Supply chain metrics are the driving force behind any modern logistics company. The focus on specific measurements in the supply chain and analyzing of results has grown into whole specialized practice in itself—resulting in the boom of KPIs in the workplace.
At Kenco, we use a tiered accountability system across the warehouse, distribution centers, transportation, and all locations in a supply chain network. If you have good top-tier KPIs that drive most of your business, tiered accountability will be a successful tool in your system.
Tiered accountability works by taking the KPIs you measure and funneling them up into an overall focus—tiering them. This type of system gives you focus to determine the value of different KPIs and how they will affect your business as a whole. It's crucial to establish your KPIs as the first step in this process.
Select Your KPIs
KPIs can be powerful drivers of behavior in the workplace, so it is important to carefully select indicators that drive behavior to achieve certain goals. First, review your supply chain and ask yourself what determines success—then base your KPIs off the answers.
- Focusing on the critical few. If you track too many KPIs, it shows a lack of focus. Shoot for five to seven key measures, as long as they each impact the factors that are critical to the success of the organization.
- Aligning KPIs with strategic objectives. Focus on measuring performance factors that contribute to your strategic objectives. Make sure everyone understands the measurements and their importance.
- Ensuring the KPI is controllable. Are employees able to make necessary changes to drive the performance of the KPI? If not, consider alternatives.
- Considering side effects. If increasing the performance of one KPI hinders another, avoid the conflict of interest.
- Assessing your KPI review schedule. While some industries review KPIs monthly or quarterly, proper, accurate measurements require daily maintenance.
Apply Your KPIs
Once you have determined your KPIs, define them. Tiered accountability breaks KPIs into three groups: main, sub, and process. Main KPIs (the ones at the top tier) are generally lagging. A great example of this is labor costs. Next, each main KPI will have sets of sub-KPIs—such as production efficiency, quality defects, etc.
From there, each sub-KPI breaks down further into a set of short-term process KPIs or action items (the lowest point of the tiered approach.) You will use these to track improvement activities you measure each day. This is where your selection of KPIs becomes incredibly important; the data you collect at the process level are the building blocks in which you track every activity improvement.
To Sum It All Up
Tiered accountability significantly aids the focus of a facility. When team members see how their performance affects the overall strategic objectives, they are inspired to take action. Properly addressing and implementing a system of tiered accountability increases not only your understanding of metrics but the development and success of performance management.
Are you looking for a 3PL that already has systems like this in place? Check out our eBook, Selecting and Managing a 3PL so you can find a tiered accountability expert partner.