Modelling a KPI set

Modelling a KPI set requires the experience of different persons, namely academic and professionals. Their different perspectives of one same topic are necessary to get the understanding of the general picture. The identification of KPIs is influenced by the different participants’

background, experience and knowledge (Bossel & International Institute for Sustainable Development, 1999). For this reason, different interviews and discussions have to be held in both, the academic and the business environment.

Bossel & International Institute for Sustainable Development (1999) explained that intuitive learning is insufficient for handling various complex systems constructed by humans, such as production systems or the economy. To evaluate a supply chain, a KPI model needs to be set up, as indicators are, de facto, needed to give an orientation in a complex environment. This is the only way decision makers can understand upcoming occurrences and hence respond in an appropriate way. This also holds true, if the researcher only considers specific chain links. A good supply chain performance measurement model should include organisational and supply chain measures which are both, quantitative and qualitative. In addition to this, it needs to be easy to handle, which means that the amount of indicators measured has to be limited. Moreover, only a few key variables should be used in order to maximise its lucidity (Molnár et al., 2007). Bossel & International Institute for Sustainable Development (1999) share this opinion, criticising that many researchers use quite extensive lists of indicators to analyse specific problems. The result is that their KPI Models are excessive in a specific area but sparse or even neglecting other important scopes. The indicators are derived ad hoc and therefore without a theoretical framework reflecting the viability of the total system, as the model is only intended to evaluate the specific area of the researchers’ interest. Thus, the evaluation of the KPI model does not reflect “the total system, i.e. human society in interaction with its natural environment” (Bossel & International Institute for Sustainable Development, 1999).

In this section, the internal use of KPIs will be explained in two stages. In a company acting in logistics service providing businesses, the KPIs need to be regarded from both, a domain based viewpoint as well as from an internal attitude.

14 The original quotation in its context reads as follows: “Un indicateur de performance est une expression – plus ou moins valide – qui mesure la performance de tout ou partie d’un processus ou activité d’un système (réel ou simulé), par rapport à un objectif. Cette expression est éventuellement exprimée de manière à être évaluée par rapport à la globalité des objectifs

The use of KPIs in a business environment

On a first sight, one could assume that a company’s most important issue would be the

‘general costs’, which is certainly an essential one, as every company needs to fulfil the economic exigencies in order to survive. In fact, Benjamin Franklin’s (1748) well-known quote

“Remember that time is money” is still appropriate but nowadays, the importance of a given indicator changes depending on the considered market. More importantly, it is obvious that every company needs to satisfy its’ customers’ requirements and demands in order to have and to preserve a financially strong and attractive venture. In his book, (Zsidisin, 2008) explained that “the expectations of supply chain or channel members may extend beyond the quality of the supplied resources to those of dependability, reliability, security and responsiveness of the supply chain to mitigate any dislocations wherever they may happen in the chain.” In this logic, the internally used KPI sets are a synthesis of different indicators reflecting customers’ satisfaction. It is evident that meetings and discussions about the KPI Model focus on customers’ satisfaction, regardless of the specific markets and not on one specific domain. Hence, all different domains need to be taken into consideration.

In a business perspective the understanding of how KPIs are used is of crucial importance. As described above, the financial solidity as well as the customers’ satisfaction are mandatory for every company. Many indicators are utilised for those aims while most managers are not aware of the relevance of many sustainability based indicators. Under the umbrella of ‘QSHE’ or ‘Human Resources (HR)’, many indicators are collected and evaluated for other reasons than sustainability. It is worth to point out that most managers have another understanding of the key word ‘Sustainability’ than the definition described earlier. Actually, many businessmen consider ‘Green’ and ‘Sustainable’ being synonymous, while in this work, we clearly differentiate between those two headwords as explained in paragraph 0.

The meaning of a KPI in a customers’ point of view

It is crucial to bear in mind that the importance of a specific indicator will alter depending on the considered customer. In a same domain, customers may have different perspectives and priorities. This means that a specific KPI can be considered being of major importance for one customer while this same indicator will be neglected by another one, serving the same market. Furthermore, it should be taken into consideration that customers’

demands change over time. Hence, a specific indicator which has been considered being of major importance by a particular customer may be neglected some years later by this same customer. A logistics service provider needs however to be able to measure its customers’

satisfaction without developing tailor-made KPI sets. Besides this, nowadays, such an analysis needs to include sustainability issues too. It is evident that the defined KPIs need to be clustered according to the definition of sustainability based on the 3 pillars: ‘economic’,

‘ecologic’, and ‘societal’.

In an economical point of view, many customers place greater importance to the costs.

To achieve the best savings possible, many companies try to reduce their stocks to an absolute minimum. For this reason, they need their products to be delivered on time. Additionally, the service levels as well as products’ and services’ quality are gaining in significance.

