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Drive Value in Your Supply Chain Optimization with a Smart Use of KPIs – Part 1

By Jim Cameron July 27, 2016 by Kelly Kuhlman
Smart Use of KPIs

by Jim Cameron

Most people will agree that using key performance indicators (KPIs) in their organization will drive behavior, as well as promote a positive change in the teams that utilize them. Advances in technology and trends in using “Big Data” analytics allow for even more accurate and advanced measures of supply chain processes. This multi-part article series will provide you with an understanding of why KPIs work, as well as offer you a roadmap to implement the right KPIs in the best way to drive value from your supply chain optimization effort.

Why Key Performance Indicators Work

To start, we need to understand the DNA of why KPIs work. KPIs work because of behavior called the Hawthorne effect. The Hawthorne effect was named after an experiment that was performed in Western Electric’s Hawthorne Works factory in a Chicago suburb in the late 1920s. The experiment was done to determine whether or not improving work conditions would improve the performance of the facility’s factory workers. After conditions such as lighting were improved, the plant performance also improved. The more changes that the team made, the more improvement that they witnessed. Oddly performance even improved when they dimmed the lights and removed the improvements. These results led the team conducting the experiment to conclude that it was not the changes to the conditions that resulted in better performance: It was the workers’ knowing that they were being measured that caused the performance improvement.

In short, KPIs work because they provide a base by which to measure processes, teams and individuals.

So, step one in driving value in your supply chain optimization effort is to implement a real measurement system within your supply chain team.

In the next part of this series, I will show you 10 steps to choosing the right KPIs to drive change toward your business goals and why the right combination of KPIs can keep your teams aligned in a balanced optimization of your supply chain.

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