Nov
16
Why It’s Imperative That You Set KPI’s To Measure Your Supply Chain
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There is an old saying in quality terms: That which cannot be measured, cannot be improved’ and despite its longevity, it is a saying that still rings true today. You do need to be able to measure your supply chain in order to ensure that you can make some improvements and think about it; if you don’t measure your supply chain and all your competitors do just that, then who is going to be left behind?
But Why KPIs?
KPIs are Key Performance Indicators and they are actually a set of metrics that can be used to measure business performance, growth and productivity. KPIs are a good way to measure performance within the supply chain because they are objective and they form a good overall view of how well an organisation is, or conversely is not, performing.
What Is A KPI?
A KPI is an advanced metric. A metric is a way of measuring and assessing the performance of any business activity, but a KPI has an inherent strategic value, so it is a little like a structure; first you have the metrics, then you have strategic metrics, which are in reality KPIs.
A good KPI is an objective tool with which to measure your organisation. Your organisation cannot hide from a true KPI, but remember that the KPI has to have a specific strategic value, it is not simply a metric.
In a sense the name sums up what should be looked for. A KPI has to be key when it is of fundamental and strategic importance to the company and is in essence. So a metric to measure how long it takes to deal with incoming post is a metric, it cannot be a KPI, because it is not a ‘make or break’ aspect of the company.
Next the indicator has to be about Performance. Although we all think that we know what performance means, this has to be clarified; performance is something that can be influenced by the organisation. The price of steel on the international market cannot be influenced by that organisation, so it is not a KPI.
The KPI is indeed a KPI if it can provide information on the likely future performance of a company. That is to say that it needs to be able to influence future activity not merely be a case of recording past or historical activity.
How KPIs help
KPIs are, as we have seen, objective, strategic, relate to performance and are likely to influence future activity, so they are a very important tool for an organisation to use. Metrics are useful, but you can use metrics to measure anything, so they are not strategic and what you really want to measure is the strategic performance of the company.
The objectivity of the KPIs is also important. We have all seen statistics and we have all seen the way that the statistics can be interpreted to suit whoever is quoting the statistic. But with a KPI, there is nowhere to run and nowhere to hide; because they are strategic and because they present raw data, they cannot be slanted, misrepresented or even falsified to suit the needs of the person presenting them. So there is very much an emphasis on the objective nature of the performance and this can be of enormous benefit to companies.
In effect, without using KPIs there is always a danger that you are looking in the wrong place and are not looking at statistics that are of strategic importance and you could even be looking at statistics that have been subjectively misrepresented; and that is a scary thought indeed!
Nov
9
Get great performance from your suppliers
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Suppliers can make or break an organizations performance. Poor quality materials or an inability to meet delivery schedules can result in severe consequences (manufacturing lines on stop, angry customers to name but two!). But how can you manage supplier performance and can you predict which supplies are more likely to perform badly?
Tell your supplier what you want!
First things first – establish clear performance criteria with your suppliers – this should be done at the outset and included within any contract. Explain what you want and how it will be measured to ensure zero ambiguity. Embed KPI’s as part of your contracts and avoid suppliers becoming satisfied with varying degrees of performance.
Source from appropriate suppliers
Perhaps the key aspect in achieving supplier performance is sourcing from appropriate suppliers in the first place. Whilst there is no guaranteed method of selecting a perfect supplier there are a number of elements that can help you anticipate potential problems – for example – consider the following:
Vendor Competency – are you procuring your materials/services from a supplier that considers your requirement their core competency? For example are you using a machining supplier for the manufacture of complex parts where there area of specialism is simple high volume parts? Purchasing outside of core competency can significantly increase performance risks.
Experience –can the supplier demonstrate a successful track record of delivering against similar specifications, to similar customers whilst achieving lead times and price requirements? A successful and demonstrable track record can instill confidence.
Capacity Constraints – Understanding what capacity your supplier has in terms of resources (people, equipment etc) is important. Capacity represents the available “engine room” to fulfill your requirements. When placing orders/contracts understand how the supplier will allocate equipment and people in order to meet your orders. For ongoing relationships how will the supplier cope when it receives new orders, understand its planning process and how it prioritizes its work. Where needed, how will the supplier expand (for example can it add to its shift patterns or bring in new equipment.)
Appointed your supplier? Ensure you have regular reviews
Once you’ve awarded your contract to the supplier. Regularly reviewing their performance is a key activity for both supplier management and in mitigating related issues that are affecting the organization. Establish joint KPI’s with your key suppliers that can be regularly reviewed. Ensure that the data is credible and set time aside to discuss both performance and any improvement initiatives that may be required. Be prepared for criticism (and an action plan) if some of the issues are self inflicted (i.e. poor specification, ambiguous delivery schedules.)
While there are many things you can measure when reviewing supplier performance many organizations start with QCD (Quality, Cost and Delivery) these are the cornerstone basics that drive performance. However they are not the only things and should not be considered in isolation. When it comes to what data you should review consider what the key drivers are for the success of your business – for example consider:
• Quality – Right first time and levels of defects
• Cost
• Delivery Performance/Schedule adherence
• Service – are there key issues with the service you receive that you can discuss using objective data
• Innovation – Are you looking for your supplier to innovate? For example reduce levels of obsolescence,
• Compliancy – do you have stringent compliancy requirements you can measure?
• Sustainability – does your supplier have to meet any sustainability or corporate responsibility requirements?
Remember that your organizations performance can contribute greatly to the performance of your suppliers. This can be through drivers such as effective communication demand signals (coupled with delivery needs), payment, specifications etc.
Summary
Vendor performance can be complex with many factors influencing the outcome – determining your requirements and having appropriate processes to deliver them is key. Businesses must also not overlook the importance of adequate supplier selection which can significantly de risk supply chain efforts.