Crafting a KPI Playbook to Enhance Supply Performance
As Peter Drucker famously said, “If you can’t measure it you can’t manage it.” Today, technology tools enable real-time collection and analysis of near endless amounts of big data throughout the value chain. This, coupled with our exponentially growing data, offers an exciting new frontier for which the supply chain is uniquely positioned to unlock hidden waste.
Our technology-enabled productivity push is poised to reduce costs, improve quality and compress timelines. However, as important as data is, we in fact do not want more data. We need distilled information to make better business decisions. It is the why, how, what, where and when to track information that are still the more vexing questions for leaders today.
In an IndustryStar survey of 250 supply chain leaders spanning 25 industries, 34% highlighted information misalignment, both in communication expectations and system disconnects, as one of the top issues holding teams back from achieving their goals.
Pausing to reflect on your company’s current goals and current supply chain key performance indicators (KPIs) offers an opportunity to move from generating good to great business results.
As Jim Collins outlines in his book Good to Great: Why Some Companies Make the Leap... and Others Don't, “Greatness is not a function of circumstance. Greatness, it turns out, is largely a matter of conscious choice, and discipline.”
Supply performance greatness is a never-ending pursuit. Diligently mapping your current state KPIs will highlight opportunities in which you can better align the organization. Once opportunities are identified, purposely fine tuning your supply chain KPIs will better empower teams to deliver results more quickly.
Building a KPI Pyramid Hierarchy
One streamlined way to build your supply performance plan is to map the value creation layers of the company with corresponding layers of an inverted pyramid. The inverted pyramid shape is intended to reinforce the importance of servant leadership and reciprocity required within the organization to optimize results.
“The most meaningful way to success is to help others succeed,” stresses Adam Grant in his book Give and Take: Why Helping Others Drives our Success.
In line with a people-first strategy, the top of the “KPI Pyramid Hierarchy,” layer one represents individual team member KPIs from purchasing, quality, production control and logistics. Second, layer two represents product-level KPIs. Expanding from there, layer three represents division and/or plant KPIs and level four represents supply chain KPIs. Level five at the tip (or bottom) of the inverted pyramid represents company metrics.
During a KPI assessment, many companies are surprised to find teams using KPIs that conflict with one another. In some cases, KPIs can hinder team members’ ability to be successful. Often teams are doing duplicate work by tracking the same information. This rework is typically borne out of a lack of awareness of others’ work, time requirements or mistrust in reporting.
Further, the quality of decisions can be hindered when teams are utilizing different data sources for their information. As teams pull data from different master data records, the KPI outputs can prove to be different and thus hamper decision-making. Investing the time to map not only the KPIs the organization will track, but also how the KPIs relate and feed one another is key.
Once alignment is completed, spend the time to map the specific data sources of inputs for each KPI and the calculation methods. Details matter and crafting a KPI playbook will ensure you have a solid baseline to make purposeful decisions. The timing of the data, when and how it is updated, and in what system(s) are also crucial details. This information flow value stream map will instill confidence in the data, reporting and timeliness of data. The map can also highlight opportunities for further continuous improvement.
Depending on your business the five layers can be curtailed, and less is truly more in most cases. However, if people resources are available and decentralized, large companies can often benefit from assigning layers and KPIs to team members to foster more empowerment and create leadership opportunities, which ultimately drive better business outcomes.
Aligning Supply Chain KPIs to Enable Company Goals
Real time KPIs based on the latest data are where the industry is headed. However, this newfound power must be weighted with the resources required to gain the information. Analysis paralysis is real. Infinite dashboards can prove a fool’s errand without the ability to act.
History will not reward or remember those who analyzed siloed data. It is the leaders who generate results by bringing teams together to make the right informed actions that will win the future.
Why do KPIs further the company’s mission? How are KPIs calculated? What KPIs best empower our teams to make better decisions? Where is the KPI input data pulled from? When should a KPI update?
These are questions worth asking. The ongoing answers and refinements will better empower your team and the collective organization to achieve more together.