CEO Tip of the Day: Measuring Key Performance Indicators

August 10, 2017 in General

I am a huge advocate of key performance indicators or any specific measures that give an individual or a team a sense of drive and purpose. Generally, setting up KPI’s always seemed a relatively simple task. There were the indicators that drove the overall business performance and cascade down through the organisation, the temporary measures that are introduced to eradicate problems or create a particular focus.

But, are you really getting the results you wanted? The majority of the time, you’re probably not. The solution to the issue is to look into what these set measures actually mean to those who make them happen within your business.

For example, I was previously employed as a consultant for a large blue chip multi-national manufacturer. One of the major measures was OTIF (On Time In Full), used widely across the industry. The general management were baffled; the performance measure was 96-98% excellent according to industry standards but they still had customers complaining about poor delivery performance. So, what’s going on?

This story has a slight link to last week’s tip of the week on sales order processing. When the customer service staff were dispatching product, they knew the OTIF measure feed by an ERP system report. It measured the percentage ordered against the percentage dispatched by the required date. So, if you had an order for 50,000 but you could only ship 25,000, you’re score that that particular order would be 50%. The report calculated an average and produced a score per individual, per customer service team and of the overall business performance.

The priority was to improve this OTIF measure as it was significantly lowers than the level recorded for other sites. Once the pressure had been applied, staff quickly fathomed how they could make this measure work. Quite simple, if you had an order of 50,000 but you only had the capacity to ship 25,000, you would cancel the order and re-enter it as an order for 25,000. Once shipped, you’ve received a 100% scoring.

I’m fully aware that my CEO Tip this week will not be the most popular, but you must have “security of data”. Meaning, in this case, you must follow your measure down all the way to the product being dispatched by the customer service personnel. In fact, it may be necessary to follow it further. In this example, the despatched orders were sent to a third party warehouse. Therefore, you may need to follow it all the way to the warehouse and see the paperwork being received and how quick they react to the shipment.

Use this top down, bottom up approach after discussing it with your team, training them efficiently and ensuring that all management, supervisory staff and team leaders are continually monitoring and feeding back the results for constant improvement. Periodically check aspects of it, but never audit it. The word audit usually tempts people to present the positive aspects only.

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