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Editor’s Note: This post was originally published in May 2018 and has been updated for freshness, accuracy and comprehensiveness.
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 retailer is shipping multiple packages for every online order or ideally just one.
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. The ideal retail ship:order ratio would be 1.00. This means that for every online order, there should only be one package shipped to the customer.
Various aspects of a retail business can affect retail ship:order ratios, such as out-of-stocks, order routing rules (split shipments vs. keep together rules), the ability to consolidate multiple shipments (by the order management system), ship-from-store vs. distribution center-only strategy and an in-store pickup (click and collect) option.
Order routing rules can have a major impact on RSO. If the retailer wants to speed up 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 there being an out-of-stock for 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 retailer 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. There is also the environmental impact of multiple deliveries, which include more fuel, traffic and packaging, resulting in a larger carbon footprint.
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 omnichannel 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 availability at the location, it sources the remaining inventory elsewhere in the retail network. This can be from other stores or the distribution center (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 and lets the retailer ship a single package to fulfill each order. Mission accomplished as RSO = 1.00 when used in all cases.
As a retailer, if all your orders are routed to a DC for shipping, this may be efficient (and result in an optimal RSO), but not an ideal strategy in the long run. In an omnichannel world, a ship-from-store model means shipping from a location closer to the customer, resulting in quicker delivery, increase in store productivity and a lower carbon footprint. By leveraging store inventory to fulfill orders, it also speeds up inventory turnover. The downside of ship-from-store is that the out-of-stocks of any given store is typically higher than a DC as stores carry much less inventory. The RSO drives upward as out-of-stocks increase. The way to mitigate this is with better merchandise planning and allocation that takes e-commerce into account, a strong store replenishment process and order consolidation capabilities in the OMS.
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. The real benefit to in-store pickup is providing an online shopping experience while saving on delivery costs.
Retail ship:order ratios are an important order fulfillment metric. With increases in fuel and delivery costs negatively impacting order margins alongside increases in returned online orders and customer sentiment leaning towards more sustainable practices, RSO is becoming increasingly important. The ideal RSO is 1.00. There are many ways to approach this goal and it will help improve customer satisfaction while controlling fulfillment costs.