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Only a few performance measures impact the business profits.
I have seen companies operate with a multitude of performance measures, which take a lot of effort to target, track, and monitor. It also consumes a fair amount of precious management attention. Is it worth it?
A key question to ask is… if we improve on this performance measure, will it improve company’s profits now as well as in the future? Most operating teams find it tough to answer.
Take, for example, the measure of forecast accuracy as a capability measure. Does higher accuracy mean higher profits? It may be the case for certain companies where execution is forecast driven, often resulting in shortages and surpluses. However, in case of Demand Driven Supply Chains, better capability measures would be around flow improvements such as supply lead time, flexibility, and responsiveness.
Dr. Goldratt has emphasized that the three measures of Throughput, Operating Expenses, and Investment are the ones which drive sustained business performance. Does your capability measure influence any (or many) of them positively? Does it affect any of these negatively?
Answers to these questions help us move faster towards the goal, with improvements which feed on each other.