Consequently, the factor ‘costs’ is decreasing in importance compared to the past decades. In times where businesses are becoming more and more fast paced, the LSP’s experiences

Indeed, several customers have outsourced their SC processes in order to concentrate on their core competencies. Consequently they depend on their logistics partners.

Since recently being “Green” has become crucial, customers’ demands are consequently rising. The most tangible indicator measuring the green way of working is the measurement of GHG production. Unfortunately, comparability of companies’ production of CO2 or CO2e is still impossible because of the different calculation methodologies used, but it is supposed that it is better to evaluate and improve the vaguely calculated GHG emissions than to exclude the topic completely. In this logic, the calculation of CO2e emissions as well as its minimisation is considered being important regarding the ecological aspects. Hence, in some companies, vehicle drivers get trainings to improve their driving behaviour. It is important to mention, that this is not only done in a GHG minimising aspect, but also in security and proactive road performance issues as, in terms of LEAN management, waste has more different facets, i.e. noise pollution, waste of time or energy, etc. The literature review has shown that many companies are certified by several (inter)national ecological standards, which require not only the calculation of CO2(e) emissions, but beyond others, they also request the RRR concept to be implemented. To do so, many companies record and analyse their energy used as well as their waste management and try to improve the results in a LEAN perspective (Verrier et al., 2014).

The meaning of a KPI on an ethical and workspace prospect

Maslow’s (1943) Hierarchy of Needs demonstrated everybody’s need of self-realisation. On that score, the working environment needs to be evaluated internally. In a perspective of long life learning, trainings and skills management are indispensable for employees to achieve personal fulfilment. Still in the approach of Maslow’s Hierarchy of Needs, it has been pointed out that the sense of security and assurance is of major concern for every individual. It is crucial to understand that in this work, the keyword ‘security’ is double twisted. On the one hand, ‘security’ needs to be understood in a ‘safety perspective’. Thus, both blue and white-collar workers should be out of any danger while exercising their profession. On the other hand, security means ‘secure employment’, which relates to the fact that employees possess open-ended employment contracts. Actually, nowadays’ customers do not only consider the product’s price, but also its value. The latter is to be understood in financial and in ethical terms simultaneously. Indeed, todays’ end customers require employee- and animal-friendly production and companies have no choice than improving their working processes and conditions in that way. The additional pressure and resulting additional impacts which can be caused by welfare organisations should not be underestimated.

In an ethical point of view, it is important to ensure ‘respect of values and cultures’ or ‘anti – xenophobia campaigns’ preventing all kind of discriminations. Mutual respect is, indeed, the most important factor to ensure an agreeable working environment. For this reason, a company should ensure equal opportunity policies or programmes to each labour. In addition to this, ‘equal rights and duties’ need to be evaluated in order not to emerge injustices, leading into disrespectful behaviours. It is evident that ethical concerns also include the increase of employees’ motivation. In order to encourage staff members to increase their productivity as well as their personal well-being, companies often revert to bonuses which can be either financial or substantive. In other words, they allow their labour benefits beyond those legally mandated. Company owners always have ethical issues to solve, if they calculate a specific salary. On the one hand, it is crucial to follow the principle of equal pay for work of equal value. On the other hand, it might be discouraging if on a same position, people are paid in the same way, despite the fact that one worker is much more productive

rephrase, when entering an employment, a driver will lose a part of his privacy as he will be monitored during the time he performs his work as well as during his spare time. The goods are effectively tracked and traced in a constant manner. On the other hand, one could argue that this way of working improves the drivers’ personal security: In case of an accident, it is clear when and where this accident happened so that assistance can quickly be requested.

Nevertheless, a truck drivers accepts this kind of surveillance as, entering his employment, he signs a working contract including ‘constant monitoring’. Thus, a company’s owner always needs to consider the tightrope walk between legal, ethical and economic issues.

Conclusion

Through the above analysis, the importance of well used indicators becomes evident. Since a KPI set is to be seen as a synthesis of different indicators scrutinising customers’ satisfaction, the understanding of their intended use is of crucial matter. On the other hand, managers need to take their decisions based on the information they have access to. To assimilate this information, well used indicators and measurements are extremely adjuvant. Another positive side effect is that mutual trust can be built between the company and its subcontractors if transparency concerning the results obtained through the analysis of the different indicators is provided. In this same logic, customers may gain in confidence so that customer loyalty can be reached and increased.

Nonetheless, the use of indicators also shows up some drawbacks. Effectively, to analyse the different KPIs in an adequate manner, high-quality data is needed. The latter is achieved, especially via continuous track and trace. This may constitute severe issues on ethical or legal matters, putting the company owners into situations of ridge walks between legal, economic and ethical concerns. In other words, companies’ owners always need to pay attention, not to violate the enterprise’s environment to get the qualitatively best data so that an optimisation of their processes can be reached. Instead, they must settle for the satisficing concept, explained by Simon (1956), so that an improvement of their processes can be achieved.