If you ask owners of companies how they know the company is doing well, most will be able to give you five or six items they look at daily. Owners know the “good range” that these items should be in and are able to tell from these if they need to focus on any areas that may be having problems. These items are known as Key Performance Indicators or KPIs.
There are some common KPIs that most companies use:
- Sales Orders
- Invoiced Shipments
- Labor Dollars per Hour
In most cases companies also use KPIs that are unique to the operation or industry. For example:
- A plastic film company may monitor:
- Pounds per hour
- Scrap percent to total pounds produced
- Lost bubble count
- A steel company may monitor:
- Linear feet produced
- Pounds poured
- Labor per pound
- A corrugated box company may monitor:
- Sheets fed
- Jobs per day
- Kicks per hour
- MSF shipped
The goal of a KPI is to provide a snapshot of how the operation is doing and an easy way to provide focus for corrective action if necessary. The creation of KPIs should not be limited to the overall company. They are an excellent tool for management at a departmental level and for showing the entire staff what is important.
Selecting items to include in your KPI list can turn into a complicated process. If a company is new to the KPI process it is easy to get much too detailed. Remember that you are looking for a snapshot in time for a quick review. The best lists come from spending time “white boarding” a list of factors suggested by the staff. Then working down through the list until you arrive at five or six items. Make sure the data for each is objective and can be easily recorded and compiled.
The report showing the KPIs should be generated on a daily basis and at the same time each day. Reporting the information at the same time each day will ensure consistent data. Showing the KPIs in a graph or graphical dashboard can also make it easier for people to quickly understand the information. Remember that many people respond to graphics far better than numbers.
Your KPIs should not be set once and never changed. As your company changes, so to should some of your KPIs. They need to reflect what is important to your company. If your business model changes, you go into new markets or a new product offering is built, don’t forget to change your KPIs to reflect the new aspects of your company.
