Prioritizing Which Order Fulfillment KPIs Your Operation Needs to Improve First
Wouldn’t it be great if someone could tell you which specific KPIs you should target when building an improvement strategy—say, total order cycle time or orders picked per hour—to get the biggest bang for your efforts? You’re going to be putting in a lot of time, effort, and potentially money, so it only makes sense that you’d want a guarantee that you’re going after the best improvements.
Unfortunately, there isn’t a hard and fast rule about KPIs that can be applied across the board. Every operation has different needs, goals, and struggles; these are unique from business to business and from industry to industry. Only you can decide where you need to focus your efforts to get the most ROI.
Free Guide: Top Order Fulfillment KPI Indicators
That being said, if you analyze your KPIs and find that there are a number of areas that stand to improve, but you don’t have the time or resources to tackle them all at once, you’re going to need to make a decision about what your top priorities are. The three strategies below are some ways that you can frame your thinking about prioritizing your KPIs so that you can be sure you see as much return as possible from your improvements.
Macro Goals vs. Micro Goals
When deciding which KPIs you want to focus on, it helps to think in terms of macro and micro goals. Macro goals are your big-picture aspirations (say, increasing client retention), while micro goals are smaller scale goals that impact your macro goal (say, reducing your total order cycle time, improving your perfect order percentage, etc.). If your macro goal is represented by a mile, then your micro goals can be represented by the steps you must take to get there.
In most cases, you’ll find that many small inputs (micro goals) will impact the success of your macro goal. It’s important that you understand the small scale issues that must be improved for your operations to improve at the larger scale—otherwise you will only have an abstract idea and no clear way forward.
So, when analyzing your key performance indicators, it pays to build a strategy around each of the areas that need improvement. That way, you’ll have a clear sense of what must be done for you to reach your goals.
Beyond that, the exercise will also help you compare the amount of work you must put into a project against the potential returns that it may yield. If improving one KPI requires a complete overhaul of your systems, for example, but doesn’t show promise in dramatically boosting your bottom line, then it might not be an efficient project to tackle first. On the other hand, if improving a different KPI would involve fewer steps and shows that the improvement will be meaningful to your revenue, then that should be your top priority.
You’re Only as Strong as Your Weakest Link
It’s an old saying, but it’s true: A chain is only as strong as its weakest link. Applying this principle to your operations can help you determine where you need to focus your improvement efforts.
If you analyze your KPIs and find four areas where you are on par with your industry average, and one area where you are lagging behind, then it would likely make sense for you to get that laggard up to the industry average before working on elevating your on-par areas to rockstar status. This is true for a couple of reasons.
First, if you are struggling badly in one area, then those struggles are likely bleeding over into your other areas and holding back your performance (more on this below). For example, if your inbound operations are not optimized and inventory is available for fulfillment then other downstream KPI’s relating to order fulfillment and cycle time suffer.
Secondly, improving your areas of dismal performance will likely provide more upswing than if you focused on improving other areas first. It all comes down to focusing on the areas that are more likely to be worth the investment of time and money that you need to put into it. By focusing on this low hanging fruit or the areas that are so far off standard, the quickest and greatest impact can be made.
After all, there’s no sense plugging a musket-ball-sized hole in your ship if there’s a cannon-ball-sized hole right next to it.
Which KPIs Directly Impact Your Logistics?
Ultimately, when you work towards improving the performance of your operations, you’ve got one thing in mind: Boosting your profits. Reducing your materials or shipping costs and increasing your productivity are easy ways to increase your profit margin, and the correlation between the two is fairly easy to see. These are the easy fixes, which don’t necessarily impact other areas of your operations.
But when you analyze the performance of the other areas of your operations, you’re going to see that everything you do is interconnected. Bad performance in one area of your business can lead to bad performance in all other areas of your business simply because of how your operation works.
That being said, when deciding which KPIs you want to improve first, it may pay to focus first on the areas that impact your logistics, since your logistics can have major repercussions throughout your business as a whole. Reducing your dock-to-stock time, for example, makes it easier to reduce your total order and internal order cycle times, your perfect order percentage, and your general workplace efficiency.
If you can identify a KPI that you can improve which will also improve other areas of your operations, then that should be your primary goal because it shows the most potential to impact your bottom line.
Everybody’s Needs Are Different
I wish that getting your operations up to speed could be as easy as telling you to reduce your internal order cycle time or increasing your orders picked per hour, but that just isn’t accurate. Truly improving your business requires an analysis of the fundamental strengths and weaknesses that you experience, and those aren’t going to be the same from business to business. But framing your thinking around KPIs according to one of the strategies above is sure to help point you in the right direction.
- Romaine has spent over 30 years involved with organizations looking to optimize their distribution, manufacturing, and warehousing operations. Focusing on the customer’s processes, automation and business model, Romaine has helped dozens of organizations improve profitability by reducing labor, floor space, errors and inventory while improving accuracy, inventory turns and cut-off times.
Within the industry trade association, MHI, Romaine has taken numerous leadership positions including: Chairman of the Automated Storage & Retrieval (AS/RS) Group, Chairman of the Order Fulfillment Council of America, Chairman of the Warehouse Execution Systems Group and was one of the originators of the Carousel and VLM Product Section Group. He has also spearheaded the efforts to create the first ANSI industry safety standards for horizontal carousels.
Romaine is a frequent editorial and information contributor to hundreds of publications, blogs and online publications and has been a speaker at dozens of Supply Chain, Logistics, Lean and Facility organizations and functions. Just a few include the Parcel Forum, Institute of Industrial Engineers (IIE), Promat, North American Material Handling, Modex, National Mfg Week, Southern California Plant Operations, NJ Material Handling Assoc., Applied Ergonomics, Warehousing Education & Research Council (WERC), Lean Manufacturing Conference, Council of Supply Chain Management Professionals (CSCMP), NeoCon, Health Information Distribution Association (HIDA), National Catalog & Operations (NCOF), CSCMP and more.
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