The development and monitoring of Key Performance Indicators (“KPIs”) is a concept that has been around for quite some time. However, there are still businesses that don’t fully utilize KPIs to monitor performance. Tracking KPIs that capture data on a timely and relevant basis will enhance performance and speed-up reaction time when necessary.
There are many KPIs to choose from, and they should be tailored to each individual business and align with its respective goals. KPIs should be developed for daily, weekly and monthly tracking, and cover not only financial measures but activity and customer- centric measures as well.
Some examples of KPIs that should be tracked on a daily basis by operations and customer service managers include the following:
- Throughput per labor hour and/or machine hour
- Scrap and re-work rates
- Cases picked per labor hour
- Machine downtime
- Empty miles (deadheading)
- Charge hours or billable hours
- Case fill rate
- On-time delivery
- Orders received
Monitoring these will allow you to spot key issues in your business more quickly. They should also give management insight into the financial results of the business before the monthly financials come out.
Tracking monthly KPIs is also important. Some examples of ratios to track, at a minimum, are as follows:
- Inventory turnover (in total and breakdown by finished goods and raw materials if applicable)
- Days sales outstanding in accounts receivable
- Net working capital (paying particular attention to the cash conversion cycle items: accounts receivable + inventory – accounts payable)
- Current ratio (current assets / current liabilities)
- Gross margin
- Operating margin
- Contribution margin (Sales minus variable costs). This will allow you to calculate break-even levels for the business.
In summary, the development and monitoring of your KPIs should aid management in making decisions that will enhance performance and drive value for the business. Please contact us if you have any questions on KPIs and visit the Schneider Downs website for more information regarding our service offerings.