A major challenge facing manufacturers and distributors today is the linking of key metrics across the enterprise to gain greater visibility into business performance. And that’s why many of them are now turning to executive dashboards.
Executive dashboards assist upper-level management in directing and managing business growth and performance by providing a snapshot of current conditions and early warnings for potential issues. Effectively designed dashboards enable executives at the 50,000-foot level to better focus resources, improve operational efficiencies, and leverage opportunities for growth as the market turns, instead of waiting 30 days after the quarter closes. They empower executives to quickly identify and focus on drivers in key areas such as supply and demand, manufacturing, or time to market. Adjustments can be made immediately, while it can still have a positive impact, instead of waiting until after a quarter closes to analyze what went wrong.
Today’s executive dashboards place an increasing emphasis on operational analytics, instead of focusing solely on financial data, which so many companies have traditionally focused on while trying to evaluate their company’s performance. Why? Because while financial analytics are good for assessing what’s already happened from a financial perspective, operational analytics enable organizations to effectively manage supply and demand in real time while linking operational performance to corporate finance objectives.
Selecting Appropriate Dashboard Metrics
In order for executive dashboards to work best, companies have to examine their internal processes for generating data and define which of their operational analytics are most important in determining the success of the organization. From there, they can effectively design cascading Key Performance Indicators (KPIs), which are analytics that tie corporate goals down and back up through the enterprise to the regional and operational levels. It’s important to note that although many organizations have derived hundreds of performance measures, best-in-class dashboards report only the critical few KPIs, which dramatically reduces dashboard complexity. That enables executives to pinpoint and respond to changing market conditions more quickly and accurately.
Management teams understand how important it is to tie the metrics they are using at the corporate level all the way down to the ground floor to give them more enhanced visibility and transparency into what is happening throughout the enterprise. There has to be agreement on the definition of metrics to be used, with acknowledgement that different departments will have different needs. For instance, manufacturing might be more interested in a production grouping of the data; sales may be interested in data tied to a brand; and marketing may look at the product category level. Companies have to ensure that they encompass all of the different ways that their people need to look at and relate to the KPIs based on how they do their jobs.
Key business users should be selected to participate in the definition process in order to make a clear assessment of the operational model of the business and the data they already have available to judge performance throughout the enterprise. Once they have that information, they will need to examine the other underlying metrics or analytics that will impact those KPIs.
For instance, an analysis may determine that there are 10 metrics that impact an order fill rate. Those metrics should be ported to the KPIs being designed for the executive dashboard, so a model can be built that provides clarity on the impact of the different roles and functions of a metric. While many organizations successfully establish a set of critical KPIs, their dashboard metrics sometimes fail to reflect the interdependencies and causal relationships associated with supply chain operations. Selecting appropriate dashboard metrics helps management better understand what key elements they should be focused on, and enables them to better design scorecards that tie back to the business strategy for better alignment throughout the enterprise.
It is also important to note that special attention be paid during the process of creating a KPI. For instance, in designing an on-time shipment KPI, some companies may decide to include orders on credit hold in order to deliver more favorable numbers. When including all orders, the order fill rate may be 60 percent. But if they include customers who are on a credit hold, it may jump to 95 percent. That 95 percent figure is great for production and logistics, but the 60 percent number may be a better indicator to the organization as a whole that they have a problem with their credit function.
How Cascading KPIs Flow Through the Business
By first exploring operational inefficiencies and improvement opportunities, firms ensure that their cascading KPIs present a comprehensive and accurate portrayal of supply chain performance. I have also found that the companies most successful with this have emphasized downstream customer-related measures rather than upstream financial indicators only. As a result, upper level management has the visibility required to schedule their operations more efficiently while enhancing their working capital.
For a company that is focusing on revenue growth and profits, the KPIs could cascade down to focus on weekly customer shipments, order fill rates, backlog metrics, and accounts receivable. At the regional level, the KPIs may focus more on how they tie in with the overall plan, and not so much on the customer or product level.
That means a regional executive who is responsible for five plants would want to look at the key elements of what makes each plant operate efficiently. That dashboard may be designed to look at on-time fill rates or what the plant’s capacity is compared to the backlog.
For the executive at the corporate level, the KPIs on the dashboard would then leverage that regional data to incorporate it into performance metrics that ties everything together from a revenue and expense standpoint.
A sales manager, on the other hand, could use an executive dashboard to determine if they’re in danger of not hitting the order fill rates for a big box retailer like Wal-Mart, which may subsequently result in them being penalized with compliance fees.
At the same time, the logistics manager may be able to determine through the KPIs in his dashboard that the reason his team isn’t hitting the order fill rates is because they don’t have the packaging material or maybe they have a problem with a specific machine. Both the sales manager and the logistics manager, while further downstream, can quickly take action to rectify the situation before the order fill rate (and profit) is more adversely affected.
Getting Under the Covers
In the past, when a company missed its sales targets, it often couldn’t offer a clear explanation on why volume was off. Now, with executive dashboards, they can provide that explanation, while also showing how they are doing on key balance sheet metrics such as inventory and cash. From an executive dashboard, they can also generate a detailed report that provides the management team with financial reporting and analysis – not to mention presentation material – for investor Webcasts.
To supplement the information provided in the one-page dashboard, many business intelligence and performance management systems offer real-tie notifications and alerts, as well as drill-down functionality to enable employees to conduct root-cause analysis of emerging trends. As KPIs reach established thresholds, the alerts provide executives with proactive updates that can also be distributed automatically to others within the organization. Upon receiving an alert, managers often use the dashboards to drill-down into the supporting data. The root cause analysis that can be accomplished with this functionality is essential to dashboard success and ensures that executives accurately address the source of problems that may be occurring.
In the end, executive dashboards help companies to better leverage their global corporate resources, buying power and intelligence. They can also help improve communication and connectivity with suppliers and customers, so problems in the supply chain can be identified and corrected more quickly through real-time monitoring response capabilities. Finally, they enable executives to more actively plan and make key decisions guided by strategic business goals in order to maintain and extend their competitive advantage.Tags: Stratum
This post was written by Mike Hennel