“Perfect order” is a terrific key performance indicator (KPI). Whether it’s measuring a customer sales order or a supplier purchase order, it basically measures the effectiveness of supply fulfillment at a transactional level, which then gets aggregated for higher-level reporting.
A perfect order from a supplier is one that contains the right product or service being delivered to the right customer and right place:
- At the right time (100% on-time delivery)
- In the right quantity (100% fill rate)
- In the right condition and packaging (100% “quality” related to fulfillment)
- With the right documentation (increasingly electronic)
The perfect order is a heavily logistics-oriented KPI, but it has a great deal of relevance to procurement, such as how to apply it to services. In this series I’ll discuss how it can be used more effectively in its current state and how it can be improved to manage supply of performance more broadly and strategically.
Composites: The Future of Metrics
Just as Dustin Hoffman, in the classic film “The Graduate,” was told how “plastics” were the future, composite metrics, whether KPIs or capability metrics, are a best practice in performance measurement.
A composite metric is really just a summarized metric calculated from lower-level metrics, in this case via straight multiplication from the 4 shown above. So, perfect order is a composite KPI that is very difficult to even get over 80% because of its multiplicative nature. But, like other composite metrics, it allows for:
- Use in a summary-level dashboard, which you can then drill down into as needed. A supply risk or resiliency score is an example of a capability-related composite metric.
- Benchmarking – although you’ll have to adhere to the benchmarking standard to allow comparability.
- Cross functional and cross enterprise collaboration due to the fact that so many success factors have to be in place to help failsafe the performance. You also need clear accountability here of the lower-level metrics to individual parties and make sure their metrics meet SMART criteria.
- Continuous improvement to eradicate the root causes that degrade the performance against that metric over time.
Still, all is not perfect in the land of the perfect order. It’s remains too narrow, yet the implementation details are mind numbing – technical, organizational, definitional. Composite metrics can also be even more powerful when they bake in implicit trade-offs – and the perfect order doesn’t do that.
And for procurement, the perfect order seems to be disconnected from broader supply management – and from the stakeholders who are consuming the supply. I’ll discuss these topics in future posts.