Setting Key Performance Indicators (KPIs) is sometimes seen as an art, because many companies find it hard to decide on what to measure and while others have several KPIs, they may not be the right ones.
Many years ago, I worked with a warehouse manager who needed help with one of his KPIs. His company worked on a deliver ASAP basis, and they wanted any order that came in by 2:00pm to be despatched by 5:00pm the next day. The percentage of orders that achieved this delivery window was a warehouse KPI.
The warehouse had a great deal of trouble getting good figures for this KPI, so they wanted to prioritise orders for picking. The warehouse manager asked for a program to automatically mark an order as priority 2 as soon as it missed the KPI delivery window, orders where they could still make the window were priority 1. They would concentrate solely on picking the priority 1 orders and only do the priority 2 if there were no priority 1.
However, managing it this way meant that customers would either get their orders almost immediately or wait for a very long time. For example, if an order missed the delivery window, it may never get picked since more priority 1 orders were still coming in.
This highlights a big risk with setting any KPI.
You can change procedures to maximise a KPI, but that change may not make the business better. It might seem obvious but it’s easy to focus on the KPI itself and not look at what’s best for the customers or the business.
So when setting KPIs here are some points to consider:
- Ensure that each KPI is realistic, meaningful, measurable, and understood.
- There is no point giving someone an unrealistic goal, or not giving them the resources to achieve the goal. Setting someone up to fail is not good for morale.
- The KPI must, in some way, be able to help achieve the high level objective. It has to have meaning as part of a bigger plan.
- If you are going to get any value out of a KPI then you need to be able to measure it. A KPI of “Happy Customers” is useful if you can’t measure happiness.
- Giving someone a KPI without them understanding what it means and what the objective is risks them implementing a procedure like the one in my example. If they don’t know what the KPI is really trying to achieve then how can they know what to do.
Finally, don’t just set and forget a KPI. You need to review more than just the results. Look at the procedures that are implemented, what other effects the procedures create, is the KPI still meaningful, etc.