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Key Performance Indicators

Thomas Nguyen

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Key Performance Indicators

SuccessFailure

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Objectives

Demonstrate how KPI's relate to the overall project

To define Key Performance Indicators (KPI’s)

Provide some examples of KPI's

Show how to measure against the selected KPI's

The objectives of this session are:

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First some definitions

A measurable variable that is related to a series of process steps against which performance can be managed to deliver against a particular corporate objective.

One, or a series, of process steps that are critical to the achievement of a particular corporate objective.

The following is a generic “road map” to help you think through the establishment of KPI's

KPI - Key Performance Indicator

CSF - Critical Success Factor

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KPI's and Processes

But KPI's need to relate back to objectives

Project

ChannelRelations

Develop Product

FulfillDemand

CSFCSF to achieve

improve-ment

Process

Identify critical success factors

Define key performance indicators KPI

Defining KPI's by Process

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KPI's and Projects

Why are KPI's important as part of a project ?

To establish the base lineWe need a base line for selected KPI's. To assess current performance so we can quantify the opportunity for improvement and correlate to the base case

Measure successTo have selected KPI's for today that will be monitored for the future to demonstrate success

Utilize results of BenchmarkingHow do our KPI's compare to the outside world so we can scope our objectives for improvement

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KPI's & Projects

–The CSF to achieve the Process objectives or

–The CSF to achieve the overall target

KPI's can be driven out of either

Both will give similar “answers” but....We need to ensure that

– We have addressed all areas– They are linked to CBA– Meet the management teams/steering committees

expectations.

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Establishing KPI's - The KPI process

Define Objectives

Set Targets

Develop Action Plan

Measure Performance

Provide Feedback

Archieve Results

What needs to improve?

Establish improvement target

Create a plan on how we are going to measure

Monitor the KPI

Evaluate & feedback results to interested parties

Benefit

Identify critical success factors

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An example:To achieve the CSF of - reducing time to market

Define Objectives

Set Targets

Develop action plan

Measure Performance

Provide Feedback

Achieve Results

Manufacturing lead-time reduction for new product introduction

Reduce Manpack development to 2 days

How do we capture current lead-time for Manpack development? Who should do it? How often is it repeated

Measuring current lead-times

Who to feedback to? How is it fed back? Do you want action taken if it is not achieving target?

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Performance Indicators

What factors contributes to delivery of the critical successfactor?

What do we need to measure?

What are the expectations for performance?

Get the objectives agreed

Assign responsibilities

Define Objectives

Once the objectives are defined we can agree the targets...

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Performance Indicators

Set Targets

Once the objectives are set we need to develop the action plan to collect information and monitor performance...

What specific performance targets should we aim to achieve?

What is the time frame for achievement?

What action occurs when measures go outside control limits for the target?

Should there be unique goals for– product groups?– markets?– other significant input variables

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Performance Indicators

Develop Data Action Plan

How something is measured is very important especially during a major change project and if individuals are regarded based on existing KPI's

This is the plan for how we will collect the information to monitor ourselected KPIWhere will the data come from?– is it consistent?– is it valid/accurate?– is it trusted?– how will it be collected?Who is the “policeman”?How often will data be collected?Who reports it?What format is it collected in?Who “owns” the measurement?

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An example of how calculations can be misleading

1. Delivery Reliability from Production (production orders)

No. of PO correct (time and quantity)

Total no. of POx100 = 3/10 = 30%

2. Delivery Reliability from Production (quantity)

Total actual production

Total planned productionx100 = = 104%

3. Delivery Reliability (financial)

Total produced actual £

Total planned £x100 = = 110%

1040

1000

16000

14500

Which is correct?

There is always more than one way to calculate a KPI

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Performance Indicators

Visible measurement

Team versus individual

People react to what Management Inspect

Levels within the organization

Visibility

Create continuous improvement

Positive feedback

Measuring Performance

Provide Feedback

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Summary - The steps to establish KPI's as a management tool

Define Objectives

Set Targets

Develop action plan

Measure Performance

Provide Feedback

Achieve Results

What?

How much?

How to measure?Measuring

Reporting

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The KPI process - Key Things to Remember...

Keep the total number of KPI's to 8-10 (key indicators)

Sub measures may be required to build the total picture

Take into account how easy it is to measure the KPI now and in the future

Will the KPI effect behavior?

How will we ensure consistency of data and how KPI's are calculated throughout the project?

Who owns the KPI?

How will the KPI work with other aspects of the project (e.g.. CBA, Benchmarking)

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Now...

You are a consumer in a specific supermarket

Use the process just described to develop appropriate KPI’s.

What KPI's would you use to measure the store service?

What should the target be?

How should they conduct the measurement?

Who should they feed it back to?

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What KPI's should we use in a project?

COSTQUALITY

TIMESERVICE

What are the factors that influence these

elements?

