One of the key concerns during development of key performance indicators (KPIs) is the ability to differentiate the more important strategy-driven metrics from the plain vanilla metrics. This has become an even more urgent concern as the many performance management and BI products are now delivered with thousands of "ready" metrics. Selection of the wrong metrics for KPIs can significantly damage or even submarine a performance management initiative. How does one decide when a metric qualifies as a KPI metric? In my September column, we defined KPIs as measures that reflected the performance of an organization in achieving its goals and objectives. This month, we will use a supply chain management (SCM) example to expand on that definition and provide some characteristics that help distinguish a KPI from all those other metrics.
In recent years, businesses have realized that competitive advantage in the marketplace can be significantly enhanced by leveraging SCM to decrease costs, increase efficiency and improve delivery time to customers. One of the big events in SCM was the much publicized mandate issued by Wal-Mart requiring that its 100 biggest suppliers place radio frequency identification (RFID) tags on most cases and pallets shipped to three of its Dallas-area warehouses by January 2005. Wal-Mart views this revolution in intelligence technology as the foundation block for the next-generation real-time supply chain. When RFID tags are attached to products, boxes and pallets, items can be tracked automatically as they move through the supply chain, providing a real-time and accurate view of inventory. RFID tags contain data profiling the product, such as serial number, model number, size, quantity and color, which is captured by readers and relayed to a centralized data store. Can't we already capture that information using present-day UPC codes? The major difference is that the RFID technology is a proactive system that requires no line of sight between the reader and the tag, and no manual intervention to exchange data and save it to a data store. Another benefit is that the data capacity of RFID tags allows them to carry the same information as UPC bar codes and more. With the approaching deadline next month for the Wal-Mart RFID implementation, we will explore developing KPIs that capture the strategic impact of this new technology.
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