Key Performance Indicator

What is Key Performance Indicator

• Key Performance Indicator (KPI) is the
measure of a process that is critical to the
success of an organisation.

• Many organisations use KPIs. There are a

number of performance measures that define
the success of a project or organisation.
 Key Performance Indicator
• Indicators showing what needs to be done in
an internal operative perspective
• Focus on the part of organization’s
performance both present time and future
• Good KPI affect a number of critical success
factors
 7 characteristics for KPI
• Non-financial measure
• Regular measurements
• A measure that is noticed by the management
• Everyone in the organization has an
understanding for the KPI
• Responsibility connection to individuals and
teams
• Significant effect
• Positive effect
 Why use KPIs
• Drivers – those things that have to be in place
to drive improvement.
• Processes – the areas of process
improvement.
• Performance Targets – the key performance
indicators.
Introducing KPIs into your Business
• Identifying Requirements
• Identify Stakeholders
• Identify Nominated Person
• Select Which KPIs will be Required
• Some issues with Headline KPIs
– Cost/Time
– Satisfaction
• Use of KPIs
Select Which KPIs will be Required
• The application of any system will become
very difficult if there are too many measures
and too much data to collect.
• Identify key measure.
• Consider what data you are already collecting.
 How do we Measure a KPI?
• Basic principles of KPIs
o Calculating the Indicator
o Calculating the Benchmark
o Using Radar Diagram
 Calculating the Indicator
• Doing by actual process of calculating a KPI.
• eg. Logistics cost/Sale, DIFOT, Lead time,
Inventory ratio, Asset management
 Calculating the Benchmark
• Measure how the indicator compares against
an industry sample.
 Using Radar Diagrams
• The most common way in which people
present benchmark information.
 Use of KPIs

• KPI system must be used to drive

improvement.
• If a score is low, ask why.
• If a score is high, ask why.
Benchmarking and Performance
Measurement
 What is Benchmarking?
• Activity that tells you your position or status
by comparing yourself to others
 What is Benchmarking?
• Reason for comparing is to understand where
you are today
• And what might be some of the areas that you
need to improve

Weakness:
OVER-CONFIDENT
IMPATIENT
AFRAID OF THE DARK
 What is Benchmarking?
• A process of continuous measurement,
internally and externally, and comparison
against established external best practice
leaders to obtain knowledge to improve
performance
 What is Benchmarking?
• Ongoing process of measuring products, services,
practices, and processes against the best that can
be identified in order to:
– Learn about & improve best practice
– Achieve realistic targets
– Integrate improvements into your strategy
– Use best practice as inspiration for innovation
– Be externally focused
– Be purposeful about improvement
– Measure improvement
What is the role of benchmarking?
• An instrument for providing a reference point
• As a creating attention and momentum for
change
 Reasons to benchmark
• The objective in developing the benchmarking
exercise was to gain information on how
organizations:
– Defined current performance levels
– Quantified the gap between current levels and
best practice
– Managed the logistics process from the
perspectives of inputs into the system and
logistics outputs.
HOW BENCHMARK RELEVANT IN
BUSINESS?
Am I making money more than my competitors?

V
S
How does my business compare to the rest
within the same industry?
Are there others out there that have similar problems?
Have they solved them already?
If yes, then what worked for them?
Am I at the top of the bottom of the class?
Comparison?

VS
Comparison?

VS
HOW DOES BENCHMARKING
WORK?
 How does benchmarking work?
• Define what you want to benchmark

Self motivation
Brand reputation
Financial Performance
 How does benchmarking work?
• Define appropriate comparators

Some KPI’s for financial performance could be:

-Sales
-Margin
-Productivity
 How does benchmarking work?
• Ensure that you comparisons are comparable
 How does benchmarking work?
• Gather data in an independent manner &
make sure it is consistent
 How does benchmarking work?
• Produce customized and meaningful reports

Not only simple to understand but show your improvement over time
WHY BENCHMARK?
 To Gain better understanding of:
Sales
Margin
Staff productivity
Expense management
Efficiency
Effectiveness
Etc.
WHAT WILL YOU GAIN?
 What will you Gain?
Where do I stand?
How can I improve my business and where I
should start?
Are the current measures to improve my
business working or not?
 Benchmarking the Supply Chain
• What to Benchmark?
– Supply Chain Council suggests:
• SCOR (Supply Chain operations reference) Christopher, M. 1998 pp 106):
• Plan, Source, Make & Deliver. SCOR is designed to
provide a common framework to facilitate cross
organisational benchmarking.
• Who to Benchmark with?
– Competitors
– Significant opportunities for firms in non
competing industries

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Benchmarking Logistics Processes
•One method to measure and compare the
output. A form of reactive control.
•Alternative to concentrate on the processes
which requires a number of steps:
1 Understand the process. Use those most
closely involved and develop flowcharts
2 Identify critical points

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Mapping Supply Chain Processes
• Producing a flow chart the first step and
highlighting “value adding” time and “non-
value adding time” (Christopher, M. 1998 pp 110).
– Value Adding Time:
• Time that results in increased value for the
customer
– Non Value Adding Time:
• Elimination of this time or activity would not reduce
the perceived value of the ultimate consumer.

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 Cost and Value added:
Value
Added Transport
Customer
Finished
Time place Regional order
product
& form Stock
perception Production

Raw
material

Time!

Cost Added
Production, Storage & transport costs & the time value of money
Adapted from Christopher, M., (1998), “Logistics and Supply Chain Management. Strategies
for Reducing Cost and Improving Service”, Financial Times Pitman Publishing, London. pp 111.
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 Suppliers and Distributors
• Involve inbound and outbound elements fo
the value system. Their cost will add to the
ultimate cost!
• Establish and Encourage:
– Commitment to continuous improvement.
– Acceptance of innovation and change.
– Use of regular and formal and benchmarking.
– Employee concern for the ultimate consumer.
– Leadership involvement
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 Setting Benchmarking Priorities
Strategic Importance
Processes that are
competitively critical

Relative impact on Organisational Readiness

business.
Processes carried out
•High total cost Benchmarking
by “ready to improve
•High revenue priorities
personnel”.
•High human input

Adapted from Walleck et al, (1991)

“Benchmarking World Class Performance”,
The McKinsey Quarterly, Cited in
Make V Buy Economics Christopher, M., (1998),
“Logistics and Supply Chain
Processes with high Management.
impact on value and Strategies for Reducing
Cost and Improving Service”,
hard to outsource Financial Times Pitman
Publishing, London. Pp118. 42