Manufacturers & Distributors ARTICLE -
How Do Your Key Performance indicators Measure Up?
Target Audience: Manufacturing and Distribution Companies, M&D Industry Professionals, Performance Measurers
Key performance indicators (KPIs) are among the most effective ways for you to measure your performance, but they’re worthless if they’re measuring the wrong things. To be of value, KPIs must accurately reflect what your company needs to achieve to succeed.
That sounds obvious, but the road to success isn’t always paved solely with finances. Being first to market or providing exceptional customer service may signify success for your company.
Measuring Success with KPIs
The first step in measuring for success is to choose the right indicators to measure. To do that, clearly define your company’s goals. If you want to improve service, for example, a KPI may be customer complaints.
If you want to be more profitable, use KPIs such as pretax profit. Regardless of what your goals are, the KPIs you choose must reflect those goals, be critical to your success and be measurable.
They also must be based on reality. If you have inefficient processes on the loading dock that are creating logistical problems, you must identify that the inefficiencies exist before you can improve them. Thus, managers must be involved in setting KPIs, not only because they are intimately acquainted with the processes and people in their departments, but also to help ensure companywide support for whatever KPIs are selected.
Focus On the Essential KPIs
You may be tempted to establish dozens of KPIs in an effort to fix everything that you can. Instead, select only those activities that are essential to your company’s success. Doing so keeps employees focused on the key objectives and makes it easier for you to monitor performance.
Because a manufacturing company has many different departments, you need to set specific KPIs for each. Shipping, for example, will have different measures for improved time to market than will the warehouse or sales.
You also may need to compromise on your KPIs. A KPI to reduce inventory stock may affect another KPI such as improved turnaround, for example. In such cases, you may need to ascertain how vital turnaround time is to your customers. If they will be just as happy with a 48-hour turnaround, your 24-hour standard may be unnecessary.
Hit Your Targets
Once you’ve determined what your KPIs will be and how you’ll measure them, you need to take some action to persuade people to meet them. Encourage managers to help set targets with their employees, and, when possible, offer incentives to motivate everyone to meet the targets.
Finally, use KPIs to your advantage. Review them regularly with an eye to eliminating roadblocks — and leave room for corrective actions if something isn’t going as planned. Communicate results companywide to maintain universal commitment to meeting or exceeding targets.
Set Attainable Targets
When correctly chosen, KPIs establish realistic and attainable targets that will enhance your company by improving the areas critical to success. Poorly chosen KPIs, on the other hand, may mean you’re wasting time trying to improve something that doesn’t directly affect your goals.
Find out how our M&D accountants can add value to your business. Email us or call us at 1 (888) 875-9770.
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