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The continued interest of senior management on performance, managing and monitor performance will be key to future success. Many organizations are data collectors and continue to fight each fire as it flares up. They're not using the data to drive future actions, only to respond to past observations. In order to be successful, we have to focus on the three pillars of performance management.
Results metrics are the largest group of metrics as they are operational in nature and measure one aspect of a process. Results metrics are narrowly focused and take several metrics to measure just one process.
A few results metrics will roll up to become process measures. Process measures are cross-functional in nature as they measure the total effect of a process.
Key performance indicators (KPIs) are those critical few measures that track progress towards strategic objectives or desired outcomes.
A great example of a KPI is the perfect order. The individual processes of the perfect order — on time, complete, correct documentation, and damage free — are process measures. The process measures have their own set of metrics that track to a result metric. On-time order management, on-time order fill, and on-time transportation are individual results metrics of the on-time process for the perfect order.
Metrics should provide a holistic perspective. For performance management initiatives to be successful, at a minimum, focus should be on three areas: quality, service and productivity. Metrics that measure quantifiable activities, such as picking accuracy, shipment accuracy, and proper labeling, may be monitored to drive quality operations. Service can be monitored using metrics that measure lead time, lost sales, or fill rates.
Productivity, or profitability, focuses on measures that align to corporate financial goals. Metrics such as throughput, asset turns, or metrics that measure inventory productivity (inventory turns, days on hand) are good examples for this area.
Culture of Measure and Improve
Creating a culture of measure and improve is the final pillar. Having a measurement process in place ensures frequent, constructive reviews of the metrics.
The key to creating a culture of measurement and improvement is to show workers how their performance affects the overall business, then work with them to facilitate the selection and implementation of the measures. A five-step process, Validating the Value Add (VVA) establishes metrics that support the overall corporate objectives and goals. When used properly, VVA can create an environment where people use the metrics to drive positive change in the business.
• Clearly define the company’s objectives.
• Develop a validation of the value-add statement.
• Measure the progress against VVA.
• Build a Pareto of reasons for not meeting the goal.
• Take action — fix the problem.
By 2020, even more C-level executives will have an active interest in logistics performance. Establishing a performance management program that builds on the foundation of the company strategy, using the pillars to support the roof of extending metrics to suppliers will drive alignment and accountability to where the work gets done, and will help to create success and communicate logistics value to the organization.
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