Part-1 of SMB Value Partners' Business Transformation / Improvement Series




By Charles Dietz, CIO, SMB Value Partners, Inc

Key Performance Indicators / Measures ( KPIs ) and Tools

This series of posts will help a typical Small and Mid-sized Business (SMB or Mid-Market) achieve Business Improvement / Business Transformation starting from a process of developing appropriate, structured performance measurements (KPIs). These measures can be at different levels of detail, and can be:

• Specific to a particular department (examples: warehouse picks per hour; Information Technology department’s turnaround time per user issue; Finance department closing the books in less than “x” days)
• Across departments in a Business Unit (BU) (example: orders processed and shipped to meet Customers’ request date)
• Or, across departments/BUs in a corporation (example: customer order to cash posting time)

There are business processes that use a combination of information gathered for multiple KPIs. An example is Sales and Operations Planning (S&OP), used by many organizations across many different industries, business types, organization sizes and structures (including for-profit and non-profit entities). More about S&OP in a future posts in this series.

Let’s talk about a couple of KPIs that could be important to your business, developing data that will be valuable in higher-level measurements of business transformation / improvement.

Example #1, Waterfall Forecast and Sales KPI:

For many organizations where there are ongoing sales of many products that must be made or procured, one helpful tool is the Waterfall Forecast and Sales Report (KPI display), a stylized version shown below. Our example is for a consumer-products distribution company, sourcing most of their 5,000 products in China and distributing to retail outlets in the USA from a Chicago warehouse.

For the Product sub-class: Consumer Widgets (imported from China), representing a summation of the Consumer Widgets (China) data (forecasts, sales, purchase orders, customer orders), the time to plan, make/procure, and have a widget available for sale is 3 months. So on December 1st of this year, our current day and month, we have a current proposed forecast of 260, 290, 250, 169, 150, 140, 130, 120, 240 units for December through next August. We need to understand a few things:

1.    Since there is a three month delay from a month’s order placement with suppliers in China until ocean delivery to our customer-facing USA warehouse, the forecast made back on September 1st for delivery on December 1st of 262 units is what we put on a Purchase Order (PO) and will get (aka Frozen Forecast / what we should measure Forecast Performance against).  

2.    The December forecast made on November 1st (for 275) will not change the 262 units originally planned/ordered, unless you take extraordinary actions to change the China suppliers' POs for 262 made on 9/1. (and that will likely cost extra $$$$s (flying potato peelers on a 747 from China to the USA is often cost prohibitive )) 

3.    So today (December 1st) is the last opportunity to change the forecast/PO for MARCH 1st!

4.    The Three Month Total (far right column shows the changes in these forecasts over time for the period March thru May. This helps to look for trends in the forecasting process (under/over forecasting, lots of last minute promotional deals, etc.

5.    Remember: for a senior-level Forecast Review Meeting, if you have a great number of SKUs, the forecasts and other KPIs are reviewed at an agreed-to aggregate level (Product Sub-Class in our example), and the forecast analysts (and others) are responsible for “allocating” the forecast changes down to the individual SKUs / Suppliers / POs.

6.    The Forecast / Sales / Marketing Analyst(s) can access the same type of report at the SKU level.

Some other KPIs that might be of interest to your business:

1.    From the above example, another important KPI might be the ongoing review of and efforts to decrease the lead time of products (considering the tradeoffs of the various associated costs and benefits).

2.    Another related KPI might measure production/delivery to Frozen Forecast. In our example, you have to measure the actual delivery to the USA for December 1st against the December forecast for the Consumer Widgets from China made on September 1st. Thus, our March KPI for a rolling 3 month KPI calculation would be to compare the Actual Sales (275 + 320 + 255 = 850) to the appropriate forecast: ((265+290+230) – Actual Sales) / Actual Sales = 6 % forecast error shortfall. ( Which may have resulted in lost sales )

3.    KPI displays can be constructed that deliver additional measures of the business. For example: adding current stock levels and safety stock quantities to a KPI display, you can calculate potential stockouts / lost sales and the ratio of sales to inventory value.

Outside experts with KPI and S&OP creation and implementation experience can work with your stakeholder team to speed the design, process development and implementation of a KPI and S&OP process customized for your organization. 

The key values to the business is the development of meaningful KPI measures of the business’ health, the discussion between the key stakeholders over past and current KPI results, and what can be done to continue improvements in all the operations of the business.

