Some years ago I was party to a logistics contract that specified 39 ‘Key Performance Indicators’ to be measured and reported by the provider for review each month.
What chance does this approach have of providing meaningful management information?
When specifying performance measures, we advocate choosing a small number of indicators that are closely linked to the operation’s core objectives and efficiency. These should have a strong identifiable relationship to control of costs or other company goals.
For example ‘a 0.1 increase in drops per vehicle trip is worth £x in fleet costs’, ‘an x% increase in cases shipped per annum through the DC will extend the life of the facility by y months’.
Another tip is to link KPIs to the correct volume unit of measure – for example transport cost is typically a product of pallet footprints occupied on vehicles – so cost per case is not particularly useful here. I have seen this when comparing two operations – operation A has a higher cost per case but a lower cost per pallet than operation B. Targetting the wrong measure can cause you to focus on the wrong areas for improvement.
Badly chosen or excessively numerous KPIs are rarely measured properly and at their worst lead to perverse incentives to management, encouraging wrong behaviours.
So take care (and perhaps advice) when setting up your performance measurement regime, or it could end up working against you!