Guest Podcast Episode 1
Top KPIs for CEOs | Top CEO Metrics | How to Identify KPIs for CEOs?
A CEO has a tough job. Not many ever get there. Some can't handle the stress.
And others just don't understand what is required. TO GET THERE.
See Below for the full transcription of this episode!
Sam Gupta (00:00:24):
Hello everyone, welcome to today's show. And if you're joining for the first time, this is part of our digital transformation series for which we meet every Thursday at 5:30 PM Eastern. And, uh, this is our first show for this year, uh, of the CDs. And, uh, we are going to be starting a very interesting series about KPIs. And we are going to discuss the KPIs related to pretty much every single role as well as the industry that you probably have experience. We are gonna have a lot of fun, um, discussing that, um, as long as we have our internet and technology with us, uh, which has been fun today, <laugh>. So, uh, before we start with today's session, we are going to start with everybody's intros. If you don't know me, I am Sam Gupta, principal at Elevate iq, and, uh, I'm also, uh, elevate. I use the independent e p and Digital Transformation consulting firm. On that note, I am going to move to Chris and Chris, I don't know if you are seeing the delay at your end as well. It looks a little funnier, so, you know, when I'm looking at myself, I'm losing track. So I'll just give you hint there. But yeah, please start with your intro.
Chris Gini (00:01:43):
Hi, Chris Gini, owner and president of Turnkey Technologies. We're a 29 year old Microsoft partner organization deploying Microsoft Dynamics. So great topic, key performance indicators in case you don't know what a K P I is. Okay, so we'll start there by giving you a definition. Thanks,
Sam Gupta (00:01:58):
Alan. Thank you so much for breaking that down, Chris, really appreciate that. On that note, I am going to move to Rajesh for his intro. And Rajesh looks froze. I don't know if he's still with us. Uh, is he ish? Okay, this is going be fun today. Um, okay. Uh, how about we move to Mark? Mark, uh, is moving. Mark, do you wanna introduce yourself?
Mark Lilly (00:02:23):
Sure. Good afternoon. Uh, my name is Mark Lilly, uh, president and c e o of Lilly works. Uh, we help manufacturers improve their, uh, production performance, so very excited. There are a number of very important KPIs, um, manufacturing companies look at in regards to that. And I'm very excited to talk about the, uh, what, what I might perceive as some of the positive ones and, and some of the negative ones.
Sam Gupta (00:02:49):
Okay, amazing. Thank you so much for joining. Mark. Mike, can I ask you to introduce yourself next?
Sure. Sam, I'm Mike ov and a manufacturing consultant for an property on the casualty insurance carrier. That, uh, covers about 7,500, uh, manufacturing companies in the United States. And in that role, I'm a lot of times get called into the, in the, to a company and help them identify bodies isn't going well. On one of the questions we have, and Chris explained it very well, what do you measure? How do you measure it before if you can't measure it or haven't measured, you can't improve it.
Sam Gupta (00:03:28):
Okay, amazing. Thank you so much for, uh, joining Mike and Paul. Uh, can I ask you to introduce also next, seems like the technology is working for you now when it is not working for anybody else. I guess <laugh> over to you, Paul <laugh>, uh, you are on mute, Paul. Um, yeah,
Paul Vragel (00:03:48):
Let's try that. Yeah,
Sam Gupta (00:03:50):
Yeah. Good, good. Go.
Paul Vragel (00:03:52):
<laugh> technology is great when it works. Okay. Uh,
Sam Gupta (00:03:55):
Paul Vragel (00:03:56):
It's the knot that holds the wheel on that level. Okay. Um, so, uh, we're implementation driven consultants that help companies develop immediate, enthusiastic buy-in to change across the company in one day, and then use the participant participation and contribution to achieve transformational improvements in productivity and support for growth.
