Supply Chain Key Performance Indicators: Tops Down or Bottoms Up?

22 Aug Supply Chain Key Performance Indicators: Tops Down or Bottoms Up?

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Supply Chain KPIs

 

The answer is both – supply chain Key Performance Indicators (KPIs) need to span all levels or an organization and thus should be tops-down for executives and management while knowledge workers need to review day-to-day KPIs to execute their activities.  One concern with many organizations that are metrics-driven is information overkill – not everyone needs to know every piece of information about a business.  In fact, LNS Research points out that misuse of metrics can hurt more than help.  When thinking or re-thinking an organization-wide KPI initiative, here are three things to keep in mind:

Why? Just because a KPI program has been successful for one group, one division or even one product line, does rolling out the exact same program everywhere make sense?  Revisit the real purpose of a KPI program – don’t do it for KPIs’ sake.  Is one division suffering?  Perhaps those KPIs need to be different than a division that is rolling in cash.  Very new and innovative products may require different KPIs vs. products later the their lifecycle.  A uni-lateral program may be the easy thing to implement, but could hurt the business by not providing an apples-to-apples comparison.

How? While spreadsheets are the old-standby, organizations need to think higher level than just spreadsheets.  Using KPIs involves analytics in the form of operational intelligence systems or supply chain management systems.  According LNS Research, The average annual improvement in Total Cost per Unit Excluding Materials was 24.1% for users of such systems versus 13.1% for all respondents.  Lots of numbers – what does that mean?

Companies who use a true intelligence platform improved their Total Cost Per Unit Excluding Materials at a rate 84% better than those who did not use such a platform.
 

Which KPIs? We get asked this question all the time and the answer can be as few as 10 or as many as 50.  The number can vary by industry, company and role.  The number also varies as you move from static to real-time metrics.

To avoid drowning in data and reducing the value a KPI initiative can deliver an organization, we are going to put a stake in the ground and propose some KPIs by level within the organization.

KPIs used by executives
 Days of Sales Outstanding
Revenue / Profitability by Product
Profitability by Customer 
 
KPIs used by middle management
Adherence to Plan
Cost per Case
On Time in Full Performance
 
KPIs used by knowledge workers
 Quantity Shipped
 Defects Per Day
 Daily Production
 

There are many more questions to address when rolling out an organization-wide KPI initiative, but three key questions are Why, How and Which ones.  A key take away is that the system to enable such an initiative need to be much more robust than a spreadsheet.

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