Break down to select the primary impact

area

There are a large number of KPI's which could be selected for a project

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KPI breakdown - What are the components of cost?

Decomposition is a major tool...

Market Responsiveness

% New Products < 90 days

% Updates < 30 days

Market Share

Idea Generation Prototype Approval

Mass Production

New Product Sales

Lead-time to Quality

Number of ideas

% Ideas qualified

Lead-time to Approval

Number of ideas

% Ideas qualified

Lead-time to Ready for

Mass

Lead-time to Customer Delivery

% sales from new

products

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KPI - Level of stock

Stock

Working stock Safety stock

Forecast accuracy

Demand variability

Lead timeSupply variability

Service Level

Order processing

time

Frozen period

Time bucket

Planning cycle

Throughput time

Processing timeNo. of stepsQueue timeBatch size

Product portfolio

Demand volume

Change-over time Which area should we measure?

If the level of stock is a major component of cost - What are the major impact areas?

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Raw material priceHolding costPurchasing dept.. expensesWrite-offs/disposal costsInterest on raw material heldRaw material inspectorspremium freight

KPI - What are the components of cost?

What should be measured?Total Supply Chain Cost

Cost to supply Cost to manufacture Cost to serve

All costs associated with the purchase and

holding of raw materials

All costs incurred converting raw

materials to finished goods

All costs incurred due to holding inventory

of finished goods

Production dept.. expensesUtilities and expensesproduct quality testingProcess control systemsWarehouse material handlingRework and wasteVariancesHolding costs of WIPInterest on WIP

Write-offs/disposal costs

Logistics dept.. costsWarehousing costs

Interest on F.Goods stockMaterial handling costsFreight/distributionPacking/replacing

Another way to break down a major cost area into its

specific elements

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Stock outs

KPI - What are the components of service?

What should we measure to truly reflect customer service?

Order Processing

Customer Service

Customer Service = PerformanceExpectation

Delivered on time

Quality of delivery

Number of Time

Number of Back orders

Order Promising TimeNumber of

Credit Notes

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KPI's - Specific types of measures in each area

COSTQUALITY

TIMESERVICE

There can be KPI's which are

Absolute numbers - today the value is X tomorrow we want the value to be Y.

Ratio’s - today the ratio between A & B is X% tomorrow we want Y%.

Process - today the process requires resources and has X number of steps, in the future it will have less steps and use fewer resources.

Time Money Volume

All of these can be expressed in

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KPI's - An example of ratios as KPI's

Credit Notes/Total invoices

Some KPI's can be shown as ratios

= Accuracy of customer ordering

Number of Rework Orders/Total Production Orders= Quality of Right First Time

Number of Product Change Requests/Total Number of New Products= Accuracy of Design to Production Conversion

These are only some examples of where ratios can be used

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Main Activities Innocence Awareness Understanding Competence Excellence

SupplierRelations

Supplierrelationshipsadversarial andcompetitive withno contract basis

No coherentstrategy exceptdemand for pricereduction

Larde number ofdisposablesuppliers

Adversarial butcompetitivecontract based

Strategy based onprice, quality &delivery

Large supplierbase with long“tail”

Supplierperformancereview undertakenbut does notinvolve feedback tosuppliers

All suppliersaccredited

Relationships establishedwith strategic suppliers

Strategy recogniwes longterm relationships withkey suppliers

Focus on reducednumber of suppliers byvolume consolidation

Formal supplierperformance reviewsbased onsubjective/qualitive data

Relationships basedon strategicpartnerships

Strategy drivespartnership sourcing

Some integration ofsuppliers into theinternal supply chain

Some involvement ofsuppliers in theinnovation process

Formal supplierperformance reviezsbased onobjective/quantitativedata every 6 months

Qll suppliers assured

Relationshipsbased on supplymanagementprocess

Shared goals andobjectives withinpartnerships.

Partnershipsbasedon buyingsupplier’s capacity

Suppliersintegrated intowhole supply chain

Early and keyinvolvement ofsuppliers in theinnovation process

Formal suppliersperformance helpquarterly

Suppliers managesupply to definedrules

EDI used for calloffs

Skills Buying/negotiating Professional purchasingskills

InformationSystems

Paper based Stand alone functionalpackage (spreadsheet)

Integrated systemalong internal supplychain

Integrated systemalong completesupply chain

KPI's - An example of a process related KPI

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KPI's

Select the key measures based on the project objectives & CSFs

Develop a plan to collect the measures

Work with other groups to action the plan

Monitor, control & communicate results

Within a project we need to

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Key Performance Indicators

Summary

Measure what is importantPrinciples

Structure

KPI's are needed before, during and after a project

– Keep it simple– Visible– Consistent– Understood

– Define objectives– Set targets– Develop plan (who, when, what)– Measure

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Key Performance Indicators and ECSI

SuccessFailure