Retail Shipments to Orders Ratio. Another name for it is the Retail Ship:Order Ratio.

It is a measure of a retailer’s order fulfillment efficiency. RSO monitors whether a retailers is shipping multiple packages for every digital order or just one (ideally). Digital orders today are largely online, from a desktop or laptop. However, digital orders can also come from:

  • Smartphones (mobile),
  • Tablets at home or at an in-store kiosk,
  • Voice commerce like Google Home,
  • Social sources like Pinterest, or
  • IOT like the Dash Button.

How to Calculate RSO?

Calculating this order fulfillment metric is simple. Just take the overall number of shipments made to fulfill orders, divided by the total number of orders received and NOT cancelled.

 

Read More: How Can You Decrease Retail Shipping Costs?

 

What is a Good Retail Ship:Order Ratio?

You have seen how quick it is to calculate retail ship:order ratios. However, this ratio can be telling about the business. The ideal retail ship:order ratio is 1.00. This means that for every order received digitally, or requested in-store for home delivery, there should only be one package shipped to the customer.

What Affects RSO? Finding the missing Order Fulfillment Metric - book with glasses

Various aspects of a retail business can affect retail ship:order ratios, like:

  • Out of Stock (OOS) Ratio
  • Order routing business rules (split shipments vs keep together rules)
  • Order Consolidation in a retailers OMS
  • Ship-from-Store vs  DC-only strategy
  • In-Store Pickup (Click & Collect) strategy.

 

Discover: Ship-from-Store

 

Out of Stock (OOS) Ratio

A retailers’ OOS ratio has a major impact on the retail ship:order ratio. Keeping all other variables constant, the graph below shows the linear relationship between the two. With a retail OOS rate at 8.0%, you can typically expect the RSO to be 1.33. Of course, conditions change for every retailer. For every digital order received (not including in-store transactions), the retailer will ship one and one third packages. With an OOS of zero (0), a retailer can achieve an RSO = 1.00. This means that every location from which orders are fulfilled, has a zero percent probability of being out of stock. These situations might apply to big box stores, with ample inventory at every location.

The RSO vs OOS graph shows the linear correlation between the two. For this particular case, an ideal retail scenario was constructed. This graph can be a good rule of thumb indicator for your own OOS levels, or RSO (if you know your OOS). If you are a mid-enterprise retail chain interested to find out your specific RSO, or OOS level, reach out to us. We have an ROI calcultor that provides this estimate. Email address: marketing@orderdynamics.com. Kindly reference this blog post.

 

RSO vs OOS Ratio

 

Order Routing Rules

Order routing rules can have a major impact on RSO. If the retailer wants to speed delivery to customers, they may allow split orders. It means that as soon as part of the order is available and ready to go, it is shipped to the customer. Then the remainder of the order is either routed to the next best shipment location, or waits for inbound inventory to arrive for fulfillment. In the case of being completely out of stock of part of the order, split shipments can be a good thing. Why hold the customers’ full order for several more days, waiting for the final goods to arrive from an inbound delivery?

This question is a balancing act the retail must consider. If there is a lengthy delay, then it makes sense to do a partial shipment. However, remember that customers prefer to receive the entire order in one package. Consumers often balk at the fact that an order arrives partially over the span of several days. They also frequently complain about excessive packaging and the impact that multiple deliveries has on the environment.

Order Consolidation

The Retail Shipments to Order ration will help improve customer satisfaction, & control your own fulfillment costs An extremely powerful feature that can bring the retail ship:order ratio to 1.00 is order consolidation. This feature is available only from advanced order management systems (OMS). If you are considering using an omni-channel ship-from-store strategy, then insist that your OMS has order consolidation capabilities.

How order consolidation works is that the OMS routes the order to the best location from which to fulfill. Knowing the inventory available at the location, it sources the remaining inventory elsewhere in the retail network. This can be from other stores, or the DC. It then routes the other items to complete the order, to the initial location. In most cases a retailer’s internal delivery services are far less costly than last mile delivery charges.

Now the entire order is consolidated into one place, in one box. This leverages inexpensive internal deliveries to bring in all inventory to one place. It lets the retailer ship a single package to fulfill each order. Mission accomplished as RSO = 1.00 when used in all cases.

 

Read More: Advanced Omnichannel – Retail Order Consolidations

 

 Ship-from-Store vs DC-only

Many retailers have a single order routing rule. All online orders are routed from DC. Are you one of these retailers? This may be efficient, but it may not be your ideal strategy. If your business strategy is the take an omni-channel direction, then ship-from-store is in the works. It lets retailers push more inventory out of the DC, and into the stores where they will be purchased. Ship-from-store leverages the store inventory to fulfill orders. It speeds up inventory turnover in-store. It also supports the omni-channel strategy.

A downside of ship-from-store is that the OOS of any given store is typically higher than that of a DC. That means the RSO drives upward with the increasing OOS.

If your operation is thinking about a ship-from-store strategy, then insist on your OMS having order consolidation capabilities. Failing that – you will see the retail ship:order ratios skyrocket, and customer satisfaction scores tank.

In-Store Pickup

Yes, in-store pickup helps the retail ship:order ratio dramatically. It means a digital order comes in, and it can be fulfilled without a package shipment. It is a great way to hack your RSO. By using in-store pickup, you can even achieve an RSO below the 1.00 level.

Why Don’t we Include In-Store Transactions? Order Fulfillment Metrics - Women scratching her head

Do not include in-store transactions in the retail ship:order ratio for one simple reason. In-store transactions are usually fulfilled right away, with goods off the shelf. Therefore, the bulk of these transactions does not affect RSO. However, any in-store orders for home delivery, should be part of this order fulfillment metric.

If you include all in-store transactions, this will provide an extremely low RSO that might approach zero. Although this may look good, it may also fool the retailer into a false sense of confidence. Monitor your retail ship:order ratio to make sure you are not shipping excessively. So, only watch the orders that are likely to result in a shipment.

Control Costs – Watch your RSO

Retail ship:order ratios are an important order fulfillment metric. With more and more retailers turning to omni-channel retailing strategies, RSO will become increasingly important. The ideal RSO is 1.00. There are many ways to approach this goal. It will help improve customer satisfaction, and control your own fulfillment costs. In the new era of omni-channel retail, for your retail health: monitor your RSO!

 

Author:

Charles Dimov - Director Marketing OrderDynamicsCharles Dimov is Vice President of Marketing at OrderDynamics. Charles has 21+ years experience in Marketing, Sales and Management across various IT and Technology businesses. Previous roles include Chief of Staff, Director Product Marketing, and Director Sales. Charles has held roles in brand name firms like IBM, Ericsson, HP, ADP, and OrderDynamics.