Performance management ensures the correct action at the correct time

Performance management and KPIs are not just about measurements, but first and foremost about controlling speed and direction (using measurements). In other words, ensuring that the right things happen at the right times. Performance management is a fantastically clear-cut and effective tool for translating the companys strategy into daily practice not least in the warehouse and logistics area.

Strategic performance management means that the company uses performance management in a conscious and systematic way to ensure and control the operational execution of the company strategy, and to create lasting change. This was the main message of an insightful presentation at the conference Progressive/Optimal Warehouse and Logistics Management, organized by Consafe Logistics A/S. The presentation was given by Consafes Managing Director Dan Hellstrm.

Performance management ensures correct behaviour
Strategic performance management is about operationalizing the companys strategy by creating:

- transparency
- controllability and
- coherence
between the chosen strategy and the work the organization and the individual employees have to do in the daily operation.

Carrying out the company strategy basically involves the organization and the individual employees doing something different tomorrow something more or something less than what they did yesterday. Strategic performance management ensures the right behaviour.

Traditional performance management of companies takes the form of the annual report, which is published in an impressive-looking folder between 6 and 18 months after the activities that are being measured have taken place. The annual report is extremely reactive, and cannot be used as a proactive management tool in todays ever-changing and competitive business world.

KPIs and changes
The cornerstone of performance management is Key Performance Indicators (KPI), said Dan Hellstrm, and added: The vision is an expression of where and what we wish to be in the future. The strategy is the plan that sets out how the company is to realize the vision. The critical success factors are targets that support the vision and the strategy. And finally, KPIs are effective and relevant key figures that are to help the company achieve lasting change, and that balance each other.

Define your own KPIs
Dan Hellstrm sketched a useful method for getting started with performance management of warehouse activities:

- Identify the primary cost elements in the warehouse
- Specify performance categories that shed light on the cost elements
- Choose a KPI that measures the results of each performance category
- Find the right tool to follow up, maintain and develop the business and processes
- Check your KPIs
- Many companies misunderstand and misuse KPIs. In such companies KPIs merely create confusion. A good checklist for testing the relevance and value of KPIs might be:

- Are the KPIs actually measurable?
- Are they more inconvenient than useful?
- Do they promote the kind of behaviour you want?
- Do they tell you something you need to know in order to improve?
- Can the KPIs be influenced by the function or group you want to influence/improve?

IKEA as an example
Dan Hellstrom presented IKEA as an example of a company that has worked with performance management of its warehouse activities. IKEA selected a set of primary KPIs that were to aid the process of reducing the total logistical costs, from supplier to store.

IKEA identified a total of 15 performance categories, which were then defined more precisely and made measurable. One category, for example, was Pick Efficiency, which was measurable in terms of the number of picks per unit of time divided by the time spent on the picks.

IKEAs warehouse performance management then consisted in measuring the individual categories and inserting the measurements in a scheme or model that showed in a visual way the weekly fluctuations in relation to the targets.

IT platform for performance management
It is of course important to have an IT tool that can handle the collection and presentation of all these measurements in a flexible and simple way. The quantity and complexity of the data are considerable, but Consafes warehouse management system SattStore is able to support performance management and supply KPI analyses, said Dan Hellstrm.

KPI analyses are useful in three main ways: 1) they can provide an overview of the company; 2) they ensure follow-ups based on defined targets; and 3) they enable companies to dig down to underlying causes.