November 29, 2022

Why is it So Important to Have Supply Chain KPI Targets that are Both Realistic and Challenging?

In this post, we’ll talk about supply chain KPIs and their targets. Each KPI needs to have a target to reach. If not, why do KPIs exist? Because if you don’t set targets for your KPIs, you can’t tell if your performance is good or not. You also won’t be able to tell if performance has gone up or down since the last time period. To find out all of this, you need to set targets for each KPI supply chain you track.

But be careful when you set your target. You must determine it carefully. Can’t be a guess.

Why?

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Why do you have to be careful when setting KPI targets for the supply chain?

If you aren’t careful when setting your KPI targets, at least two things could happen.

Unrealistics targets

The first condition is that you shouldn’t set targets that are too high or impossible to reach. If you do, you’re likely to make yourself and your team less motivated. Hopeless.

You are putting a load on your team that they can’t handle. They will stop trying. Their drive goes down. And in the end, it will hurt the performance of your team as well.

Sales plan target

Why?

Because they have no more ideas about how to reach that target. They will feel like nothing they did mattered. Can’t even come close to what has been set as a target. They didn’t do anything in the end.

The targets are not challenging enough

The second condition is that you don’t set targets that are challenging enough. This kind of target is easy to reach and doesn’t even require you to do anything. Just letting everything be as it is now is enough to reach the target. You don’t have to do anything, much less put in extra work, to reach that target.

This type of target has the same effect as the first type of target, which is that it won’t get you anywhere. Your business will keep on going as usual. Stay where you are now and don’t go anywhere. That’s because your team doesn’t have anything to work toward. They aren’t pushed to put in small amounts of extra work. They will probably ask, “Why should I work more?” In the end, everyone has reached the target.

They’ll feel like they’ve done a good job because they’ve reached the target, but out in the real world, your competitors will be moving ahead, and you’ll fall even further behind. The further away you are, the less likely you are to win.

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Why do you need supply chain KPI targets that are both realistic and challenging?

Maybe you don’t need that high performance at this moment. Maybe you’re right.

But you want your business to get bigger, right? And if you keep working the way you do now, especially with very low targets, your business will grow and you won’t be ready for it.

You won’t be ready for the changes that require you to do more. They will catch you by surprise. If you aren’t ready, the chance right in front of you could just slip away.

Let’s take a simple example.

For example, if you’re used to having a lot of inventory, you can already get to 100% On Time Delivery. You’re not used to making sure that your supply and demand are in balance, and you’re used to having more inventory than you need.

When your sales volume goes up and you keep doing the same thing, like keeping a lot of inventory, you will feel like your warehouse storage space isn’t enough.

At that point, you might decide to add more space to the warehouse, which will cost money to rent, build, or run.

In fact, you can do it in other ways, such as by lowering your inventory to the right level. And this is the best and least expensive way to do it. To use this solution, you don’t have to pay anything.

But because you aren’t used to having the right amount of inventory for what you need, you won’t be ready when you have to have the right amount of inventory. In the end, you’ll be forced to make the wrong choice, which will hurt the company even more.

In the case above, you may have a large warehouse, but that doesn’t mean you can store as much inventory as possible in it. That doesn’t mean you should keep more inventory than you need. You still need to work well and efficiently to predict what will be needed in the future. Because you obviously want your business to keep growing, right? And that will need the supply chain to work effectively and efficiently.

When do you need to do something effectively and efficiently?

Yes, of course, you have to start now. You can’t just put it off until you need it. The time would be up.

You need to start setting KPI targets that are both realistic and challenging, whether they are in terms of numbers or time.

Set KPI targets that you won’t be able to reach if you don’t do anything. It will make you and your team keep getting better and better at what you do.

Check your current achievements to figure out what your KPI targets should be for the next period. Where are you at the moment? Look for ways to make things better.

Check to see what’s wrong with the way your supply chain works now and what’s causing it. And what can you do to stop that from happening? Then, make a plan for what you need to do and what you want to do. Also figure out what you want your action plan to accomplish. Your target for the next time period will be to do that.

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Conclusion

KPI targets for the supply chain are important. And you can’t just decide what it is without careful consideration.

On the other hand, extremes, whether they are too easy or too hard, will hurt you and won’t get you anywhere. You won’t want to do anything and will just walk in place.

Based on how well you are doing right now, set KPIs that are both realistic and challenging. Make that target keep getting higher over time, and you’ll be forced to keep getting better and better.

Get yourself and your team used to staying in challenging situations, which keeps you growing. This will help you beat the competition and prepare you and your team for more work in the future.

Hope it helps!

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Dicky Saputra

16+ years of experience in supply chain management. I help companies improve their end to end supply chain performance.

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