IT Departments Aren't Enough; Develop an IT Business Strategy
As the Innovation Age progresses, technology continues to move to the forefront of many business strategies. Technological advances have...
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When was the last time you sat back and thought about all the key performance indicators (KPIs) your company is tracking? Do you just add KPIs to your financial reports when an executive asks? Do you spend too many man-hours tracking and manipulating data every month?
As part of Liberty Technology Advisor’s Business Process Re-Engineering (BPR), we will spend time discussing KPIs in-depth with your key company’s players. We discuss KPIs as a final step to the Future State discussions. KPIs are important to evaluate operational excellence. Many companies evolve their KPIs so much that they forget the definition of “key” means - to stay focused or of crucial importance. All KPIs should be SMART goals. The SMART criteria can also be expanded to be SMARTER with the addition of evaluate and reevaluate. These two steps are extremely important, as they ensure you continually assess your KPIs and their relevance to your business.
Understanding your data is vital to the process, but don’t just collect data for data sense. If it does not provide useful information about your business, then it isn’t useful to you. Do not collect data unless you will use it to attain your KPIs. All KPIs should be reviewed by a steering committee before finalization.
Our BPR team approaches talking about KPIs with a structure of departments that makes the most sense for your specific organization.
An example of some departmental focuses would be Inventory and Purchasing, Sales and Operations, and Finances:
Inventory & Purchasing
When addressing Inventory, many factors will be discussed to reach your KPIs such as: Is your company ordering in a unit that makes sense for their needs? Recently we discovered that a company was ordering a piece of rope by the number of pounds because that is what the supplier asked for. A lot of rope was being scrapped because the rope would come in a couple of inches too short to make the product or there would be excess of a couple of inches which would have to be scrapped. The solution is as simple requesting the supplier take your order by the inches. This is a great time to review all units of measure and make sure the company is ordering by the appropriate unit for your operations.
You also should evaluate some of the following metrics during the BPR KPI process:
- Safety Stock Amounts
- Financial Turns (12-month Cost of Goods Sold/ 3-months Average Inventory)
- Inventory Age Out
- Scrap Levels
- Kaizen Action Item Improvement Metrics
- Purchase Price Variance
- RMAs
- Warranty
Inventory is a great start to discussing KPIs after doing the Current and Future State process mapping. You are already aware of where you would like to be as an organization which streamlines setting SMART goals for Inventory and Purchasing.
Sales & Operations
The sales & operations process varies greatly depending on the industry your organization is in. Some metrics that might be discussed during the BPR KPI sessions are:
- Forecasted versus Shipped Items
- Win Percentage
- Orders or Quotes per Day
- Opportunity Vetting
- Aged Backlog
- Time Spent in Quality Control
- Lean Metrics (ex.: WIP levels, Cycle Time, Process Time)
- Overall Equipment Effectiveness (OEE, as defined by Six Sigma)
Finance
Traditionally Finance KPIs have always been regarded as the most important and focused on. The proper approach is to balance all segments of the organization. An important point to remember that KPIs should be calculated by your ERP, not paper or excel. KPIs are a great way to catch oddities during the cumulative lead time process. Are your sample products being turned to you? Is one supplier slowing down your whole process? These are just some of the questions you’ll be able to answer with proper KPIs. Popular KPIs for finance are:
- Accounts Payable Turnover
- Accounts Receivable Turnover
- Payment Error Rate
- Quick Ratio
- Working Capital
In the end, every organization is unique. You will not be able to determine which KPIs are right to get your organization operating at a higher efficiency online or in a book. You need to evaluate your business and come up with the best what to measure and improve your specific company. The help of an independent outsider to guide you through an unbiased evaluation can be invaluable during such an important project.
No matter how you ultimately end up choosing to select and set up your KPIs, take time this month to really think about how and what you are measuring – Does it make sense? Is it getting you the information you need to make informed decisions? Is it enabling you to make a positive impact? Liberty Technology Advisors and our team of ERP and BPR experts are here to help ensure you have the best processes in place for your business and will help you establish KPIs that enable you to make positive change.