Managing the varied elements within your supply chain can be an extremely complex if not daunting task. Without the right KPI’s and metrics in place this is can be even more of a challenge.
Most businesses usually have some form of Supply Chain KPI metric in place but as the function can be so diverse, covering various operational impacts, which are the right metrics and how should they be used?
Firstly it’s useful to think of metrics as a form of compass, they describe a narrative of where your business is going and how it is getting there (note this Implies a target for the KPI, you have one don’t you? ?)
I know it’s stating the obvious but KPI’s work best when they are simple and provide clarity, you should be able to communicate them easily. I really like the article over at Geckoboard.com which describes KPI’s succinctly,
• Important (don’t waste your time tracking things that are irrelevant),
• Trackable (readily accessible data that means something) and
• Explainable (something you can take action from).
When you zoom in on supply chain can it can be a bit daunting as it’s a large concept to get to grips with, you have various functions within it:
• Purchasing
• Logistics
• Stores
• Etc
Usually each function has specific metrics (which can normally form part of a broader KPI portfolio).
Halobi has an interesting take in terms of differing KPI’s depending on the form of business you’re operating (product focused, customer focused etc). The article talks about utilizing methods such as the SCOR (https://en.wikipedia.org/wiki/Supply-chain_operations_reference>Link to Wiki) method to help derive the metrics. This is not an uncommon route and offers a proven methodology.
One thing is for sure metrics should be used to drive improvement – they are not just there to look at each week/month. Every one should have a target and derive a set of actions that helps push the results towards the goal. Targets require hard work you know!
KPI’s work best when they are not just charts Visualworkplace.co.uk (other suppliers are available) show how KPI’s can be used in the context of action tracker that look at results, understand the gap between results and targets and then drive actions to close that gap.
The key with KPI’s is to derive the ones that are relevant to your business and the journey you want to undertake. Just because other organizations use a metric doesn’t always mean you should as well (note: you should review the KPI selection regularly to ensure they are relevant and don’t become stale).
KPI’s are always great aren’t they?
KPI’s are not without their problems. There are of course examples of using the wrong KPI’s (driving the business against the route it wants to be travelling on) and more commonly using rubbish data (everything looks rosy when it’s not). Data is a usually the number one concern and you should be asking:
• Is it easily obtainable
• Does it require cleansing
• Is it accurate
• Can it be easily interpreted
I’ve lost count of how many times I’ve seen a flashy chart built upon data that no-one really understands.
Also as Allaboutlean points out peoples careers can depend upon results and it can be very tempting for results to be massaged. KPI’s work best in an environment of no blame, performance improvement.
Which KPI’s?
While there I am sure are 100’s if not 1000’s of KPI’s to chose from, most will fall into a few categories,
Utilization
On time delivery performance
Stock
Right first time /Quality
Financials
However these are not the be all and end all, for example your business may be looking to source it’s products from low cost countries and you may have set yourself a target of how much of your procurement spend is in that area, this may not be a typical KPI but it will be relevant to you.
The moral of this tale is make sure your KPI’s work for you.
Do you co-ordinate KPI’s for your supply chain team? We’d love to hear your stories using the comments section below.