# Backorder Cost Calculator: What Each Point of Fill Rate Is Worth

> Source: https://netray.co/tools/distributor-backorder-cost-fill-rate-calculator
> Publisher: Netray (netray.co), AI and integration engineering for ERP and manufacturing systems.
> Section: Free Tools

## Short answer

Convert line fill rate into the annual cost of backorders, and see the value of improving fill rate by one point.

## Category

supply-chain

## Erp

Epicor Prophet 21

## Industry

Wholesale Distribution

## Audience

- Operations manager
- Purchasing manager
- Distribution executive

## Tool

**Kind:** calculator

**Currency:** $

**Inputs:**

#### Order lines per year

**Key:** lines

**Type:** number

**Default:** 240000

**Min:** 0

**Step:** 5000

**Unit:** lines

#### Line fill rate at first ship

**Key:** fill

**Type:** slider

**Default:** 92

**Min:** 70

**Max:** 100

**Step:** 0.5

**Unit:** %

**Help:** Share of lines shipped complete on the first release.

#### Average line value

**Key:** avg_line

**Type:** number

**Default:** 180

**Min:** 0

**Step:** 5

**Unit:** $

#### Gross margin

**Key:** gm_pct

**Type:** number

**Default:** 26

**Min:** 0

**Max:** 80

**Step:** 0.5

**Unit:** %

#### Extra shipping and expedite cost per short line

**Key:** expedite

**Type:** number

**Default:** 9

**Min:** 0

**Step:** 0.5

**Unit:** $

#### Staff minutes per backordered line

**Key:** admin_min

**Type:** number

**Default:** 8

**Min:** 0

**Step:** 1

**Unit:** min

**Help:** Customer calls, re-releases, PO follow-up and second pick.

#### Loaded labor rate

**Key:** labor

**Type:** number

**Default:** 38

**Min:** 0

**Step:** 1

**Unit:** $/hr

#### Backordered lines cancelled

**Key:** cancel

**Type:** number

**Default:** 12

**Min:** 0

**Max:** 100

**Step:** 1

**Unit:** %

**Help:** Share where the customer buys elsewhere.

**Outputs:**

#### Short lines per year

**Key:** short_lines

**Expr:** lines * (1 - fill / 100)

**Format:** integer

#### Expedite and extra shipping cost

**Key:** expedite_total

**Expr:** short_lines * expedite

**Format:** currency

#### Administrative labor cost

**Key:** admin_total

**Expr:** short_lines * admin_min / 60 * labor

**Format:** currency

#### Margin lost on cancelled lines

**Key:** lost_margin

**Expr:** short_lines * cancel / 100 * avg_line * gm_pct / 100

**Format:** currency

#### Total annual cost of backorders

**Key:** total_cost

**Expr:** expedite_total + admin_total + lost_margin

**Format:** currency

**Primary:** true

#### Value of one extra fill rate point

**Key:** per_point

**Expr:** lines * 0.01 * (expedite + admin_min / 60 * labor + cancel / 100 * avg_line * gm_pct / 100)

**Format:** currency

**Primary:** true

**Description:** Annual saving if fill rate rises by one percentage point.

**Chart:**

#### Annual backorder cost by fill rate

**Type:** line

**X:** fill

**From:** 80

**To:** 100

**Steps:** 20

**Series:**

- total_cost

**Disclaimer:** Excludes customer lifetime value loss and any inventory investment needed to raise fill rate.

## Content

**Intro:** Fill rate is usually reported as a percentage, which hides what a miss costs. This calculator converts line fill rate into annual dollars so you can compare it with the inventory investment needed to improve it.

**Sections:**

#### How to use it

**Body:** Take annual order lines and your first-ship line fill rate from your ERP order reports. Enter the average line value and gross margin, then estimate the extra cost of each short line: expedited freight, a second pick and ship, and the staff minutes spent chasing it. Set the cancellation rate to the share of backordered lines that disappear. The result is the yearly cost and the value of each fill rate point.

**Bullets:**

- Measure fill at line level, not order level, for a truer picture.
- Use a measured cancel rate from backorder history if you have it.
- Compare the per-point value to the cost of added safety stock.

#### The formula

**Body:** Short lines equal lines times (1 minus fill rate). Cost per short line is expedite plus labor minutes over 60 times the rate, plus cancel probability times line value times margin. Multiplying gives total cost, and one fill rate point equals one percent of annual lines times that per-line cost. With 240,000 lines and a 92 percent fill rate, you ship around 19,200 short lines a year.

#### Reading the result

**Body:** If one point of fill rate is worth more than the carrying cost of the stock needed to earn it, buy the stock. If it is worth less, improving fill rate through inventory is a poor use of cash and process fixes such as better vendor lead times may be better. Look at the chart slope: the cost curve is linear here, but real inventory cost per point rises sharply near 100 percent.

#### Common mistakes

**Body:** Counting backorders that the customer requested as a future ship date inflates the problem. Measure only lines that could not ship when promised. Also avoid double counting freight that you would have paid on the original shipment anyway.

**Cta:** If you want fill rate by customer, branch and vendor from your ERP without manual report stitching, Netray can build that read-only.

**Faq:**

#### What is a good line fill rate for a distributor?

**Answer:** It depends on the vertical and catalog depth. Many distributors target the low to mid 90s for stocked items. Compare yourself to customer expectations and the cost curve, not a universal number.

#### Line fill rate versus order fill rate?

**Answer:** Line fill counts each line shipped complete. Order fill counts only orders where every line shipped complete, which is always lower. Line fill is better for diagnosing which items cause the misses.

#### Does it include lost customers?

**Answer:** Only the margin on cancelled lines. Customers who leave entirely cost far more, so treat the result as a floor.

#### How do I get fill rate from the ERP?

**Answer:** Compare shipped quantity against ordered quantity at the first release for each line. Reports differ by system and configuration, so ask your administrator for the field definitions.

## Search terms

backorder cost calculator, fill rate cost calculator, cost of a backorder distributor, line fill rate improvement value, stockout cost distribution, backorder management cost, service level cost distributor

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