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The One Critical KPI

There are a few things you need to know about Business Metrics or KPI's (Key Performance Indicators), firstly its that they are important, anyone who says any different clearly does not really understand how businesses work. KPI's help you understand how your organisation is performing, if you are winning or losing, getting better or getting worse. Where to focus your continuous improvement work and where you do not.

The second thing about your metrics or KPI's is that there is a never-ending supply of them, every time you read an article or listen to a podcast there seems to be a new measure with a new three letter acronym that is going to revolutionise your business. Organisations end up with so many KPI's it's hard to make sense of then if you are not careful.

The third thing to know about your KPI's is that without careful consideration they create more harm and misalignment than almost anything else in an organisation. If you accidentally (or purposefully) set up competing KPI's then you are going seriously impact your organisation. For example, if you tell your warehouse manager that their key measure is to reduce the freight costs of goods a quick way of doing that is to increase the level of stock so you friend less into the company, if the purchasing manager has a measure of increasing stock turns then guess what, those 2 KPI's compete and you will have fireworks at some point.

The final thing you need know about your KPI's is that your customers do not really care about most of them. I grant you that that statement can come as a bit of a shock to the system, but it is true, and it is obvious it is true. For your customers you are a black box that they put an order in one end and their product come out the other, what happens in the box is nothing to do with them.

Do not get me wrong, I know full well that many companies get audited by their customers and there are lots of questions, lots of prodding for answers about controls and how you measure x y and z. I have been there, I have been both the prodee and the prodder, I can assure you as the prodder I did not care about 99% of the KPI's. The reality is they do not care how many stock turns you have; they do not care about the mean time between fails of your equipment or the forecast accuracy or for that matter your scrap rates. Customers really care about only 3 things,

  1. Can you deliver what you say when you promise to?
  2. When they do get it is it right, can you deliver it as the right quality level as you promised?
  3. Are they getting it at a fair price, is the Value of the product or service correct?

That One Critical KPI

Keeping in mind the 3 things that customers really do care about – quality, delivery and cost, there is one KPI that rises above all else in a business to help demonstrate their ability to provide the product that is needed: DIFOT.

DIFOT is of course an acronym and stands for Delivery in Full on Time, so at its most simplistic level people view it as yes, we have delivered 100% of the order on the date you wanted it, tick 100% DIFOT. It is not really that simple if you use it right. Before we go too far just something to dispel, at some point some one came up with DIFOTIS, Delivery in Full on Time in Spec… let me ack a question here, would you ever deliver something that is out of specification? Surely you would hold it and fix it so that it was in specification, it met the needs of the customer? Isn't the In Specification thing already included in DIFOT? The answer is yes, yes it is, so drop the IS at the end because it's just BS.

What is DIFOT, really?

If you step back for a moment and think about everything that must go into achieving a 100% DIFOT measure it is quite impressive and every single team in the organisation is involved, not just your production team! The image below is just a snapshot of some of the measures that all must align in order to consistently achieve a perfect DIFOT.

DIFOT Contributors

As you can see every department has a part to play, some of the measures are obvious and some less so. If you think about DIFOT as your lagging company KPI all those other KPI's or metrics are leading indicators, whatever direction those metrics are heading, your DIFOT must go there as well.

Achieving DIFOT

DIFOT is one of those KPI's that can bridge every department in your organisation, every manager and in fact most staff should have DIFOT as one of their key measures and it should be one of the top-level metrics of the organisation and shared by all Snr managers or directors. If your focus is all about the customer and delivering what they need then DIFOT is the only way to do that.

As we have mentioned before, clearly you need to deliver 100% quality if you are going to hit the delivery date. You also need to have good processes, you need to have alignment about a range of things within the organisation, not just when you have agreed to deliver. If you are going to get alignment then that means you need to have great communication about what is important, what you need and when. When you miss your DIFOT target you also need to have a real review to understand why. I am not talking about a blame session; I am talking a genuine root cause what happened and how do we pull together to deliver next time.

You also need to ensure you have the parts to build the product, that means purchasing need to have them here on time, when they arrive, they must be put into stores correctly and not lost so you need good inventory accuracy. Production quality must be right; they must have the right amount of people in the right places with the right training, and they cannot lose parts either. Maintenance must ensure that the machines are available and working correctly, production engineering must make sure you have the standard work instructions you need to build the product along with any tooling. Planning must be a realistic plan, not over or underload load the shop and many more things.

As you can see achieving a great DIFOT and satisfying the customer is a team effort, why then wouldn't you give everyone on the team the same goal?

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Saturday, 27 February 2021

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