In our previous posts, we focused on how to objectively identify underperforming suppliers and constructively negotiate needed changes in supplier relationships. However, reaching an agreement on changes and actually seeing them adhered to are two different things. While we are generally trusting of supplier partners, in cases like these it is essential to “trust but verify” that the new elements are being implemented by both companies and accomplishing the desired results. Here again, data is power.
Key Performance Indicators (KPIs) are simply a fancy way of describing how well something is working. Indicators could be any number of things – keeping track of how long it takes a machine to make a certain part, how long it takes an employee to pull the material needed for a production order, or how long it takes for a supplier’s order to reach your dock after an order request is submitted. We have found that, in far too many cases, assumptions or “guesstimates” of what these results are, end up being drastically different from reality and cause businesses and leaders to make poor decisions.
KPIs that Keep Things on Course
Getting started with measurement is relatively easy. First, examine the root causes of the supply chain issues that were documented in the first step of the process. Those will be the initial items that need to be measured going forward. Remember, these items should be specific, measurable, achievable, relevant, and time-bound (SMART). Objectives like “get better about on-time orders” do not provide the clarity that is needed to avoid misinterpretations down the line. Agreeing instead, for example, that “orders submitted by 3pm each business day must be delivered to our receiving facility no later than 1pm two business days later” will remove ambiguity and the chance that a supplier will only see what they want to see.
In many cases, it’s also helpful to measure certain “counterbalancing” items to determine whether the new processes or criteria are impacting other parts of the business in any unexpected ways. For example, if you have chosen to measure supplier lead time, consider also measuring your raw material inventory level. Once the supplier begins to consistently deliver on time, this will test whether inventory may ultimately increase to an undesired level due to past lead times being “artificially exaggerated” to mask or offset the poor performance. It is quite normal, and even expected, that new process improvement opportunities (both internally and externally) will continue to be uncovered as key elements of the areas affected by the changes are measured consistently.
Keep it Simple and Straightforward (KISS)
Measurement can be overwhelming to some, but it doesn’t have to be that way. While technology can be helpful in tracking and uncovering trends, don’t let it (or the absence of it) get in the way of implementing needed key performance indicators. Strive to use the simplest format possible that accomplishes the purpose.
In many cases, a perfectly effective tracking medium could be a lined notepad or a white board that’s located at the receiving dock. If team members have access to and comfort in using a computer, then a simple workbook in Microsoft Excel or Google Sheets can do the trick. These tools can also make it easy to generate charts and simple data visualizations to illustrate performance.
“Simplicity is the ultimate sophistication” – Leonardo da Vinci
When beginning to track new KPIs, it is typically helpful to avoid new measurements that require significant “system programming” to avoid potentially wasted effort. Wait until enough history and reliability has been established with the needed KPIs to ensure that they are illuminating what needs to be known. After that point, system automation is fine and will often prove beneficial.
No matter what medium of data collection and tracking is chosen, the data, results, and observations must be frequently shared both internally with team members and externally with the supplier. This enables rapid response and remediation of any new process issues that may arise before they have a significant impact on the business and the relationship. The importance of consistent KPI communication is yet another reason to keep measurement and tracking processes as simple as they can be.
Moving Forward
To recap, objective measurement and tracking is needed to ensure that agreed-upon changes in the supplier relationship take hold. And when implemented properly, KPIs provide benefits both internally to the business and externally to the supplier. Over time, they tell the story of whether agreed-upon changes can be actualized. If they can? Fantastic. If they cannot? We’ll address that question in our next post on what to do when the supplier issues appear unable to be solved.
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