If you’re going to measure one thing in an organization, it’s shipped on time. If you can’t ship on time you won’t have any customers and then nothing else matters. Measuring shipped on time by orders, not line items, makes a big difference. An incomplete order – even if it’s on time – doesn’t make customers happy.
Tracking inventory turns is another important aspect to measure. Inventory absorbs money, takes up storage space, requires people to move it, accrues interest that you pay to the bank, and in many cases eventually goes obsolete and becomes an expense. Gross profit margin is another important measure, because it reveals improvement (or lack of improvement).
Key measures are not only a way to show people how they’re doing, but they have the power to change behavior and establish accountability. One of my clients had a 24% shipped on time rate when they came to me a few months ago. This week it’s in the mid-80s. They also cut their backorders partly by tracking them and posting the numbers every day. In the past at this company, the sales department saw operations as an adversary. Now the sales manager is applauding operations and saying, “Now we’d better get out there and sell.” Keeping sales in the critical path is what allows the business to flourish and revenue to grow, and forecasting and planning is the front end of it.
© 2012 – Rick Pay – All Rights Reserved