Future posts on KPIs and related topics will include:

• A few more KPIs to consider
• KPIs and Incentives
• Sales and Operations Planning process
• Balanced Scorecard
• Strategic Planning

Your COMMENTS, LIKES and SHARES Welcomed

Interview of Deb Dietz,
  President of SMB Value Partners, Inc.

Jeff Blackman, Contributing Columnist,
   Glenview Lantern, Glenview, IL,  Nov.28, 2016

Jeff Blackman (JB):  Deb Dietz and her family are, literally, some of the first folks my family and I met when we moved to Glenview in 1993. She’s a neighbor, just down the street.

I have fond memories, when our kids were young, of our families trick-or-treating together. Or Deb cheerfully answering her door on Halloween in full-costume splendor. 

She brings that same kind of spirit and enthusiastic commitment to her work as the 2013 founder of SMB Value Partners, Inc.

----------------------------------------------------------------------------------------------------------------
Jeff Blackman is a Hall of Fame speaker, bestselling author and award-winning business-growth specialist. Please visit jeffblackman.com, to subscribe to his free e-zine, The Results Report. 

Everyone knows the story of the re-design and build of the Chicago Cubs operation, going from 
Old-School to 21st Century
             Head-of-the-Class.

• Selecting players based on relevant statistics. 

• Playing an all-around game

• Rebuilding the Farm Team system

• Commitment to close teamwork 

In our Whitepaper on the ERP Software Evaluation and Selection Process, we will cover the following:

• ERP software overview

• Considering  your choices:

         -  New ERP system
         -  Re-implement your existing ERP
         -  ERP add-on packages

• Building your team

• Realities of the ERP project

• Re-training your players

• The ERP Requirements Spreadsheet –
     scoring the ERP functionality you need

• Understanding the software negotiations
     (Steak vs. Sizzle)

• The multi-step software selection process

This ERP subject is a bit larger than a blog post, so we put it all together in a Whitepaper that you can download by clicking to this page:

Business Intelligence Process: Using Data Analysis To Develop Your Strategic Plan

Blog post written by Deb Dietz, SMB Value Partners, Inc.
March 18th, 2016

Continuing with our Strategic Planning blog series, this post provides specific steps you can take which provide the information and insight you need to develop your strategic plan.  Because data analysis is so critical to business plan development, I wanted to include some additional information regarding the process of data analytics.  And that’s the point; it’s a process, not a project.  If you are embarking on creating a data-driven business strategy that can help steer your business in the right direction, keep these nine steps in mind:

1.   Goal Identification and Project Planning.  State the purpose of the analytics – what is the business problem you are trying to solve, its’ root cause and potential cost/benefit impacts.  What resources are required, how will you communicate your objectives, and what is your time frame?

2.   Data Requirements.  What are your data/information needs?  What analytics are relevant in achieving your objectives? Have you identified your current state?  Have you assessed business risks and evaluated underlying business processes and internal controls?  What data is needed to increase effectiveness and efficiencies of business operations?

3.   Data Collection.  Think internally and externally.  What data do you need to extract from internal, potentially disparate, systems?  Externally, do you have access to market research findings, economic indicators, market and industry trends, competitive analysis?

4.   Data Processing.  How do you need to mine and organize the data?  Have you considered work flow management processes, and how to best optimize those processes?

5.   Data Cleaning.  You’re familiar with “garbage in, garbage out”.  What internal processes are you/should you undertake that ensures a clean data file?  Are you running your lists through de-duping, address-standardization and other data hygiene parameters?

6.   Data Analytics.  And, here we are.  Data Analytics.  You don’t just jump in and start here.  You have to work through the five steps prior to getting here.  This step helps you identify, design and build relevant analytics to answer the business problems you are trying to solve.  Are you undertaking quantitative and/or qualitative analysis?  Are you undertaking root cause analysis?  Are you running analytics and performing an initial validation of results to identify data/logic flaws?  Have you built a bridge that translates findings into actionable steps you can take that ultimately become your forward-thinking business objectives and strategies?

7.   Communication and Reporting.  This is a crucial step to taking the findings from the data analytics and making recommendations to company leadership.  How are you representing these findings (tables/charts/graphs, correlations, deviations, rankings)?  These findings, translated into potential business objectives and strategies, begin to create the strawman of your strategic plan.

