Key Performance Indicators - KPIs E

How do you assign responsibility for result? What are the Key Performance Indicators? What is definition of KPIs? What is the Root Cause Analysis? What is the Fishbone Diagram?

Once the team has identified his internal/external clients, identified what is their job and formulized the Team Mission Statement ( way of doing job ), it is time to employ the team, to give him a task and to measure them and evaluate.

Activities of a team can be focused in many different fields at same time. Therefore, it is extremely important to deeply analyze and identify them.

Value creation process starts in the company, it passes several phases, and once is ready, the final value is delivered to the Customer. The process is divided in segments of Input, the Process, the Output and serving the Customer. This is called Horizontal process:

Key Performance Indicators

Every process starts with Input components. This includes all resources that enter the process. Management of Input means:

- Quality Control - managing the quality of goods and services provided by internal and external suppliers.
- Cooperation with Suppliers, in order to fulfill all demands.
- Costs Control – Initiative to reduce internal costs and costs of Suppliers to minimum level.
- Investments in input increase, in order to achieve productivity

The main Process refers to way how we do a job, structure, task sequencing, technology, roles and responsibilities, ... Management of the process means its improvement. This improvement can be continuous process improvement, or radical project redesign. Whether they are gradual or radical, the improvements are reflected through:

- Structure of the process
- Workflow – number of steps and sequence
- Technology
- Time cycles
- Systems
- Policies and Procedures

Result component of the process represents Outputs of the system. The good output result is represented through System productivity. The productivity of the system can be measured through indicators such as:

- Production line productivity

Key Performance Indicators

- Warehouse productivity
- Cost efficiency per unit produced
- Products sold.

But still even the most productive system does not guarantee you that you will necessarily satisfy your Customers. The satisfaction of customers can be measured through following KPIs:

- Delivery accuracy ( right product, just in time )
- Report accuracy ( correct data, in time )
- Service quality

Measuring of the processes is represented through tracking and evaluating the quantifiable output of process segment expressed as process indicator. The number of indicator can be numerous, but those most important, regarding the company and team, are called Key Performance Indicators ( KPI ). These KPIs can be selected on Pareto principle ( e.g. choose 20% of total indicators that have 80% impact on business ).

The most important thing is to assign Key Performance Indicators to respective individuals in the team. KPI must have the owner – the person responsible for the result. When the team is responsible than the KPI target is split among the members. The sum of their targets is target to their supervisor, and so on up through the hierarchy.

To be able to track and measure Key Performance Indicators, we need:

1. ) The KPI definition, e.g. Sales Volume in physical cases.

2.) Information, e.g. What was the output of production, along with additional data about factors that directly influence specific KPI.

3.) Standard for KPI, expected level of output, preset before the process begins. Standard is set based on history results, Business Strategy, market situation, competition, ...

4.) Calculation, comparison of actual result versus the predefined KPI standard, expressed through absolute positive/negative variation versus Target and through percentage variation.

Example KPI: Volume Product A
Target Volume:
Actual Volume:
Abs. Variation
% variation
period January 2008
10.000 physical cases ( Standard )
11.000 physical cases ( Achieved )
+1.000 physical cases
+10%

The measurement of process result is not always easy to measure. The example from above is Hard measurable KPI, which is easily measurable, because it can be precisely quantifiable through the unit of measure – physical case.

But there are situation when the KPI is Softly defined, meaning that it cannot be expressed through clear unit numbers. Example. Merchandising standards or maintenance. For such KPI we use a Standards Check List tool, which describe the process result:

Example KPI Merchandising of Rack
Clean
Stock
Merchandising
Price tags
Position

Yes
Yes
Yes
No
Yes

( is the rack clean of dust? )
( is it full with products? )
( are products arranged )
( are there price tags on products ?)
( is position of rack in outlet in good place ?)

In this example, Merchandising is 4/5 or 80%. With this system we can measure other soft measurable KPIs.

5.) Root Cause Analysis ( or Fishbone Diagram ) should be always done for those KPIs that are below Standard ( Target ). As underperformance is always possible, the Fishbone Diagram must be ready for identification of possible causes of underperformance.

Fishbone Diagram For Kpi

During the Fishbone Diagram analysis, group causes in two groups:

- External ( economy, weather, legislation ) just list them, but do not focus too much about them, since it is hard or impossible to influence them.

- Internal ( productivity, discipline, high costs, ... ) are causes that you can influence.

Based on Route Cause Analysis ( Fishbone Diagram ) owner of the KPI need to prepare Action plan with a purpose of returning the result of process back on track, meaning to be on Target with that specific KPI next time. The action plan is focused on defining a 4 key points that are defines by simple questions:

Who - The owner of the KPI is responsible for conducting the action plan

What - Action plan, specifying activities that will lead to achieving target

When - Time frame, deadline for the activities

How - Resources required for Action plan

Owner of the Key Performance Indicator - KPI has to prepare action plan whenever he have underperformance of specific KPI. Read more about this topic in the section Review Meeting.

Continue reading here: Supply Chain and Competitive Advantage

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Readers' Questions

  • kimi herlevi
    What is the most important key performance indicator for business relationship management?
    11 months ago
  • The most important KPIs for business relationship management are customer satisfaction, customer retention, customer lifetime value, and customer acquisition cost.
    • Hamid
      What is the most important key performance indicators for business relationship management?
      11 months ago
      1. Customer Satisfaction: Measuring customer satisfaction is an important way to ensure that customers are happy with the products and services they receive. This is particularly important in relationship management, as customer satisfaction is essential for maintain ongoing and productive customer relationships.
      2. Retention Rate: One important key performance indicator for business relationship management is customer retention rate. This measures the percentage of customers who remain customers for a certain period of time. It is a good indication of the success of the customer relationship management strategy.
      3. Referral Rate: Another important KPI for business relationship management is the referral rate. This measures the rate at which customers are recommending your business to others, and is directly linked to customer satisfaction.
      4. Response Time: Response time is a key indicator of customer satisfaction. It measures the amount of time it takes for your business to respond to customer inquiries or complaints.
      • julia
        Which of the following is not a component of a kpi (key performance indicator)?
        1 year ago
      • Response Time.