Having an effective key performance measurement system within the Supply Chain is important for a number of reasons including identifying changes in performance levels, allowing proactive management, and setting clear targets to achieve a desired future state.
However, with technology and management information systems providing access to enormous amounts of data and a vast array of Key Performance Indicators (KPIs) covering every aspect of the Supply Chain - from procurement to customer service (and everything in between) - companies must measure only those things which have meaning to their operations.
Consider the measurement of fuel efficiency; a critical metric for any organisation operating an in-house vehicle fleet, where fuel savings will directly impact on the bottom line. In an outsourced transport operation savings on fuel are unlikely to be passed on by the service provider, and therefore have no direct bearing on the customers operating costs.
To make the best use of key performance measures within the Supply Chain, companies should observe the following guidelines:
Make an informed decision
- Consider quantifiable measures that will have a strong link to the drivers of success within the business. These drivers are levers that have a major impact upon business performance; including productivity, service and cost measures. Within the Supply Chain, non-financial measures such as utilisation of specific resources will be as important as the typical financial measures. Consider what you are trying to achieve and the most influential factors linked to achieving it.
Ensure they are key
- KPIs should be exactly that - key and, as such, should be carefully selected. Too many can dilute management focus, try to limit the number to between 5 and 10 measures. Additional measures that may have some relevance should be made available as supporting management information.
Ascertain data collection methods
- Consider carefully the information used to generate the KPI and the method of collection. The KPI itself may be calculated using information from a number of sources that need to be measured consistently to ensure valid comparison and trending. The actual calculation of the final measure must display what was intended.
Set clear targets
- Once you have agreed a selection of KPIs, establish targets for achievement and improvement. Set realistic targets with a clear timescale. Ensure managers and staff are fully aware of their role in achieving the targets and they contribute to the process of setting the target level. Targets will often be linked to the management appraisal system and, if appropriate, performance-related payment schemes.
Upload KPI data for stakeholders
- It will sometimes be the case that a KPI has component and performance information to be shared with different teams within the Supply Chain or beyond. These teams or functions may need their own KPIs and specific targets that directly contribute to the overall KPI.
Report performance and establish routine reviews
- One way to report the results is to make the KPI highly visible. For example, a visual presentation of a few KPI measures, using traffic light colour-codes, helps ensure continuous focus. Publishing KPIs on staff information boards and referring to them during team briefings helps motivate staff. Establish a regime for regular review of the KPI, including looking at trends, with the managers whose performance influences its level of achievement.
- In an environment of changing business profiles, regularly review the relevance of a KPI. As improvements and consistent high performance are achieved don’t be afraid to downgrade it to the level of management information.