Sam Gupta (00:04:22):
Love the page. Thank you so much, Paul. Really appreciate it. Uh, <inaudible>, um, do we have you with us now? Can you introduce yourself next? Um, he's probably still froze. I don't know what's going on. Um, today's a crazy day. Maybe streamer is not paying their cloud bills. Um, <laugh>, they should be paying that. Uh, you know, the economy is not as great. So technology companies are not doing as great, I guess. Uh, okay. We'll wait for Rajesh and then we'll move to the topic. Okay. Uh, if you're in the audience and joining for the first time, make sure you guys posted questions and comments. We typically try to cover them during the show. If you're another time, then we'll make sure that you receive your answers On that note. Uh, you know, in the audience, I'm going to throw one question. I am looking for your personal kpi, the favorite one that you track for yourself. If, if you could comment that in the chat box, I'll really appreciate that. On that note, I am going to move to Chris for any of the top KPIs. And, uh, Chris, I mean, uh, you might wanna limit yourself to just three because then other people cannot talk about anything else.
Chris Gini (00:05:35):
<laugh>, I'm gonna talk about everything, so there's nothing to talk about. I, I don't think that's the case. And I think just thanks, Sam. But as an intro, you know, you think about favorite KPIs, it's like perspectives. Yeah. What do you do? What's your job? You know, my favorite, your favorite. Two different favorites depending on roles, but an industry from that point. But I think is at a macro level, KPI's, financial, operational system performance, everybody's like, why do I need system performance KPIs? I've gotta make sure that machine's running, right. We're not just looking at how fast the car is going, but what's going on. So if you think about, you know, a vehicle being a great example, but in the world of, um, A V R P, and I think as an owner, and I've run a company for 29 years and I'm like, okay, what's the most important KPI to me?
Yeah. You know, and, and, and you know, the ones that jumped to mind is, is I always, I was utilization. Utilization has always been one of mine cuz I'm a professional services business. Yeah. However, utilization alone is not, is not enough. It could be misleading. And I think as you look at, you know, the financials behind utilization, you need more. And I think even as, you know, my background, I'm technical comp sci math, so I'm really into numbers, but, um, backlog is another interesting one. Everybody's like, what does that mean? Well, how much, how much backlog do I have? What's my, what's my undelivered work? If you think about, you know, signed contracts, unfulfilled contracts, that's a backlog. Meaning, you know, and again, in the professional services world, you say, oh, I've got one day of backlog. Well, that's a problem. Again, a month, six months, six months might be too much, right?
Customer service is a problem. So if you think about backlog, but backlog is an important indicator because, you know, again, for me it's gauging, well how well is sales effectiveness? And again, are the, are the delivery and the implementation teams gonna stay busi? Are they gonna run outta work? So as you think about what are those indicators that help you plan or, and, and the other one is pipeline. So we talk about backlog, which is book business. Now I'm looking at pipeline, which is okay, what's, what's heading towards the backlog, right? And, and utilization is talking about how are we delivering? So there's really three big areas, right? What's coming in, what's in not started, what's started and it's running. But, you know, and those aren't enough. And I mean, I think that, you know, and those are, some of those are operational, some of those, you know, it sounds like sales, it sounds like project Yeah.
Performance. Um, but if you're a finance guy, you know, there, there's a lot of different, and I'm, I, I've never worn the hat where I look at my, what's your debt to equity ratio? I don't look at that on a daily basis. It's an interesting one. What's your return on capital? Well, that's another one that I don't worry about on a daily basis. Cash flow is an interesting one. And, and, and normally as you look at, you know, what is, what is the metric? Is it a cash flow statement? And I think, so as you, you think about what does that mean looking at cash flow? Well, people are trying to predict, and we go back to what I said, backlog utilization. Again, if we're going to the, the subledgers and cash flow, we're looking at receivables. Now, what are my average days to pay?
