By: Daniel DeWald
Key Performance Indicators (KPI) are used to measure and monitor daily, weekly, and monthly activities in MRO and Stores. Management uses them as tools to analyze past performance and make decisions as they move forward. KPIs are objective measurements, and taking these measurements is a key activity for the maintenance manager to oversee.
Learning point takeaways are listed below:
- Learn what a key performance is
- Learn the formulas and the priority for each KPI for MRO and Stores
- Apply the knowledge to individual companies
Also discussed are a criticality matrix, benchmarking activities, and expected outcomes when implementing Key Performance measurements.
Introduction
A Key Performance Indicator (KPI) is defined as a method to measure quantifying objectives to enable the measurement of performance. Some examples of this include the measuring of inventory turns, inventory accuracy, the dollar amount spent on emergency purchases compared to the overall purchases of the company, internal and external quality defects, stock outs, service levels (customer satisfaction), and others listed in the KPIs matrix. Management then takes these measurements, that are done on a periodic basis (daily, weekly, and/or monthly), and analyzes them through trend analysis, benchmarking, and critical path analysis (PERT). These numbers are posted at work centers, strategic operations areas, and other areas where they can be readily viewed.
Many companies use only a few KPIs to measure outcomes. Stores and MRO are not always measured for their performance. However, the old adage that if you do not measure, you cannot know where you have been or where you are headed is often true.
KPIs play a major role in gauging the success or failure of MRO and Stores. They provide a simple and concise method for comparing actual performance from one period to another. They can even be used to compare performance to industry best standards, plants within a corporation, and other storerooms. It is important to have most of the information required to calculate KPIs in the computer system or CMMS program. That way the manual effort is removed and replaced with an automated one. The accuracy of these calculations is directly dependent on the accuracy of the data in the database and the documentation of material movement.
Quantitative Measurements Matrix Chart
Listed are the required formulas and descriptions of each KPI for Stores and MRO. The maintenance manager must rank the importance of each KPI to his or her needs. They are ranked in four categories: C-Critical need, H-High importance, M-Moderate need, and L-Low importance. Performance can then be benchmarked and compared.
There are two types of measurements. The first type consists of qualitative measurements. These include Pareto charts, milestone charts, critical analysis, and project plans. The second type consists of quantitative measurements, which are formulas.
Qualitative Measurements
A qualitative measurement is one that has no numerical value. Nonetheless, qualitative measurements are important KPIs that should be utilized. As noted previously, there are a number of qualitative measurements that can be used. Following are descriptions of a few of these measurements that are most often used. A milestone chart is a preliminary timeline on a chart that depicts major time intervals and events for a project. This gives management and project members an overall look at an upcoming project. These charts are used in construction, industry, government, retail, and other situations to visually and quickly show the overall progress and upcoming major events. A second measurement involves a project plan itself, showing all the events related to a project with start and finish dates, the percent of completion, and the resources and costs needed to complete the project. A critical analysis shows the path to meet the end goal. Some call this the determination of the critical path. Finally, there is a Gantt chart, which shows the events and the dates graphically, as well as the completions.
The quantitative measurements matrix chart (on the previous page) presents the required formulas and gives a description of each KPI for Stores and MRO. The maintenance manager must rank the importance of each KPI to his needs. They are ranked in four categories: C-Critical need, H-High importance, M-Moderate need, and L-Low importance. Performance can then be benchmarked and compared.
Benefit Tracking - Having KPIs Work for You
These are potential benefits, gained by measuring through the KPIs that are shown in the quantitative measurement matrix. In addition, there are other benefits gained from KPIs in the storeroom. These include salvage operations and scrapping obsolete parts, vendor buyback programs, sale of equipment, reduction in freight expediting dollars, improvement in collections from past due invoices, improvements in service after the sale, and others.
Criticality Matrix
Critical parts are very important in the calculation of KPIs. This matrix shows the criticality index cubed. The most critical item is in the red first row and in the first square. The failure is imminent, and the lead time is catastrophic
or long. The middle row (yellow) is moderately critical. The last row is green and is the least critical. Critical parts always have priority.
In summary, if you do not measure, you cannot determine where you have been, or objectively analyze where you are going. It is important to establish the KPIs for the storeroom and MRO to measure their performance, evaluate suppliers, and measure productivity.
“Success equals goals; all else is commentary.” - Brian Tracy
Daniel DeWald, CMRP, CPIM, CPM, CPMM, has spent the last seven years in project management affiliated with Life Cycle Engineering, NFI industries, and DMD Solutions. He is currently working as a consultant for GP Allied as an SME in materials management. He has over 30 years of experience in warehousing and distribution, production control, materials management, logistics, supply chain management, and purchasing.
Comments (2)
I am confused about the metrics you suggest. The stock turn measure in your matrix uses cost of goods sold on the top line - does this mean that the article is really targeted at retailers or wholesalers rather than spares for supporting maintenance operations?
Otherwise, are you really suggesting that holders of maintenance spare parts should target a stock turn of 12? This seems like an extraordinary number as most companies would struggle to achieve more than 2 and many are operating at less than 1.
Interested to clarify the type of organization that you are talking about.
Cheers,
Phillip Slater
Materials and Spare Parts Management Specialist
http://www.PhillipSlater.com
1) Posted 8:00 pm, 13 June 2011 by Phillip Slater
I'm attempting to set up KPI's for my plant's Spare Parts Inventory Department. I think your article will be quite helpful, and I especially appreciate the concise list of KPI's and formulae you have offered.
However, I have the same question that Phillip Slater asked regarding the Inventory Turnover metric. Could you kindly enlighten me?
Thanks.
Ryan A. G. Hutchinson
2) Posted 4:37 pm, 11 January 2012 by Ryan A. G. Hutchinson