How do you measure the success of your operations? How do you know if business is trending upwards or downwards? How do you gauge growth?
Balanced scorecards with key performance indicators can help you “keep score” of your processes, especially in your logistics department. These KPIs become a clear-cut way to align the business with a shared vision of success. The scorecard helps to strategically plan for the future while managing and emphasizing results.
Let’s go through the specifics of KPIs and balanced scorecards and how you can utilize these to take your business and operations to the next level.
Key performance indicators (KPIs) are specific metrics used to determine the efficiency of a department, division, or overall business. They are essentially a measurement of progress towards some goal or standard of performance.
For example, the marketing department wants to create better relationships with their current clients. They might look at key performance indicators of customer lifetime value, customer acquisition cost, customer churn rate, customer satisfaction, and net promoter score. These are all directly linked to their ability to engage with their current clientele.
Balanced scorecards are dashboards that track KPIs. They are usually visual with graphs and charts so it’s easy to quickly and effectively track ongoing progress.
Scorecards can mean different things to different parts of the business. A CEO might run a balanced scorecard that tracks the overall strategy of the business with metrics like profits, customer lifetime value, or employee satisfaction. An operations manager might have a balanced scorecard with logistics KPIs of delivery in full, order cancellations, and cost of goods sold for that specific production process.
Balanced scorecards tell you where you’re going versus where you are and how you’re going to get there. They can be as broad or as specific as the business objective.
Set strategic goals.
In order to measure progress, you need to understand what successful “progress” would look like. Consider specific goals that you will push your operations to the next level. These goals can be both internally focused and externally customer-driven.
For example, the production department of your company might be looking to create a 5% increase in margins by the fourth quarter. This is a specific, time-bound goal that allows the product division to take actionable steps forward.
While building a strategy, make sure to review the importance of KPIs with your team. Get everyone on board with the same vision for the department. Create effective processes for communication regarding your objectives and strategies.
Determine KPIs that are relevant to those goals.
Now that there’s a goal, you have to determine which metrics will help lead you to those goals. They’re not just metrics, but they’re movable measurements that push your business forward.
In the above example, the production department might look at the cost of goods sold, revenue, gross margin, net margin, number of products, product overlaps, overhead, salaries, quality control, and more.
Examples of operational KPIs include:
Select the most important KPIs.
You want to focus only on key performance indicators, not every performance indicator. Although your business, in general, will likely be monitoring a wide array of KPIs, each individual department should have its own balanced scoreboard with specific goals and metrics. One department might even have several scoreboards, each with a different objective and set of KPIs.
Every KPI should be directly linked to the specific goal of the balanced scorecard. For example, the production department may not need to look at the quality control KPI when looking to increase margins. Although quality control is an important part of production, it might not be relevant on the balanced scorecard for a 5% increase in margins.
Give context for the performance.
You’ll also want to provide context surrounding each KPI. For example, the production department is tracking COGS (cost of goods sold). What do these costs entail?
You might want to include a breakdown of all of the different costs within this metric to better comprehend where the measurement is coming from. This context is critical to further understand what action is required to improve the metric moving forward.
Make the dashboard appealing.
You have the most important KPIs, so you want to arrange them on your dashboard. The dashboard ensures your KPIs are always front of mind, so the team drives processes towards the same results.
You want the dashboard to be simple and easy to interpret, so your team can quickly check progress and get on with their work. Visuals usually work best, like consistent charts and graphs.
You might want to consider investing in balanced scorecard operational software. These help you input your metrics, and they’ll do the tracking and dashboard creation for you whenever the report is pulled. You can then apply this software for every department or division, and then link them all up for the overall strategy and vision scorecards. Some software even use AI and IoT to link the scorecards and KPIs for a cohesive strategy.
Balanced scorecards help track key performance indicators that drive operating efficiency. Whether it’s for the logistics department, the marketing division, or the entire company as a whole, a balanced scorecard management strategy can help take your business to the next level.
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