Q: What is the difference between Order Fillrate (First Fillrate) and Service Fillrate? As an Inventory person which one should be important for me?
A: In my experience the terms Order Fill rate, First Fill rate, and Service Fill rate are not universally defined. In many companies they can mean the same thing or even slightly different things! In essence, what they are trying to measure is the supply performance versus the demand requirements.
The following are examples involving the same situation in spare parts provision for maintenance needs:
- Order fill rate: the number of orders filled completely. For example, there were 10 requests and we were able to fully supply 8 of the requests – an 80% order fill rate.
- SKU fill rate: the number of different SKUs supplied versus the number requested. For example, there were 10 requests, involving 30 different SKUs and we were able to fully supply the needs for 28 SKUs – a 93% SKU fill rate. (Note that we still may only have filled 8 of the 10 requests.)
- Item fill rate: the number of items versus the number requested. For example, there were 10 requests, involving 30 different SKUs and two of each SKU (a total of 60 items) and we were able to supply 58 items – a 96% item fill rate. (Again note that we still may only have filled 8 of the 10 requests.)
As you can see, the same situation can bring very different results depending on what we choose to measure.
In my opinion, for spare parts management the most important measure is the SKU fill rate. This tells us if the inventory management system was able to supply the requirements for the items that are stocked.
Importantly, when a ‘stock out’ occurs (that is an item cannot be supplied when requested) we should not just assume that this is a failure of stock management. It could be caused by a number of factors, including: incorrect holding levels, a change in demand that hasn’t been reflected in the holding levels, a temporary increase in demand levels, delays in supply (extended lead time), and so on. The actual cause should be investigated rather than just having the ‘knee-jerk’ reaction of just increasing the holding level.