There are really only two KPIs (Key Performance Indicators) that measure the performance of your entire “system.” Here we mean by “system,” your entire company or your entire supply chain. Those two KPIs are:
- Return on Investment (ROI)
- On-time Performance
The bottom-line (literally, the bottom-line) for the financial stakeholders in your enterprise—or the cumulative financial stakeholders in your supply chain—is how well your enterprise or supply chain is performing in producing profits relative to the total investment required to produce those profits. This is the very definition of ROI or return on investment.
So, from an internal standpoint, ROI measures the performance of your system as a whole.
From an external point of view, all your customers are concerned about is on-time performance.
You might argue that they are concerned with many other things, like price and quality.
While this is true, by the time they are your customer for a specific purchase, the matters of price and quality have already been settled. Now, to keep them as your customer—assuming quality remains constant and satisfactory—the one remaining factor in their mind is on-time performance.
Don’t let other things get in the way
Why do we bring up these two crucial system-wide KPIs?
Because too many times we see other KPIs get in the way of achieving these system-level performance metrics.
We see metrics applied at lower levels—in functional silos—that actually get in the way of system-wide improvements.
Profits and, hence, ROI, stem from FLOW. So, whatever disrupts FLOW tends to reduce profits and ROI.
Interruptions to FLOW tend to reduce FLOW and increase EXPENSES in very much the same way that stop signs and traffic-clogged roadways reduce your ability to reach your destination (read: shipping your product) and increase your fuel expenses (by reducing your miles-per-gallon performance).
Even before cars had dashboard read-outs for MPG (miles per gallon), almost every driver realized that stop-and-go driving meant lower MPG, and clear sailing on freeways meant lower cost-per-mile for fuel.
The same thing is true in your enterprise or supply chain: IMPROVE FLOW, and you virtually AUTOMATICALLY REDUCE OPERATING EXPENSES per UNIT produced and shipped. If you will focus on improving FLOW, your ROI will tend to improve almost without effort.
Here’s the bonus!
Guess what? If you will focus on improving FLOW, your other system-wide KPI goes up as well! On-time performance automatically improves with a focused POOGI (process of ongoing improvement) and sound methods for improving FLOW.
Don’t let the broken and disproven methods about “efficiencies” and “driving down unit-costs” keep you from these goals. Haven’t you witnessed often enough that all the efforts in that direction—that you’ve probably undertaken for the last ten, 15 or 20 years—do not produce long-lasting improvements in ROI? What more proof do you want than your own experience?
You could read books like these to help you understand why a focus on unit-costs is failing you:
- Relevance Lost – The Rise and Fall of Management Accounting
- The Measurement Nightmare
- DDMRP – Demand Driven Material Requirements Planning
Whatever you do…
Whatever you do, don’t let anything stand in your way any longer. Improve FLOW and you will auto-magically improve your ROI and on-time performance!
We can help. Contact us.