Meaning, you know, if I have net 30 terms or people paying me 30 or they paying me 60 or they paying me 90. And so, you know, predictability, you know, and then there's, as you, as you add a few more that all relate to cash, okay? So cash is that other big thing that drives the organizations. And, and most people are still booking business on an accrual basis. And I'm gonna tell you what, it could be funny money. So if you're an owner and you wanna really get empirical statistics, which they're not gonna move cuz accrual accounting, Hey, I made a journal entry. Look, we have more revenue, more profit. It doesn't mean anything. But if you look at cash and if cash is that underlying theme in a business, and, and you may be accrual base, but how do you get cash based visibility performance?
So a lot of people don't look at a balance sheet on a rolling 12 month, you know, nobody's like, well, why would I look at it like that? Well, again, you're looking at, and again, we're going graphical. So if we think about even taking a step back in analytics and KPIs is are you reading numbers or are you looking at graphs and charts that have green, yellow, and red? Right? Red is action. So again, you know, I'm, I'm am I'm moving from logically in my world, right? Services, operational metrics, but I came back to cash because cash is still gonna tell you, well, what's really going on in the business? Meaning, you know, and if we look at that rolling 12 is, is is cash dropping? Is receivables climbing? Okay? Those are, those are inverse curves. And I made an example to somebody the other day that if you looked at a rolling 12 and you saw cash and AR going down at the same time, but sales looks okay, there's a problem with your accounting because right, it's okay if cash goes down and AR goes up, right?
But if cash and AR are going down and sales looks, okay, well there's a problem with sales cuz sales booking to ar, we should see right? Inverses. Now we don't want AR to go up in cash to go down, right? But that's still an indicator that, hey, is is my day's sales outstanding growing? And you, and you wonder, well, which one gets the CEO's attention? And so as we talk about graphical, right? What's impactful? Is it cash? Is it looking at what's happening here? Um, again, is it this backlog where, hey, I I don't have enough backlog. And how quickly can sales close deals to, to, to replenish a backlog because the concerns are right. What happens? It's cashflow. We're gonna have, sales are gonna drop. Why is cash gonna drop? Because I'm still paying my people. Ooh. And, and again, there's a lot of complex KPIs that can come together there and you, you know, you're listening to me say, well, what's the, what's the most important one? Well, Sam says, pick three. I'm like, okay, well you heard the first three, but once you get the first three, you still gotta come back and validate by looking at cash. And I think the cash is still king. And, uh, I mean, I could talk more about cash, but I think that you've heard my top three, so
Sam Gupta (00:10:48):
Yeah. So very good for
Chris Gini (00:10:49):
Sam Gupta (00:10:50):
<laugh>. Yeah. Yeah. Yeah. And I think this is a, this is going to be a very passionate topic in general when we talk about KPIs. I think there is just so much to talk about and we are going to get very fresh insights from everybody that I think we personally didn't have that. So, okay. Probably it's gonna be a good learning for us as well. And I believe everybody is either see the CEO in the room as well, or have when the ceo, so that's a good thing, right? Um, or CEOs talking, I guess. Um, so, uh, Chris, in your commentary, there are a lot of different layers and obviously there are gonna be some CEOs that are really good at that macro view and some CEOs are not so good. I mean, they want to get into everything. Sometimes that's a good thing, sometimes not. Um, okay, so here, and by the way, one more comment related to what you described, that, uh, you know, what that to equity and return on capital, you don't look on a daily basis. We were talking the whole year last year that everybody should care for accounting. And now we don't care for financial KPIs,
Chris Gini (00:11:49):
We don't care about 'em different, you know, but, you know, on a daily basis. And I think it comes back to that is what's your operational kpi? And I think one of the things I need to emphasize is real time data. Yeah. I can't be looking at this stuff 45 days old. I can't, I need to see it now. I need to see it within, I need to look at last week, or I need to look at next month, what's coming up. And I think that that's, that's the reality check there. And again, the, the debt equity and stuff like that, okay, are those periodic KPIs that you're gonna go revisit? Is somebody, is somebody using that if you're trying to borrow money and things like that? But if you look at health of the business, what are those things that really defined? Are you doing good?
