L5M4 (1) Flashcards
1.1 Assess the use of KPIs
- KPI and their role in performance with a focus on cost, quality, delivery and safety.
- Transfer organisations needs into KPIs, organisations can measure how successful they are.
- Performance - relates to how a business is doing.
- Indicator - relates to the ways that this performance is measured.
- KPIs & Supplier rating - supplier rating can be used to evaluate the performance of an existing supplier but it is not usually suitable for assessing the supplier’s future capabilities.
- KPIs in the context of contract management, Critical Success Factors (CSF) are those areas that are essential for a contract to be successful.
Three steps in developing KPIs:
- Identify CS
- Identify measure of success/improvement of reach CSF
- Develop and Agree KPIs with stakeholders
KPIs must be
- SMART
- KPIs must be aligned to service delivery goals
- Provide context
- Create meaning at all organisational levels
- Eckerson (2009) model: characteristics of effective KPI’s: Sparse, Drillable, Simple, Actionable, Owned, Referenced, Correlated, Balanced, Aligned and Validated
Purpose of KPIs in relation to contracts:
- Measure improvement and performance
- Reward performance
- Develop suppliers
- Manage supplier improvements
- Improve and strengthen relations with suppliers.
- Justify inclusion of each supplier in the supply base.
- Identify suppliers who can no longer meet requirements
- KPIs in performance measurements as per Neely’s Four CPs of measurements 1998: 1. Check position. 2. Communicate Position. 3. Confirm Priorities. 4. Compel Progress.
- Advantages of KPIs
- Motivate compliance and improvement
- Manage supply risk
- Support contract management
- Identify high performing suppliers
- Identify closer partnership suppliers
- Give feedback for learning and continuous improvement.
- Disadvantages of KPIs
- Focus is on the measured areas only
- Can lead to cutting corners on quality or service to achieve targets.
- KPIs can be misaligned with corporate objectives
- Can be time consuming to create, monitor and manage
- There is a risk that the wrong metrics can be selected
- can become out of date
● Supply chain metrics have three crucial components:
○ Must translate financial objectives and targets into effective measure of operational performance
○ must translate operational performance into accurate predictions of future earnings or sales
○ Must engineer behaviour across the supply chain that supports the organisation’s overall business strategy
● Cost
o Cost reduction target. We can look at historic cost baseline. A more sophisticated metric is the TCO (total cost of ownership. This exams a much wider range of costs incurred by the business.
o Dolan, 2004 says that suppliers might also be rated on costs in relation to continuous improvement via the following:
▪ Supplier partnership initiatives
▪ Performance against cost reduction targets
▪ Cost reduction recommendations submitted by the supplier.
o Typical KPIs for supplier price/cost performance:
▪ basic purchase price or price range
▪ Whole-life costs compared with suppliers / benchmark
▪ Percentage range of acceptable price/cost
o Total price performance score - the total score of all cost-related factors on the scorecard reflects the cost of doing business with the supplier, and the contribution that the supplier makes in relation to the market average
● Quality
o Garvin (1984) identified five major approaches to how quality is defined;
▪ Transcendent Approach - equates quality with excellence
▪ User-based approach - making a product that is fit for purpose (Juan 2010)
▪ Product-based approach - sees quality precise and measurable.
▪ Manufacturing based approach - regards quality as the manufacture of products that meets specs
▪ Value based approach - develops the manufacturing based approach to further by incorporating both cost and price.
o SERVQUAL
related to service quality.
o RATER’s five dimensions:
▪ Reliability
▪ Assurance
▪ Tangibles
▪ Empathy
▪ Responsiveness
o Quality KPIs
a point system for quality performance allocates points well beyond general conformance to specification.
o Parts per million
rejected parts per million (PPM) is calculated monthly and fed into the supplier scorecard
● Delivery
o Delivery can relate to service delivery, product delivery or on-time logistics.
o Deliver at the right time, in the right quantity and at the right place.
o Delivery measure can include:
▪ Percentage on OTIF (On Time In Full)
▪ Percentage of early deliveries
▪ Percentage of late deliveries
▪ Percentage of delivers over order quantity
▪ Percentage of deliveries with the correct paperwork
o SLAs & KPIs - The SLA may take the form of a schedule to the main contact. Hales (1993) defined an SLA as “An agreement between the provider of a service and its users, which quantifies the min. quality of service which meets business needs.”
o Service Credits - when service performance is below the required performance level, service credits will usually apply. They may be in the form of financial recompense or a credit offset against future payment due to the supplier. - used as an incentive for the supplier to improve poor performance.
● Safety
