What is the connection between operational visibility and KPIs? Visibility is the ability to track activities within an organization. KPIs on the other hand, show performance of an organization. Performance of an organization reflects its activities. If KPIs are representative of activities within your business, then KPIs give you visibility. If your KPIs neglect to show performance in certain areas of your business, then they don't give you complete visibility.
When do KPIs fail to give you visibility?
1. When KPIs neglect certain areas of business. In some cases, businesses tend to assign KPIs only to major parts of their operations. Running entire portions of a business without KPIs limits visibility and control. In such cases, KPIs don't provide adequate visibility.
2. When KPIs are oversimplified/generalized. Sometimes businesses oversimplify KPIs for convenience. However, this can come at a cost of missing factors that influence performance. In other cases, businesses tend to generalize KPIs for all their departments. This is convenient but can miss important indicators specific to one department.
3. When the connection between KPIs and real performance breaks down. In some cases, KPIs don't get changed as a business evolves. Over time the connection between KPIs and real performance breaks down. In such cases, KPIs provide myopic visibility to operational activities.
For KPIs to provide you adequate visibility, you need to peg your KPIs to core issues affecting performance. If not, you at least need to understand how KPIs are related to real performance. For example, cost KPIs are popular in logistics management. To get the best out of logistics cost KPIs; you need to understand that productivity is the real cost driver and cost KPIs only show the impact of productivity. High productivity reduces operational costs while low productivity has the opposite effect. If your logistics cost KPIs are showing bad results, productivity is your culprit.
1. Visibility can reduce operational costs:
Visibility can help you notice inefficiencies in your operations. Inefficiencies lead to thousands of dollars in unnecessary expenses. Removing inefficiencies reduces unnecessary expenses. Without operational visibility, inefficiencies can go unnoticed.
2. Visibility can help you foresee bottlenecks in your operations:
Every operation has at some point experienced a disruption or bottleneck. Such a disruption can either be activities slowing down or operations grinding to a complete stop. When you have a bottleneck in operations your customers get unhappy. Moreover, you end up spending more to deal with the disruption.
Visibility can help your business foresee and stop a bottleneck before it becomes a problem. Visibility allows you to monitor how fast goods are moving in different segments of your logistics. The operational segment with the lowest productivity usually ends up being a bottleneck. If you notice activities slowing down in one of your operational segments, you can deploy additional resources to speed things up. This will allow you to avoid a bottleneck before it becomes a big problem.
3. Visibility creates a suitable environment for continuous improvement:
"You can't improve what you don't measure" is an adage that makes visibility necessary for continuous improvement. Visibility allows you to measure the performance of your business. Performance measurement creates a suitable environment for continuous improvement. If you don't have visibility, you can't objectively measure performance. Thus, you can't be certain if a process improvement initiatives are improving your business.
Visibility has more benefits than the 3 above. Visibility can also help improve reliability, accountability and operations management among other things. The most important thing to keep in mind is: benefits of visibility only come to life if there is a deliberate effort to improve operational processes.