You must have heard the saying: "If you can't measure it, you can't manage it" And it's certainly true for all of us in logistics. We're in a numbers business, so if you haven't got your finger on the numbers you haven't got your finger on the business.
That's why Key Performance Indicators - KPIs - are such an important tool. Of course, knowing that they are important is the easy bit. Setting up a system of measurements that really help you is much harder.
Unfortunately, there's no ready-made list of KPIs you can use. But there's a clue in the name. These three words describe exactly what they should do - and so they also tell you how to choose what's right for you.
So let's start with "K for KEY".
This tells us that you can only have a small number of these measurements. In just the same way that not all the tasks on your to-do list can be top priority, not everything you measure can be a key indicator. There's no hard and fast rule, but I think four or five are usually enough. More than that, and you're in danger of looking at the trees, not the wood.
Of course, that doesn't mean you shouldn't have any other measures at all. But distinguish between the headline figures - the KPIs - and the rest. The job of your KPIs is to tell you quickly and clearly where your business is going. And if it's not going in quite the direction you want, that's when your other measures come into play. Their job is to diagnose what's wrong, so that you can decide how to put things right.
(You'll find it a lot easier to use these other measurements if they're co-ordinated with your key indicators. A "ratio tree" is a really good way to do that. This is a topic in its own right - if you're interested, you can read my Introduction To Ratio Trees, and find out what it's all about.)
Next comes "P for PERFORMANCE". You use these measurements should tell you how your business is performing. So the first thing you have to figure out is - what is your business like when it's performing well?
Here's my tip for this question.
Look at your business from your customer's point of view, and work out what's important for them. Why do they buy from you, instead of your competitors? Is it lead time? Is it price? Is it product range and availability? Whatever it is, these are key to your business, and your KPIs have got to start there.
Finally, let's think about "I for INDICATOR". Please remember, these measurements are simply what they say they are - indicators. They're not INSTRUCTIONS. You should use them to help you run your business - you shouldn't run your business just to keep the indicators looking good. Here's an example of what NOT to do.
I'm sure you know that hospital emergency wards have a target for the length of time you or I have to wait for treatment. This seems important doesn't it - none of us want to wait if there's something wrong. But the clock only starts ticking for this KPI once the patient goes through the doors of the ward. So what's the response of a ward that's having difficulty meeting its target? Simple, stop people coming through the doors! The ward meets its target - but instead of a queue of patients in the ward, there's a queue of ambulances outside, waiting to unload - literally.
You can see why this is the wrong response. So learn the lesson, and don't let an indicator stand in the way of doing the right thing for your customers.
Also, an indication doesn't need to be precise - it simply needs to be realistic. If you haven't got exactly the information you need, don't worry. Find something that will give you most of what you want, and use that. There's no point spending so much time measuring what you're doing that you haven't got any time left to take action on the results.
So here's this months message. When you're choosing your KPIs, remember what each of the three words tells you:
KEY: don't have more than four or five
PERFORMANCE: choose what's important for your business - by taking
your customer's point of view
INDICATORS: use them as a guide, not an instruction - and a simple
measure today is better than the perfect measure
tomorrow.
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