Editor's Note: No two successful performance management programs are the same, but all successful performance management programs share common principles. To shed some light on what separates a good company from a great company with regard to performance management, DC VELOCITY will publish a column on one of the 12 Commandments of Successful Performance Management each month. This month we drill into the fourth commandment: Beware.
The Fifth Commandment
Beware: Know the point of your metrics and be careful not to get sidetracked
The scenario is all too familiar: Tired of fielding complaints from customers about poor service, senior management decides to crack down on the DC staff. It gathers the supervisors, planners and expeditors together to announce that it expects everyone to pull together to improve delivery reliability. As an incentive, it's establishing a bonus program; workers will be rewarded based on their performance against a standard metric, say, the DC's fill rate.
12 Commandments of
In the following days, managers draft "expedite" lists and workers spend hours chasing orders that are due to ship in hopes of achieving world-class performance. What they don't realize, however, is that the company will never achieve world-class performance by focusing on an isolated metric—be it fill rate, inventory turns or order cycle time.Worldclass performance is a result of world-class process—devising a system for perfectly executing not a task like getting a box to the dock, but a comprehensive multi-step process, like order fulfillment.
Focusing exclusively on one small task is like painstakingly caulking a window frame while the ceiling collapses around you. Nonetheless, companies fall into this trap all the time.What follows are a few true-life examples (with identifying details changed) of how companies have gotten sidetracked from their main mission by a metric (in this case, fill rate):
Are your orders perfect?
It's safe to say that claims that a company regularly achieves a 100-percent fill rate or ships products "on time" is no guarantee that the customer will receive the goods on time. Nor does it mean the customer will get the products it ordered in the quantity ordered or that the box will arrive undamaged and with a correct invoice. It simply tells you that the company has found a way to hit one particular target consistently.
To measure what's truly important to the customer, you must turn to the Perfect Order. Though slight variations exist, the Perfect Order is usually defined as an order that's delivered on time, complete, damage free and accompanied by the correct invoice.
And it's not even that complicated to calculate: You simply multiply scores for the various component measures. For example, if a company reports that it has a 95.0-percent performance record for on time deliveries, fill rates, correct invoices and damage free shipments, the resulting Perfect Order index would be 81.4 percent (95% x 95% x 95% x 95%). Had each of the scores been 90 percent, the Perfect Order index would drop significantly—to 65.6 percent.
The lesson is simple. Manage your business with process metrics, and evaluate your business using results metrics. Used properly, process metrics drive the desired results.