What are the best ways to ensure that your supply chain optimization efforts are successful by monitoring key performance indicators (KPIs)?
In the first installment of this article, we explored why utilizing KPIs encourages transformation. Now, let's examine a ten-step approach to pick the applicable KPIs to propel change within your supply chain in order to satisfy your business objectives.
Strategies for Picking the Appropriate KPIs
- Make sure to be aware of the major business objectives related to your supply chain. Are you looking to decrease stockpiles, increase service levels, and how do these objectives align with the overall aims of your business? Create a concise list of the top five goals that you can use to direct your KPI decisions.
- The objectives that guide your KPI choices should be quantifiable and expressed in terms of ratios or ranges. Instead of setting a goal to grow the number of inventory turns, aim for a measurable increase of 12 percent.
- Make sure to maintain a balance between your metrics to keep from improving one measure at the expense of another. A good example of this is the correlation between the average inventory KPI and the stock-out KPI. As you reduce inventory, the number of stock-outs is likely to rise. Be aware of the connections between the KPIs you select.
- Try to keep the number of KPIs that you measure to a minimum. Too many KPIs will cause confusion and weaken the concentration of your team. As a standard rule, limit your KPI list to 10 or fewer per area of your supply chain.
- Use both quantitative and qualitative measurements for your KPIs. Most people usually avoid qualitative measurements, such as the number of customer complaints or the rate of on-time deliveries.
- Incorporate backward and forward measures into your KPI choice. Regressive measures examine past information, such as stock turns. Forward measures take into account future information, like forecasted sales.
- Pick KPIs that are based on industrial trends. Gauge your performance relative to companies in your industry. Thanks to the financial market, there are public databases that list many quantitative indicators about the supply chains of public enterprises.
- Historical data is crucial for the ability to assess KPI efficiency. While you are choosing KPIs, focus on measures for which you have at least a year's worth of records.
- KPIs should have a low-frequency time between measurements. Choose KPIs that can be measured on a daily or weekly basis, instead of those that can only be measured quarterly or yearly.
- Confirm that the KPIs you pick are within the capability of your team to improve. If your team is unable to positively influence the measure through their own efforts, the KPI will have a negative effect on your staff's performance.
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Choosing the ideal set of performance indicators is more of an art form than a scientific procedure, yet employing the aforementioned 10 steps to validate your KPI choice will point you in the right direction. In the concluding portion of this article series, we will assess target-setting and gamification to focus your team on optimizing the beneficial change in your supply chain progress.
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