There was nary a “thou shalt” among the 12 commandments of performance management put forth by Kate Vitasek, managing partner of Bellevue, WA-based consultancy Supply Chain Visions, during her session at the National Conference on Operations and Fulfillment (NCOF) last month. Here’s what Vitasek cited instead:
COMMANDMENT NO. 1 — Focus: Know your goals and priorities. Vitasek referred to former GE honcho Jack Welch as a master of clearly identifying and articulating corporate goals. In the case of GE, it was to ensure that the company held the number-one or -two position in every business and market it was involved in — or else it would get out of that particular business.
COMMANDMENT NO. 2 — Balance:Check the overall health of your organization. Too many businesses, Vitasek said, emphasize financial measures while overlooking key performance indicators and “employee health,” or satisfaction. She recommended using the Balanced Scorecard Framework created by Robert Kaplan and David Norton, which looks at finances (“what level of performance or return is required?”), operational excellence, people (“to achieve our vision, how will we sustain our ability to change or improve?”), and customers (“to achieve our vision, how should we appeal to our customers?”).
COMMANDMENT NO. 3 — Beware: Know the point of your measures. This involves differentiating between process metrics, which measure what and where to fix, and results metrics, which gauge “why the fix matters and what benefit the customer will obtain.” You want to sell with results metrics but drive change through process metrics. For instance, a 99% fill rate is all well and good — but that doesn’t mean that those orders were filled correctly or received on time. To adapt that result metric to a more meaningful process metric requires incorporating the benchmark into a measurement of the order fulfillment process overall and all the elements within the perfect order metric.
Vitasek even supplied an equation for what she called the Perfect Order Index (POI): percentage of on-time delivery × percentage of complete orders × percentage of damage-free orders × percentage of accurate invoices = POI.
COMMANDMENT NO. 4 — Involve: Get employees engaged.
COMMANDMENT NO. 5 — Apply: Be believers in, not just collectors or posters of, metrics.
COMMANDMENT NO. 6 — Anticipate:Use your metrics as headlights. This requires differentiating leading indicators (such as performance drivers) from lagging indicators (outcomes, such as financial results and employee turnover).
COMMANDMENT NO. 7 — Integrate: Layer your metrics like an onion. The POI is an example of layering and integrating metrics.
COMMANDMENT NO. 8 — Listen to the customer. “Often there is a perception gap between what you measure and what your customer measures,” Vitasek said. For instance, your distribution center may measure on-time performance by how quickly items ship once the order is received. But your customers are more likely to measure it by how quickly an order lands on their doorstep after they place the order. The DC may ship the order within 24 hours, but a delay due to the parcel carrier could result in what the customer considers a late delivery.
COMMANDMENT NO. 9 — Benchmark. But again, be certain that what you benchmark is relevant and actionable.
COMMANDMENT NO. 10 — Be flexible:There’s no holy grail of metrics.
COMMANDMENT NO. 11 — Practice.
COMMANDMENT NO. 12 — Lead.