Everyone Looks at KPIs, or Do They?

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The concept of Key Performance Indicators (KPIs) has been around for more than a decade, going back at least to Kaplan and Norton’s The Balanced Scorecard published in 1996.  So by now, everyone knows what KPIs are and how to use them, right?  I don’t think so.  I think many people use the term synonymously with “metrics.”  But the term “metrics” is a far more generic term and doesn’t convey what is unique and important about KPIs.  And if you are measuring just a bunch of metrics, you’re not getting the benefit of using KPIs to get a snapshot view of how your company’s performance compares to the goals set by management.

Key performance indicators are very specific, summary metrics that measure performance against the organization’s goals.  These measures can be financial and/or non-financial and in nature are often complex measures instead of just a quantity.  For instance, raw inventory levels might be used for inventory valuation and ordering, but these numbers are not KPIs.  A KPI for a manufacturing and distribution company with a goal to reduce reliance on outside vendors by 20% might be something more like the Independent Demand Ratio, which measures the % mix of demand for an item from outside sources versus inside sources.  This KPI is specific to the industry and the goals of the company.  It is also a summary measure, giving an at-a-glance picture of performance against a goal so the manager or executive does not have to wade through hundreds or thousands of numbers to get a feel for how the company is doing against this goal today.

KPILibrary.com is a very interesting site that helps you pick and benchmark KPIs for your company.  It lists 17 pages of KPI choices for Supply Chain, Inventory, and Logistics—KPIs such as inventory accuracy, sell through %, size of safety stock, % of stock controlled SKUs, and inventory management cost as a % of gross sales.  The site is free and easy to use and builds its database of benchmark data from user participation.

A carefully selected set of KPIs is kind of like a GPS, keeping those who manage the business on track with the organization’s goals and alerting them immediately if something goes awry so they can get back on the right path before they are completely lost.  BIO business intelligence software lets you quickly and easily develop role-based dashboards and alerts to help you measure and monitor your KPIs.  Give us a call at 203.327.0800 or visit our website to learn more about how BIO can help you put you KPIs to work.

By Sandi Richards Forman of BIO Analytics Corp., a Business Intelligence (BI) Microsoft Dynamics ISV

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