You know, what, what is that thing that you may not be paying attention to that, hey, how did I go from a million inventory to 5 million? And well, if you're watching cash, you're gonna figure out that it's going somewhere. Okay. So there's the example where we started with cash. Cash is gonna trigger or go look at a second k p or something. But I think to your point, a lot of CEOs ask somebody to bring 'em data these days. It's a lot more connected. CEOs do have connections to dashboards and they learn how to interact, change dimensions, pivot, change, date ranges, look at comparisons last year, this year, you know, great example is a, is a, is prior year comparisons. A lot of people look at current year, but don't look at prior year. Well, what would that do? It might flag something that you're overlooking. But, uh, but again, the accounting savvy, and again, but by business, by industry, we, we all are gonna agree there's gonna be different operational metrics. So
Sam Gupta (00:13:07):
Go go ahead Paul. Do you have a comment?
Paul Vragel (00:13:09):
Yeah, I would, uh, I would say you, it, it, especially in this current environment, you need to, you need to understand, uh, we we're, we're in a, there, there's one set of things that you can look at if you're looking at a steady state business, okay, yeah, okay. We're, you know, we're, we're moving along, things are going along, we can, we can, we can do all sorts of KPIs and metrics, but when the business isn't stable, you really change the things that the c e o needs to be monitoring. For example, live, live example company having, uh, a lot of difficulty delivering product happens a lot these days because vendors aren't delivering supplies. Uh, in, in, in one case, live case, uh, the, uh, the company's market position was, we are going to be the leaders in rapid product development. That's what's going to drive our business.
That's the differentiator. Well, when we, when we looked at what they're, what they were doing in their r and d and product and development environment, they, there were bypasses in the system where sales would call in and say, I got this customer. They're hot on this product. They'll, they'll buy tankful, especially chemical business, they'll buy tank fulls of this stuff and we need it now. Well, it's never valid. When you looked into it, it was never validated against, capabilities wasn't validated. There, there was no mechanism coordinating between, uh, r and d and supply and production. So even if they got something through that system, they could never deliver it on time. So the customer says, oh, you can't deliver that on time after all this, you know, we're on, we're onto something else. What, what that forces is. The CEO in that real dynamic situation needs to be looking beyond steady state stuff and looking actually a level down to see what's really happening.
And in, in that case, when we took that look down, they had several hundred product projects for a staff of eight people in r and d. It was just completely un untenable. And what we had to do was, and, and the CEO had to drive this and had to pay attention to this venture, had to look at what are, what are, we actually had to set up a, a, uh, a set of criteria that says, this is what it takes. Here's, here's a dozen of the criteria that we have, uh, for a project to even be kicked off. So, uh, you know, can, can we do this? Uh, can we scale this up, uh, out of r and d? Can we, uh, is does this take advantage of technology we have or do we have to develop something new? We put together a whole, uh, essentially, uh, gate there to say, how do you get this project started?
And it was absolutely critical, uh, to them getting the new business in, okay, they were <laugh> when we started, they were at 50% on time delivery. So there's a, there's a metric for you. Uh, and, and certainly they needed to follow that, but if you looked at where the business was headed, that was a critical piece. So I would, I would say there's lots of things you could look at steady state, but in today's climate, you really need to think one level down in terms of what are those drivers and how, how are they in fact working? What are, what are you doing in design? Uh, if, if you're short on pr, on product from vendors, what are you doing in design to change the design so you can use alternative materials or in, uh, in purchasing that you could change the specs to your, your access to materials. So I think, I think that's a, that that's a critical piece in this environment that needs to look at and it changes what the c e o needs to be looking at typically a level down from those steady state, uh, metrics.
