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Creating key performance indicators

chart30392829.JPGKey performance indicators (KPI) are used to measure the performance of different processes within a company. Typically KPIs come in the form of scorecards and graphs. KPIs look at performance over time, which is why it is typically displayed as a graph. Time series charts are the best way to display KPIs. Companies that implement lean manufacturing or process improvement often use KPIs to measure their data. Here are some tips on how to create key performance indicators:

Take a look at your department and the data you want to organize. If you are in the marketing department the data is normally sales and customer growth. Since inventory projects rely on marketing, you need to make sure you are getting correct data. Measure your unique customers and your customer growth to determine how much product will need to be ordered quarterly. The actual customer base you have will be represented with actual numbers while the growth rate will reflect a percentage.

Sales teams also deal with KPIs. They are responsible for sale volumes and the percentage of returns. If you have popular items, you will need to create KPIs that reflect daily sales rates. KPIs can also be used to measure employee performance. The numbers must reflect the input (salaries) and the outputs (sales). These numbers are easier to track from manufacturing numbers because there will be documents on how many sales each employee makes if they are in the sales department. However, there may be fluctuations if you have recently downsized and laid-off a large number of employees.

As far as manufacturing is concerned, KPIs are used to measure the rate of production, the volume of production, and the quality of production. With graphs, the rates will be expressed as percentages since they reflect changing values like units manufactured per day and units manufactured per second.

Manufacturing systems will not work properly if you do not have KPIs along the way to measure them. Many lean manufacturing experts claim that your manufacturing system will only work as good as your KPIs are designed. KPIs allow for continuous improvement to be made along the way. Here is a short list of the criteria your KPIs must meet:

  • KPIs must be related to something measureable (how do we get from point A to point B)

  • It must represent management and the workforce

  • They must be used to improve the company in some way

  • They must be essential, immediate and useful

For some companies, KPIs can become confusing quickly when they do not have clearly defined measures. Always make the measures visible and easy to understand. Keep in mind that the KPIs are used to measure performance and spot fluctuations in the process. If there are deviations or repetitions in the process, the KPIs will identify them and help you eliminate them before you waste more time, money, and raw goods on production. KPIs are also used to determine why customers are buying more of your products at certain times and in certain regions. They also help companies solve problems with customer concerns. For example, if you have had 10 days of strong sales and then you have a slow day; KPIs will help you track the buying trends to determine why people are buying and why they aren't buying at other times. This makes KPIs useful for business projections, analysis, planning, and problem solving.

There are other methods of solving problems and identifying customer issues, however KPIs always return fast and measurable results. The nice part about KPIs is that they provide you with visual tools to help your company eliminate wastes and increase productivity.

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