Based on my experience every company has their own KPI(s) depending what they need and we usually suggest them to develop KPI(s) which will they understand an use in their own way. Some measure speed in reacting to this changes in variability - in certain time based units, how fast they can reorganize the production and deliver more or even less, how fast they can restock, ...
Every organization identifies the Key Result Areas ( KRA ) and chalks out the plans and programs for optimum utilization of organizational resources for maximum benefits to the stake holders. The performance is measured by Key Performance Indicators( KPI). The response time records, turn around time records, cycle time records and meeting the schedule time records are some of the indicators of performance. Good performance measurement system keeps stake holders' expectations in mind, while ascertaining the actual performance, in order to respond to demand variability.
Many thanks for your insightful answers, Aleksandar and Jaharkanti.
But to what extend do they rely on such KPIs is really an interesting point. It seems that such specific KPIs have some drawbacks. For instance, as Jaharkanti mentioned, such KPIs might ascertain the actual performance. Hence, there should be some alternatives; for example: adopting volume-flexibility and delivery-flexibility strategies to cope with demand variability (volume fluctuations). This point led me to ask another question: Do you think these strategies (i.e. Volume-flexibility and delivery flexibility) contribute to improve responsiveness? and How?
I have been fortune enough to have managed and consulted for several large organizations. Here's the root cause (from my perspective) , sound demand management processes are not always in place. This creates inaccurate KPI's and forecast models. Starting at the root cause is my point of view.
each firm has its own KPIs that fit with their situation and serve their objectives. the most important point here is to select the real 'Key' indicators that are really centre to demand variability. some KPIs that used by firms wither overestimate or underestimate demand variability, which will lead to shortage and surplus problems. Flexibility is the answer, volume flexibility and delivery flexibility are good indicators to measure the firms ability to adapt and response to demand variability. firms that are able to provide different level of volumes and can deliver with different level of delivery shipments will be more able to response to different type of changes, such as demand variability.
performance metrics are divided into qualitative and quantitative. Each company based on their characteristics can define a combinational of these metrics. Unfortunately, there is not a comprehensive method for determining performance metrics and KPI in the organizations.
Demand variability can occur in several ways, such as:
- volume
- variety
- selling location
Various "strategies" can be implemented in order to increase responsiveness to these three aspects (i.e. flexibility with respect to production volume or variety), depending on your competitive approach.
The ability to implement these strategies can of course be "measured" by using different KPIs. These KPIs can be derived from existing performance measurement approaches related to some reference framework or model (i.e. SCOR) or defined internally within the company. In the first case you have the benefit to compare your performance with benchmarks (so evaluating potential gap with the bests), while in the second case you can taylor the KPIs towards very specific "implementation path" inside the company. So this choice depends by you target (assessing you against competitors or evaluating you internal capabilities?).
What's important if you measure capability to respond demand variability, you are probably measuring the capability to implement coherently some chosen strategy (such as production line fast reconfigurability in case of variety) that's an internal measure.
The time lagged effect of this capability should also be evident in the directly related demand fulfilment KPIs, that's an external measure.
Anyway this second capability could be "moderated" by other contingent factors not related to your implementation capability, so increasing or decreasing the effect of your internal capability to implement the chosen strategy to respond variability.
That's why so important defining the final aim of your "measure" more than the measure/KPI itself. If you have clear understanding of the measurement aim you'll derive the KPIs quite easily. Don't do the opposite.
Bests
Flavio
My great thanks to your complete and detailed answer, thanks Flavio.
Demand variability is a measure of how much variability there is in customer demand. It is the difference between what one expects to happen and what actually happens. Demand variability is driven by several factors including:
- The complexity of demand in general
- Variation of demand across global enterprises
- A lack of visibility within and across supply chains
- Variable forecasting approaches at both the plant and customer level
- Variable lead times at both the plant and customer level
- Increasing inclusion of more suppliers and subcontracts
- Increasing inclusion of smaller suppliers
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