8.   Decision-Making.  You are now ready to understand and make conclusions from the data.  You can begin to design and execute implementation plans.  This process can help you manage organizational change, integrating results into your strategic plan.

9.   Data Analytics Tools, Techniques and Procedures. What statistical and reporting tools will you use to gather and analyze data?  What software do you have available?  What database and decision-support capabilities can you use?  What are your data-mining capabilities that help you best understand your business, understand your data, and model your data?  What reporting mechanisms do you need to develop that help you measure risk and performance via dashboards, scorecards, and reports?  And, how will you make this process a continuous process that over time reduces errors and risk and that is refreshed every year as part of your annual strategic planning cycle?

Data analytics is not a simple business task.  It is part of an integrated business intelligence process that can steer your organization in the right direction; a crucial step in your ability to develop and implement your strategic plan.

Thanks for reading our SMB Value Partners’ Blog.  We would appreciate your comments and/or a “Like”.  


Visit our web pages and learn about our capabilities, how we might help you, and to read all of our blogs at: www.smbvaluepartners.com/our-blog-postings.html.

 Click to read the first in our Strategic Planning blog series, “The Strategic Planning Checklist - First Step: Analysis”.

Click to read the second in our Strategic Planning blog series, “The Strategic Planning Checklist – Second Step: Plan Formulation”.

Click to read the third in our Strategic Planning blog series, “The Planning Graveyard – Beware the Tombstones”.

Click to read the fourth in our Strategic Planning blog series, “Developing Your 2016 Strategic Plan – You’re Already Late”.

 

Blog post written by Deb Dietz, SMB Value Partners, Inc.

The Planning Graveyard -
  Beware the Tombstones


In the first blog post in our Strategic Planning Checklist series, we spoke about the importance of analysis, the critical first step in the planning process.  We shared that investing your time in analysis should precede jumping into Plan Formulation, Action Planning, Execution, and Continuous Improvement.  


But before you can go through all the planning steps and follow these checklists, there is a fundamental need for any organization.  That need requires the development of a planning process.  Without a process, you may find yourself heading towards your demise, so here are some ideas for avoiding the tombstones along your planning path.

• Do not go into your planning process with the thinking that all you need to do is take last year’s plan or actual numbers and add some modest percentage increase. Avoid the “we should be able to do 3%V over prior/plan - that seems reasonable”.  Without analysis, the first step in the process, you’ll never know what your growth potential is so that you can realistically forecast demand and thus, revenue.
  
  
• As consultants, we’ve heard some interesting comments and fielded many questions about planning and sales forecasting. We’ve even been asked, “What are the Excel formulas you work with most?”  This is the wrong question to be asking.  You need to be following the Strategic Planning Checklist – Analysis  to get your arms around the bigger question; where are your opportunities for growth, what are your strengths and weaknesses as an organization, how can you overcome the challenges your company is facing, and how can you add value and maintain your relevancy to your customers.  The answers to these questions will get you where you need to go.  Asking questions about Excel formulas is missing the point.
  
  
• Avoid Incremental Expense with Low Yield - When revenues/sales are below plan, do not automatically send out more emails or other marketing communication campaigns. Pushing out emails without a targeted, segmented, marketing strategy (which is an outcome of the planning process), will result in incremental expense which may not always result in incremental sales revenue.  You must uncover the root cause for the underperforming results. 
  
  
• Do not assume you understand what your customers want or need. If you haven’t invested in market or customer research lately, consider making an investment in your future.  If you continue to offer products, programs and services that underperform financially, your best bet is to conduct research, then portfolio analysis.  You need to maintain your relevancy with your customers and provide a portfolio that they see value in and will willingly pay for. 
  
  
• Consider Strategic Marketing. Not just Marketing Communications.  What is the benefit of communicating a value proposition that is not relevant, has limited value or competitive advantage, that involves significant marketing expense, and that won’t give you the revenue growth or return on investment you need? 
  
  
• Portfolio Management. A significant undertaking yes, but involves marketing and financial analysis.  Before you spend on marketing campaigns, have a firm understanding of the value of your organization, what communication channels you need to leverage and how you speak or message about your customer value.  Ensure that you are offering the right value, through the right channel, using the right message, to the right audience.  Database segmentation, targeting and portfolio alignment – accomplished via analysis.  This effort will also help you identify which products you should eliminate from your portfolio.  Consider the benefit of no longer investing in under performing products and redeploying those investment dollars towards other products that are more important to your customers.
  
