by Michael J. Devereux II, CPA, CMP, partner
Measurement. It is one of the best tools we have at our disposal for improvement. But what metrics are important to measure? Every plastics processor uses some sort of key performance indicators (KPI) to assess how the company is performing. However, performance is a relative term, and while some performance metrics may be important to one company, they may not be as important to another. Not all processors measure the same KPI because not all processors have the same set of goals. That’s why it is extremely important to have the end in mind when establishing (or refining) your company’s KPIs.
Goals should drive KPIs
Using KPIs is a fantastic tool business owners can employ to make data-driven decisions to grow and improve the business. If one were to do a web search for plastics manufacturing KPI, there would be more than 1.2 million results – a seemingly endless supply of knowledge on the subject.
So what should processors be measuring? Technology has allowed plastics processors to measure just about anything. The operational data that can be gleaned from the press alone could create hundreds of measurement points, much less the data that is within the financial books and records of the company.
The key to establishing and using the right KPIs to improve the company is tying these KPIs to the specific goals and objectives of the company. That is, there should be a nexus between what the KPI measures and the goal of the company for which that KPI was established.
If you have not assessed the KPIs you’re using, now may be a good time to do so. Many believe it’s worthwhile to revisit each KPI annually, along with revisiting the means of collecting the data to determine if a better approach may exist – a leaning of the lean process, so to speak. You may find that some of the metrics you’re using are no longer informative or relevant, or there may just be a better way to extract the data.
Further, in revisiting these KPIs, involve the team members that have the most impact on improving the metrics. Someone with direct knowledge likely has more (or at least a different) perspective of how the data can be collected or how the metric could be improved.
Establish a framework
Establishing and improving upon the KPIs the company measures is a process, just like any other. As such, you may find that establishing a framework for measuring, assessing and improving KPIs can be helpful.
Consider building a KPI framework using these 6 steps:
- Determine the goal. What is measuring the KPI meant to improve? How will the KPI help my decision making? Be as specific as possible while still giving meaning to the indicator. The goal should support the business strategy and important value drivers of the company.
- Identify the key operational and financial indicators that, if improved, help you achieve the goal stated in Step 1.
- Select the operational or financial metrics that will help measure and track performance.
- Develop KPIs by identifying the source data, how it will be collected and how it will be analyzed to produce the desired metrics.
- Track the KPIs against the appropriate standard – i.e., peers, historical performance, current expectations, etc.
- Revisit, reevaluate and refine the KPI process. Annually review your KPIs and how the data are collected to ensure you’re measuring the appropriate metrics in the most resource-efficient manner.
Build a dashboard
KPIs can be used both as a predictive measure and a historical debrief. Using a dashboard to help visualize major KPIs can be helpful, as it can quickly zero in on the company’s performance. Your ERP software likely has a built-in dashboard for KPIs common to plastics processors. Further, these dashboards can be customized to meet your needs. We’ve found that many processors will import economic information (such as resin pricing) or industry benchmarks to their dashboard to give it more context.
Revisiting and updating KPIs may sound onerous. Simply put, it’s worth the time and effort it takes to measure what’s important. Having the latest and most meaningful information to the company at your fingertips allows you to make timelier, data-driven decisions.
Michael Devereux II, CPA, CMP is a partner and director of manufacturing, distribution and plastics industry services at Mueller Prost CPAs + Business Advisors.
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