KPI (key performance indicator) in 3 minutes


KPIs stands for Key Performance Indicators and are extensively used in supply chain management to measure how a business is performing in a specific area to indicate how effectively the company is achieving its business targets.

Even though KPIs are used extensively, thay can often be misleading. What a KPI should be varies from business to business and from industry to industry. They should all, however, have 3 core characteristics: 1. KPIs should be in monetary amounts (for example dollars) - not percentages. Percentages, such as service level, is not actually a clear indicator of how well the stock is being managed. Furthermore, when KPIs are in absolute terms, you can compare all of your KPIs across the board.

Second, is that the KPIs you chose to represent your business performance should not be redundant and conclude the same thing. For example, a KPI of sales before tax and a KPI of sales after tax are a variant of the same thing and are taking up unnecessary space instead of other KPIs. An example of non-redundant KPIs is the total working capital, the non-quality generating costs month, and the gross margin per month.

Lastly, the KPI should be a call-to-action. Is it worth the time of a human to be read and monitored every day? If not, it should not be considered a KPI, but rather as a simple PI (performance indicator).