How KPIs can seriously damage your business
Mattias Vos - July 2, 2020
“Selling is easy,” confided a former classmate at our latest reunion party. “It’s the customers that result from it who give you nightmares.” The statement came with an exaggerated wink, and then this: “Thank goodness that’s not my department.” We had a good laugh about it, but I just about managed to keep my immediate thoughts to myself. I didn’t like the idea that this salesperson cared so little about keeping his customers happy. Because other lines of business are then put in charge of the clean-up. Supply chain planners, for example.
Conflicting KPIs
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It’s not in salespeople’s genes, though. More often than not they act like that because of the way they are remunerated. Even in complex organizations, such as in the metals and paper industries, salespeople are rewarded according to the volume they achieve. This is in conflict with production departments, which have their own KPIs designed to limit work-in-process and inventory levels as much as possible. At the end of all this, the supply chain planner is often trapped between the devil and the deep blue sea.
It doesn’t stop there. KPIs based on sales volume encourage product managers to negotiate unrealistically high sales volumes and prices at the monthly S&OP meetings, leading to lost opportunities or lower service levels. Here too, the pressure is all on the planners.
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Aligning KPIs with company strategy
Planners experience the devastating effects of KPIs that conflict every day. For example, a rush sales order meant to please a particular customer may in fact also severely disrupt production schedules and lead to a lot of hidden costs. Similarly, product launches to boost sales could see changeover costs rising. Or a simple decision to increase batch sizes could have the knock-on effect of higher inventory levels. You get the picture.
KPIs can be useful, yes, but systematically using strictly siloed departmental KPIs can cause serious business damage if they’re not governed by company-wide indicators and rules. That’s why, when making strategic moves such as launching a supply chain planning project, it’s important to define a clear business case and describe the overall expected business gains. KPIs on different levels can be essential in this kind of effort, but you’ll need to be sure that all the KPIs are in line with global company strategy.
A systematic emphasis on global business goals is essential. Because nobody in business should be happy crying out “thank goodness that’s not my department.”
Curious what Unison Planning™ can do for planners?
Mattias Vos
Team Manager User Engagement at OMP BE
Biography
Mattias has worked with supply chain technology for more than a decade. He has always been interested in the art of user onboarding and has valuable experience in the requirements for proper tool adoption.
