9.3 Key performance indicators

Question 1

Critical success factors (CSFs):

Answer 1

• are the vital areas where things must go right for the bus in order for them to achieve their strategic objectives

Question 2

Key performance indicators (KPIs):

Answer 2

• are the measures that indicate whether or not the CSFs are being achieved
• the achievement of KPIs should be measured and any necessary corrective action taken

Question 3

Characteristics of good KPIs include:

Answer 3

• should cascade from strategy to tactics and to operational level
• should cover all perspectives in supply chain management
• this coverage will give a complete and balanced view of
  
  • internal / external performance
  • short-term and long-term performance
  • financial performance and non-financial performance
• they should be challenging but achievable, employees should understand which ones they have control over and rewards should be used to motivate them
• they should be SMART:
  
  • Specific
  • Measurable
  • Achievable
  • Relevant
  • Time-bound
• Should be extended to include supply chain partners

Question 4

Examples of KPIs for operations:

Answer 4

• Supply chain costs per unit sold
• Time taken to deliver a customer order
• Percentage on-time delivery to a customer
• Percentage of customer orders filled
• Percentage defect rate
• Percentage wastage rate
• Quality costs
• Labour utitlisation rate
• Asset utilisation rate
• Warehousing costs
• Transport costs
• Queues and waiting times
• Working capital ratios

Question 5

Working capital ratios:

Answer 5

• Inventory days = Inventory / Cost of Sales x 365
• Receivables days = Receivables / Sales x 365
• Payables days = Payables / Purchases x 365
• Cash operating cycle = Inventory days + Receivables days - Payables days

Question 6

The information to impact framework can be used to show how the FF manages operations through the use of KPIs

Answer 6

• Assembling info
• Analysing for insight
• Advising to influence
• Applying for impact (execute)

Question 7

Assembling info:

Answer 7

• FF works with operations to establish a set of appropriate KPIs
• it then assembles data from internal and external sources and processes it to turn it into useful KPI info
• this info is then reported to people who need it within the org and across the supply chain

Question 8

Analysing for insight:

Answer 8

• FF analyses the KPI info to determine patterns and relevant insights for users of info
• this questioning may mean that KPIs need to be broken down into several different performance measures so as to determine the root cause of any deviation between the actual KPI and target

Question 9

Advising to influence:

Answer 9

• FF then:
  
  • communicates these insights
  • contributes an objective and responsible perspective helping to develop solutions for any identified operational problems
• to influence decision making in the operations function

Question 10

Applying for impact (aka execute):

Answer 10

• the FF applies the info to harness value for the operations function through it’s impact
• solutions are deployed such as changes to operational strategy and future KPIs

Question 11

The impact of technology on how the FF manages operations through use of KPIs:

Answer 11

• Technology and automation will have largest impact on assembly and analysis activities
  
  • successful orgs have an enterprise data warehouse that acts as a single source to assemble clean data and reports this to relevant users along supply chain
  • this integrated technology can draw out patterns and relevant insights for users, reducing the analysis role of FF
• This will free up resources for FF to focus on advising and applying/executing activities (technology will still have a role here too)