In the world of big data we live in today, there is an overwhelming amount of “things” that can be measured which can drive continuous improvement throughout an organization. Sifting through the options of what should be measured can be a daunting task. Are you measuring just to measure or is there actionable data obtained? What if you could have a composite KPI that enables a performance measurement that spans across functional silos in your organization while producing actionable results?
Sounds pretty fancy huh?
Not really! Have you heard of the Perfect Order?
The composition of the perfect order varies from company to company but the overall measurement simply requires multiplying the results of individual metrics together to achieve a single KPI. The most common components are a variation of fill rate, on time delivery and accuracy, but the formula can be as comprehensive as you like. When measured correctly and consistently, these 3 components will provide an insight into the performance of your distribution machine.
Fill rate (98.8%) X OnTimeDelivery(95%) X Accuracy(97.5%) = Perfect Order (91.51%)
I often explain these principles by relating to a real world experience everyone is familiar with….going out to eat!
I order the ribeye steak medium rare with a side of broccoli, but the waiter tells me they’re out. Ding to fill rate! I go ahead and order the 16oz filet instead, but my food comes out 5 minutes after everyone else’s dinner. Ding to on time delivery! Now, when they finally bring my steak out, it’s well done and they gave me a potato. Double ding to accuracy!
The perfect order would be one where they had what I ordered, it was delivered on time and there were no errors to my order. Apply this to your operations. Are you delivering a high percentage perfect order to your customers? Are you stocking the products they are asking for? Are you delivering the product on time, free from accuracy errors such as wrong product, wrong quantity, damages, pricing or billing errors. Are you even measuring this?
You can see how this composite KPI is a reflection of performance from several departments within your organization including purchasing, order entry, order fulfillment, and logistics. Drill in and get to work on what is “dinging” your perfect order!
Stay tuned for next month’s blog where I will elaborate on how to correctly and consistently measure fill rate, on time delivery and accuracy.
Progress Demands Change
Cheers!
-Tony