For many people, it’s not Christmas without watching “A Christmas Story.” It’s a movie about a boy named Ralphie who goes through great lengths to get his prized Red Ryder BB gun for Christmas.
But what if Santa screwed up on Christmas? What if Ralphie hadn’t received his beloved Red Ryder carbine-action, 200 shot Range Model BB gun with a compass in the stock and a thing which tells time?1 For Ralphie there is no room for compromise in his definition of a perfect order. His Christmas present had to be 1) delivered on Christmas morning, 2) a Red Ryder Carbine Action BB gun, 3) a 200 Shot Range Model, 4) with a compass in the stock and 5) a thing that tells time.
If any of these elements were missing, Ralphie would not be a very happy customer. And if Santa misses any component of Ralphie’s order, Santa will receive an ‘F’ on his supplier scorecard.
What is the Perfect Order?
The Perfect Order is a unique concept because it encapsulates the total impact of an incorrect order in a single metric. A perfect order is an order that is on time, complete, damage free and accompanied by accurate documentation. The Warehousing Education and Research Council (WERC) defines it as Perfect Order Index and for this article we will refer to it as POI. The POI is the result of each of the four major components of a perfect order and calculated by multiplying each of the key metrics together: % Delivered On-Time × % Shipped Complete × % Shipped Damage Free × % Correct Documentation.
The Perfect Order Index is similar in nature to a well known metric: First Pass Yield. First Pass Yield is where each production process is measured and total “yield” or fallout of the entire process is calculated as an index. In a similar fashion, the POI is established by multiplying each component of the perfect order with the other three.
There has been much debate on the definition and the calculation of the Perfect Order. WERC, the Material Handling Industry of America (MHIA) and the Manufacturing Enterprise Solutions Association (MESA) all agree with the POI definition. However, other organizations, specifically the Supply Chain Council, define it as Perfect Order Fulfillment. Perfect Order Fulfillment, as defined by the Supply Chain Council, is “the percentage of orders meeting delivery performance with complete and accurate documentation and no delivery damage.” Perfect Order Fulfillment is calculated as total number of perfect orders divided by total number of orders. The Supply Chain Council does not use the multiplier effect in their calculation.
While some have challenged the “multiplier” effect, we argue multiplying is the purest way to look at an order from your customer’s perspective. Did Ralphie get each of the things he was looking for? If no, Santa gets an F—even if he failed on only one of the components. WERC, MHIA and MESA have settled on this definition due to its purity; it tells you that your customer is not happy, from the customer’s perspective—not the shipper’s or the supplier’s perspective.
Bottom line – did Santa succeed in meeting Ralphie’s expectation? Using the WERC definition with the multiplier effect, it is clear. Using the Supply Chain Council’s, Santa could “partially” succeed. We argue for the former, as getting partial credit gives a false sense of success.
Let’s take a look at Ralphie’s definition of a perfect order. For Santa to be successful, he will need to deliver on Christmas morning a Red Ryder Carbine Action 200 Shot Range Model BB Gun with a compass in the stock and a thing that tells time. If Santa left Rudolph at home and the fog was thicker than he expected in northern Indiana which would cause Ralphie’s order to arrive after lunch on Christmas day, Santa would receive a zero for On-Time Delivery. This means Santa’s POI for Ralphie’s order would be 0 percent.
Another thought on Ralphie’s order: What if the BB gun Santa left for Ralphie didn’t have “a thing that tells time?” Was it really that important to Ralphie? He just wanted a BB gun, right? WRONG! His preference was for the BB gun to have “a thing that tells time.” It might not have been high on his priority list and he might still be “okay, whatever I’m still going to enjoy the gun,” but he will not be truly happy. Even though Santa delivered the right product, at the right time, damage free, the order was incomplete. Again, Santa would be performing at 0 percent.
It’s in the Bag
Now let’s take this analogy one step further and look at how Santa did the entire night.
Let’s assume Santa has 100 little boys and girls out there anxiously waiting for their order on Christmas morning. We’ll pretend that Santa’s head wasn’t in the game this year. For example, he left Rudolph at the North Pole and because of fog, was late getting 25 of the gifts to their destination. Actually, the gifts arrived Christmas Day, but after lunch. Santa’s On-Time Delivery would be 75 percent. Since Santa was in such a big hurry, he goofed and sat on his bag of gifts. As a result, 25 of those gifts were damaged. His score for Damage Free would be 75 percent. Rolling this analogy along, 25 orders were incomplete and 25 orders were incorrectly documented. Santa’s POI would be 31.6 percent. It would not be zero!2
Why not zero? First, multiple orders had more than one issue. If one component is missed, then the order is imperfect. However, we cannot, nor should we, stop after that one component in determining performance. The POI looks at each individual component of the order and by multiplying the performance of each component with each other we arrive at a more robust and accurate calculation of performance. The multiplier effect takes into account that more than one component of an order can go wrong for the same order.
Using the same example, the performance for Perfect Order Fulfillment using the Supply Chain Council’s definition would be 50 percent. Why so much higher? Perfect Order Fulfillment stops if only one component is missed. If an order is late and damaged, it only counts once against your performance score, thus inflating your score. Perfect Order Fulfillment cannot calculate an accurate indication of your actual performance.
Using SCOR to accurately portray your performance, you will need almost 16 different metrics to have a full understanding. And to boot, it looks at the order only from the shipper’s or supplier’s perspective.
The true power of the multiplier effect is that we cannot focus only on one component of the POI to improve. If you do, improvement in performance will be incremental. And customer satisfaction will continue to suffer.
The Customer Focused Measure
Earlier we stated that the multiplier effect is the purest way to look at an order from your customer’s perspective. Using the POI allows suppliers the ability to easily refine their customers’ wants and accurately measure their performance.
For example, Ralphie’s order has five components for Santa to meet. Should this be unusual? Absolutely not! Santa is doing the right thing by measuring the Perfect Order in light of his customer’s preferences. And let’s not forget that the POI is a high level key performance indicator. Its purpose is to help us better diagnose problems within our supply chains so we can drive better customer satisfaction.
If you don’t have a definition for your customer’s perfect order, we recommend you default to the WERC definition, as it is hard to argue that most customers want what they ordered, when they wanted it, how they wanted it with an accurate invoice. If you think this definition is too strict, we encourage you to think of Ralphie. Achieving the perfect order is not out of reach. Just ask Santa.3
Joseph Tillman is senior researcher at Supply Chain
Visions, Ltd. (www.scvisions.com), and Kate Vitasek is the firm’s founder.