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Using Key Performance Indicators to Maintain Strategic Focus
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COST-FOCUSED KPIS
Cost measurement: It should go without saying that a cost-focused strategy will have KPIs consisting of cost measurements. Production and delivery costs must be kept to a minimum, but quality standards must still be maintained. It is important to focus on the cost of the entire process, not just a single area such as manufacturing or purchasing. The entire company must be cost-conscious in order to be a leader in a cost-focused market.
Cycle time: Another cost-based KPI is cycle time management. Cycle time is the total elapsed time between the customer’s expressed interest and the subsequent receipt of a product or service. Reducing cycle time can provide gains throughout the entire organization. Focusing on reducing cycle time leads to increased productivity and throughput. Implementing a cycle time KPI to measure the total throughput time can sometimes result in cycle time reductions of 60% or more.
Standards conformance: Standards conformance is a KPI that measures the ability to meet the customer’s expectations by providing a standard product. A standard product is defined as one that conforms to pre-determined set of criteria. Manufacturing products whose functionality varies from what the customer expects will result in dissatisfaction. In a sense, it is a measure of quality, but only with respect to meeting a specific need. A product can be well-made (“high-quality”), but whether or not it falls within the standard specifications (and therefore is useful to the customer) is the measurement of interest here. Conforming to standards means the company is delivering what it promised to deliver. This KPI may tie into understanding customer retention as well.
Quantity: A cost-focused company typically deals in bulk quantities, and therefore a KPI involving management of quantities is very important. Companies are constantly examining ways in which they can supply more of a product or service without significantly increasing their costs. One of the best known accomplishments of this was the invention of the continuous-moving assembly line. In 1913 Henry Ford invented the continuous-moving assembly line, allowing him to produce more products (the Model T) with the same number of workers. This resulted in productivity gains from one and a half days to just 90 minutes to build a single automobile. This KPI may have influence on cycle time performance as well.
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