Many things come into play when addressing the topic of logistics and the statistics examples commonly associated with the matter. Key Performance Indicators (or KPIs) are just one example. Supply chain managers, or pretty much every single individual that has anything to do with the proper management of a company’s supply chain, as David Kiger has previously mentioned, have to come up with ways of measuring their performance, whether it is the performance of the supply chain as a whole or the performance of each component.
Every single Key Performance Indicator, judging by its nature, should be accompanied by a goal. Thus, for someone to accurately come up with both practical and functional KPIs a certain degree of inventive is required. In fact, it resembles very much the art of cooking: for an individual to cook something delicious they have got to start with the proper ingredients and then combine them to facilitate the flavor they desire. Thus, a well-founded Key Performance Indicator serves as the perfect guide. As individuals involved in all key aspects of the logistics spectrum and supply chain managers make the necessary tweaks to make their growth sustainable, KPIs act like the compass necessary for them to surface the path towards success.
However, this is way easier said than done. As a matter of fact, many people—even well-experienced supply chain managers—fail at succeeding in the first place. A vast majority of Key Performance Indicators fail simply because they lack a well-founded basis and definition: sometimes it comes in the shape of the individual in charge, and sometimes the KPI simply lacks a practical and pragmatic target.
Although KPIs serve as the guide to surface the path towards success, it is quite advisable not to see them as the single guide. As a map that is checked oftentimes by travelers to make sure they are on the right path, Key Performance Indicators rely on the frequency with which these are reviewed, as this is the only way to get the most out of them, thusly allowing a company to act more efficiently as it heads towards the path of success.
In short, the connotation of today’s definition of KPI should include the idea of conceiving them as the guidelines a team should rely on in order for them to stay on the right path. Of course, there are other ways to accompany these strategies: smart targets, for instance, help KPIs to keep a continuous pace. Like in every physical exercise, the idea is to pick a pace both challenging and attainable so that goals can be met without falling victim of burning out halfway through.
How to come up with practical Key Performance Indicators
The key word in all this is, of course, “practical”. Companies should strive to set both practical and functional Key Performance Indicators that are immediately relevant and tangible; however, it has to be done with care, for the risk of aiming too high without a solid understanding of the situation sometimes results in a very high drop. Thus, envisioning an attainable target is, by all means, the wise thing to do. Here is how companies and the individuals responsible for setting functional and practical Key Performance Indicators can do it:
- Assess business goals
- Assess current state of the art around the overall performance
- Come up with both long-term and short-term oriented KPI goals
- Communicate goals with the team that will be in touch with those goals
- Assess overall progress and readjust if needed
Thus, by understanding that a KPI is metric directly linked to the business’s inner and core performance, the chances of succeeding seem quite better. Every company and every business, in general, has a set of goals regarding a series of aspects: customer satisfaction, marketing, revenue and the overall productivity of its internal processes. And even when today’s market is flooded by entrepreneurs who might be far from being the most skilled C-level executive, the sole idea behind determining KPI-based goals is merely operational: people, employees, in this case, work for different areas of the company, whether it is sales, customer satisfaction, finances or marketing; thus, the main goal should be to look at the big picture and understand subsequently internalise what kind of role does every area play in every goal, and, moreover, what people do participate in the process.
Perhaps one of the biggest failings in coming up with these types of KPIs is overlooking the tremendous effect people have. People, individuals, and employees are the ones who operate the changes. Without them, it would be almost impossible to make progress irrespective of the degree of automation a company may possess. It is impossible to get from point A to point B without involving the human factor—which, as depicted, and aside from everything that has been said about setting practical KPIs, is no less than a key element.
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