How do you know if your department or organization is on the right track? How can you identify problems that might be holding you back from achieving your goals? The answer is as easy as K-P-I.
What are KPIs?
A Key Performance Indicator (KPI), also known as business metrics, is a measurable value that demonstrates how effectively your company is achieving key objectives. KPIs are not just for managers and supervisors, they are for every employee to use and it is important that metrics are considered at every level of the company. Revisit your KPIs as frequently as needed; some require an annual review while others need measured weekly. While this might sound overwhelming, your restricted number of KPIs will keep things manageable. It is recommended to have 5 to 8 KPIs. When your company looks at more performance indicators than this, the KPIs will become distracting and you risk losing sight of what you really need to know. Also, remember your employees will have to recall these KPIs as well, which only adds to the benefits of a short KPI list. Since you will only be using a few indicators, it is imperative that these are the most effective, indicators for your needs. Below are the qualities found in every good KPI.
Best KPI Qualities:
- Communicated throughout your organization and department
- Crucial to your goals
- Applicable to your business or department
Now that you know what you should be looking for in a KPI, which ones should your department or organization use? The number of possible KPIs is staggering which makes choosing the best ones difficult. Here are the KPI categories that matter for manufacturing to help you get started on narrowing down what you are needing to reach your company’s goals.
Avoid Vanity Metrics
If you’re spending time analyzing your performances, you want to make sure that you’re gaining insight that will assist in making meaningful improvements. It can be dangerous to accidentally focus on vanity metrics. Vanity metrics are numbers that look good but ultimately hold little to no importance for the growth of your department or organization.
Vanity metrics are statistics like revenue, number of employees, or social media followers. They are easily manipulated without necessarily shedding light on the condition of the department or organization. Similarly, revenue can be a misleading metric due to the lack of information it provides about net income or free cash flow of the organization, which can tell a very different story without effecting the numbers for revenue. While it might be impressive for a company to have a large plethora of personnel, it doesn’t give any information on the quality of work being done or services being provided. Followers on social media are also something that many people look to in order to gauge the state of an organization. However, because anyone can buy followers and likes, these are metrics that do not accurately indicate success or failure.
These sort of metrics are not completely useless and will leave an impact on outside parties looking in, but should not be part of the key metrics that you are focusing on for improvement. Instead, it is important to focus on actionable metrics. These are statistics that relate to specific, repeatable tasks that you have the power to improve and control. Focusing on these sort of indicators will be what makes it possible to reach the goals you have set.
4 KPIs You Need to Be Using
You know what not to get sucked into, now let’s talk about KPIs that could prove beneficial to your needs. Below are the 4 KPIs we believe are the most beneficial for saving time and money in your everyday processes.
- Cycle Time
Cycle time refers to the time it takes for your customers to request something and for that request to be completed. Supply chain cycle time is the sum of the longest time for each stage in the cycle to be completed. For your supply chain to become efficient and agile, this cycle time should be shortened as much as possible making this a KPI to consider.
- Inventory accuracy
This is an indicator that will measure the accuracy of warehouse workers when preparing a product. You want high accuracy to ensure the right products are going to the right customers at the right time. Low inventory accuracy can cause customers to find other suppliers and increase the amount of time needed to process returns and exchanges.
- Dock to Stock
Dock to stock measures the cycle time from when a shipment is received to when it is put away. This is a good indicator to track the efficiencies of inbound activities. To ensure your product or supplies is available for orders or assembly as quickly as possible, add this to your list of KPIs.
- On-Time Shipping
On-time indicators show the amount of shipments that were on-time and how many were not. This can include both shipments leaving and shipments being received by the warehouse. Knowing if supplies are being shipped on time from your supplier can be just as beneficial as knowing if the finished product is leaving when scheduled. All items in the supply chain have tight windows of time where actions are needed to take place. If a shipment is missed or late, you may be hit with fees and risk losing customers.
Key performance indicators are a very valuable tool for any business or company wishing to improve. KPIs can help you stay on track and give you a clear picture of what is really going on in your department or organization. Remember that KPIs are the mightiest when you are only using a few of them and that just because one KPI is good for a company, doesn’t mean it will be good for your needs. KPIs are not about industry, they are about specific and unique needs. There are lots of different ways to measure success, and then there are the right ways.