Sam Gupta (00:18:07):
Okay, let me think inside the there. Thank you so much, uh, Paul for that. So Mark, I'm actually going to come to you, uh, you know, in the interest of time, uh, because obviously even though we have short group, uh, we wanna make sure that everybody has opportunity to talk, uh, <laugh>. So Mark, obviously Chris was talking about a lot of different things, uh, you know, from the metro perspective, and then we got into a little bit of, uh, delivery and design scenarios. Uh, some CEOs like Chris, I mean, they still like to do database fixes. Uh, I would love to do that as well, but I don't know, you know, where CEOs should be drawing the boundary in terms of what KPIs and where they should get into and where they should delegate some mark over to you. Um, top KPIs for CEOs.
Mark Lilly (00:18:47):
Yeah, so, so while, while Chris like laid out a whole plethora of wonderful KPIs, um, that are all important actually, um, I think Paul summarized, you know, my view quite, quite well. And that is, I, you know, as you know, I deal with manufacturing companies and most manufacturers in North America today are high mix, some level of custom, right? So there is, it is a, a dynamic environment. It's a dynamic, unpredictable, highly variable type of environment, right? So, and I think those were, those are some of the words Paul was using. I was writing them down dynamic, you know, hundreds of projects going on, probably thousands of work orders, supporting those projects. R and d, you got the front end of r and d before it can even get to production. It's gotta get through R and d who's managing r and d. So it gets in production in time for it to actually produce and get on time, nevermind all the material issues through, through the supply chain.
So it's hugely challenging. The, the biggest, the KPI that we focus on. And, and again, Paul, Paul said that we, our, our cl the clients who come to us are the ones who are at 40, 50, 60% on time delivery, right? Because they're, they're just struggling. And the big, and the big struggle is, is visibility. Uh, you, you've got, you've got all these things going, you don't even realize how much work you have going on. I mean, just today, um, folks are, are trying to manage this with traditional methods such as traditional M R p, traditional finite scheduling. And it's, it's just too, those, those approaches of are just too static. Now, you, you create, you run the scheduling program, you come up with a plan, you bring it out into production, and what happens, it's a very dynamic environment. It changes customer calls, changes the due date, a material doesn't show up.
Your best setup guy calls in sick. So there's, there's all sorts of things you have to look at. So on time delivery is, is the, is my, by my top kpi now affecting it in improving it is, is another, another thing altogether. And there's supporting KPIs that can help drive to that. Ultimately per Chris, you improve your on-time delivery, you're going to satisfy your customers more. Your, your lead times are likely to reduce and whatever you're doing to improve that on-time delivery, right? So lead time is another kpi. P usually in terms of on-time delivery improvement, there's a, there's a whip reduction, whether it's a lien initiative or, or something to that effect or applying little's law in the release of material in these sorts of things. And ultimately it comes down to throughput, right? And cash and cash flow. So how much, with the resources that I have today, my machines, my people, as precious as they are, cause it's so hard to find, find people and good ones, e especially right? To, to be working in production for you. How do I utilize those resources to, to maximize what I can get out the door and maximize that, that cash flow through, through your, through your company.
Sam Gupta (00:21:55):
So very interesting insight there. And obviously I think, you know, size is probably going to be a most important factor in general, which KPIs the CEOs are going to care for. If you are talking about 5, 10, 15, 20 million company, then obviously the CEOs are probably going to worry about a lot of operational KPIs. But let's say if you're a billion dollar company, then you are playing at a different level. I don't know how many CEOs are going to be worried about the on-time delivery. Um, so obviously that's also, uh, factor. So overall, I mean, you know, the whole idea of KPIs for CEOs when we are thinking of the series is let's say if you had to pick a couple, you know, sometimes you are probably going to be in the beats and you lose the focus because you are not, you don't have that strategic focus that CEOs should be focused on focusing on because that's their job. Again, when you are a $5 million shop, you know, you are still probably wearing a lot of different, so you probably don't need to worry about these radio stuff. Um, so Mark, I mean, any counter, any, anything, any agreement, disagreement,
Mark Lilly (00:22:55):
I, I, I understand what you're saying about size, um, Sam, but, but frankly, if you're a manufacturing company of any size, yeah, yeah. PR production is the heart of the company and the stronger and faster and better you can make that heart pump, its lifeblood pump material through production, the more money you're gonna make, the more that cash is going and cash flow is gonna be affected on the top.