  
• Developing new products. Use a formal process.  In order to identify which products you should actually develop, you need to go through a business case analysis to determine which new product ideas are the best ones to fund.  Not all new product ideas are created equal.
  
  
• Cutting expenses. We’ve all been there.  You’re not achieving your revenue goals.  You’ve conducted more marketing campaigns and spent more money with the end result not achieving your goal.  Before you start looking at where you can cut expense via staff reductions or marketing expense budgets, go through the analysis checklist so that you can identify where your investments can have the greatest positive impact. 

For the Product sub-class: Consumer Widgets (imported from China), representing a summation of the Consumer Widgets, the time to plan, make/procure, and have a widget available for sale is 3 months.  So in March of this year, our current month, we have a current proposed forecast of 200, 130, 125, 125, 100 units for March through July.  We need to understand a few things:

• Since there is a three month delay from a month’s purchase order (PO) placement with suppliers in China until delivery to our customer-facing USA warehouse, the forecast made back on September 1st for delivery on December 1st of 265 units is what we will get (aka Frozen Forecast / what we should measure Forecast Performance against).  The December forecast made on November 1st (for 275) will not change the 265 units originally planned/ordered, unless you take extraordinary actions to change the China suppliers’ POs for 265 made on 9/1.  (and that will likely cost extra $$$$s). 
  
• So today (March 1st) is the last opportunity to change the forecast / PO being placed for JUNE  1st!
• Our display above measures the Frozen Forecast used to procure product against the Actual Sales, measured in a 3 month rolling total.  Our March KPI for a rolling 3 month KPI calculation would be to compare the Actual Sales (275 + 320 + 255 = 850) to the appropriate Frozen Forecast:  ((265+290+230) – Actual Sales) / Actual Sales =  7.6 % forecast error shortfall.  ( Which may have resulted in lost sales )
• Remember:  for the S&OP Review Meeting, if you have a great number of SKUs, the forecasts and other KPIs are reviewed at an agreed-to aggregate level, and the forecast analysts (and others) are responsible for “allocating” the forecast changes down to the individual SKUs / Suppliers / POs.
  
  

Other common KPIs used as part of an S&OP review might include:

• In our example, another important KPI might be the ongoing review of and efforts to decrease the lead time of products (considering the tradeoffs of the various associated costs and benefits). 

• You would also likely have a related KPI measuring production/delivery to Frozen Forecast.  In our example, you have to measure the actual delivery to the USA for December 1st against the December Frozen Forecast for the Consumer Widgets from China predicted on September 1st, adjusted for any special changes made to released POs.  
  
• KPI displays can be constructed that deliver additional measures of the business.  For example: adding current stock levels and safety stock quantities to a display, you can calculate potential stockouts / lost sales and the ratio of sales to inventory value.

• There are a number of other measures that would be part of the S&OP review, including key financial results. 

There are also other KPIs that would be more operational (day-to-day, weekly).  

• A good example would be a “Daily Orders & Shipments” display.  It would probably be at the same level of row detail as the S&OP displays (in our example above, by Product  sub-class).  Each row in the display would list orders and shipments for today and month-to-date in dollars and units compared to the month forecast.  It could further break out the customer orders and order lines by whether they were shipped on-time and/or 100% complete.  A separate display or report would provide detail down to SKUs where there has been under-performance.
  

Outside experts with S&OP creation and implementation experience can work with your stakeholder team to speed the design, process development and implementation of KPIs and a S&OP process customized for your organization.

The key values to the business of the S&OP process is the development of meaningful KPI measures of the business’ health, the discussion between the key stakeholders over past and current KPI results, and what can be done to continue improvements in all the operations of the business.

Charles Dietz, CIO, SMB Value Partners, Inc.

Be sure to see our wide-ranging SMB Value Partners blog posts, including:   others in the S&OP Series, Blog Post#1 and Post#2

and related posts on "Beware What You Reward" Post#1 and Post#2 

Also blogs on other topics in our "BLOG ARCHIVES by Month HERE” 
   
Your COMMENTS  and  LIKES are always appreciated.