Sam Gupta (00:23:20):
Could not agree more. Thank you so much, mark. So Mike, I'm coming over to you and Mike, obviously you have been the manufacturing c e o and I'm pretty sure you sort of debated yourself, you know, how much do you want to go get into weeds versus you want to delegate it to somebody? So if I have operational problem, do you, do I call my guy? So depending upon, you know, how many KPIs can you track in a day because you want to have your life as well. Uh, <laugh>? Uh, yeah, go ahead Mike.
Um, so, so it's been mentioned here a couple times. You know, SA always does matter on some way, but I'm looking at the people that I interact on a lot of times. To me the CEO needs to watch strategies, develop strategies. So you have to have like a growth strategy on time delivery strategy. Does he need to know what I ship today or tomorrow? I, I don't know. But he has to have a strategy in place to meet that 90% ontime delivery to meet that, whatever that goal is. So to me it's always talk about what strategies do you have out there? I think Paul mentioned r and d, that was their goal to be the first to the market, right? Well, what, how do you measure that on, on, on? How do you look at it on, on when now if you develop a product that doesn't happen overnight, so do I need to look at that, uh, k p every day, but I have to have something in place to say every 60 days, 30 days, 90 days, I got circle back and see update that K P I on, then I think that's where the c e O gets involved.
One of mine that when I was literally boots underground in manufacturing involved in all of this, um, I think Chris hit that in, in, in many of, he said, I used something that's called oe overall equipment effectiveness. And that's one of the things is, yeah, my machine is running, but first of all, is it running when it needs to run? Does it make the product that it needs to make, does it make the quality that it needs to make? Does it make it on? And that's all com encompassed in OE overall equipment effectiveness. So to me, that was obvious one to say that pinpoints me at the high level at where is my problem coming out? Because if it's quality, yes, I made a hundred widgets, but I throw, I didn't make my on time delivery because I had to sway, throw 20 widgets away because I made excuse my language crap, right?
So now that's gonna hit me financial, it's gonna hit me on my on-time delivery. So that was one of, for, for me, always one of the most, because it includes so many of the other ones. It rolls it all up in that big picture saying, Hey, okay, drilling down, yes, we have an ontime delivery issue, but in all reality, we made the product, we just didn't get it to the customer. So said a trucking company, was it my inventory management or Oh wait, we made bad widgets, right? And that gives you done the feedback on then you as a C E O, depending on the structure, if you can't have to assign a strategy to it or a person on saying, okay, how do we fix, yes, we made a hundred parts, but 25 of 'em are bad, how do we fix the root cause?
And then you measure that to back on. I wanna just piggyback something. And we talked about cash flow and revenue, and I could tell you story walk in a company, a guy tells me he has 27 million in sale. And I said, that's great for the size of the company. Yeah, what's your profitability? Well, you know, really 3%. And I'm like, wow, <laugh>, how long are you gonna be around? Right? I mean, so his problem wasn't sales on getting cash in, his problem was he wasn't making money on what he was selling. And we all know if you give stuff away soon or later you'll run out, right? So I don't know if that answers you some of the questions you had Sam on, on, if not, I can elaborate on it, but I want to give it back to you here.
Sam Gupta (00:27:00):
Yeah, yeah. No, it does, to be honest. Okay. And I'm, I'm gonna build up a little bit on that and maybe you can offer some more commentary there. Um, so one of the problems that I personally face and I see other CEOs facing as well, I mean, when you talk about strategy, strategy is great, right? But you also have so many different versions of a strategies, uh, everybody sort of has the idea, obviously what counts as the good strategy, uh, best strategy that can be executed. And one of the challenges that I personally see people and the CEOs facing, they struggle to quantify, okay? And quantify is going to be how can you create KPIs, uh, that are going to be managed level that they can measure over the period of time and really hold people accountable Who created that strategy? <laugh>, okay? So how do you, uh, you know, translate a strategy into KPIs, uh, from your experience, Mike?
Well, one, one of the things is in, in the manufacturing industries, at least the ones that I was in, we have something that's called benchmarking. So we are looking at, and I don't wanna use companies here, but we are looking at the leaders of the industry, right? Um, can I n ma mention a name or not?
Sam Gupta (00:28:12):
<laugh> Ye go ahead. Go
Ahead. <laugh>. So, so, so let's look at pre
Sam Gupta (00:28:14):
Conversation, Mike. Let's,
Let's look at Coca-Cola, right? Everybody knows Coca-Cola. So I'm in the, in the, in the beverage industry. So I benchmark myself if I'm in the same room, right? I benchmark myself against Coca-Cola, and then I look at this, where am I not meeting or exceeding their, their, their, their standards. And that's where my s coming out. Let's say their on timely, better, Coca-Cola truck is at the distributor every time on time, the Coca-Cola truck is at the grocery store. And so how do they get this done? And then you have to develop the strategy or measure that and say, for example, we just don't have enough output to fill that truck to make it to the, it's not the driving. It's, and then your strategy should be on how do I create the liquid to put it in my can to get it into the truck because the truck wasn't.
So I would say if you, if you struggle with something, benchmark yourself, and a lot of companies, there is government organizations that can give you data as industry organizations can give you data and say, okay, I'm in the cheesemaking industry. Go to the Cheesemaking Industry Association, say what is, what is their turnaround time? What's their inventory? And they can give you some sort those benchmarks. And then you measure yourself against that. Because, man, I go back to what I said with profitability. Guy tells me he makes 27 million in sales. That's pretty good money, but 3% profit. So find out where, why are you not making, uh, 18%, uh, ebit, right? Why are you not running an ap? That's, I feel always comfortable if I have a double ditch it in the, in the twenties and ebit, right? Earning before income and taxes, I feel comfortable.
Why, why are you not getting there? What is it? Well, because we are spending so much on this and well, it's how can I reduce that cost? And then you measure that specific strategies, okay, I sent my purchasing people out to target low cost suppliers. I'm just making this up as a, as a thing right now. And then you have to deal with this on, on, put those KPIs, man, when I wasn't running my my own business, um, my boss put that KPI on me and says, it's your responsibility to hit 97% to goal or whatever that, that goal. And then put me on a every Wednesday in the meeting and says, well, you're at 85%, what do you do to gain that extra 13%? What, what do you do? How do you do this? And then guess what? I go down to my people and says, well, we said we gonna do this. Why did it not work?
Sam Gupta (00:30:43):
Okay, amazing. Thank you so much, Mike. And before I come to Paul, I'm gonna give, uh, a quick shout out to our audience, whoever has joined and, and commented. And by the way, guys, if you are in the audience, make sure you guys, um, comment something so that I can provide the visibility, uh, follow Usha kaari, it's S m e H a K u m a R I, uh, amazing on supply chain. Uh, you know, one of the best people to follow on LinkedIn. And we have Scott, uh, and Scott is, uh, in supply chain as well. So follow him. Uh, amazing guy. He drops in all the time. Scott, s c o t t a p o u d r e a u is the last name. Um, I hope you can find him. On that note, I am going to move to Paul for, um, uh, commentary from your side.
I know, Paul, you have already probably answered the top KPIs. I don't know if you have some more top ones. You can talk about that, or I am going to raise a controversial comment here. Uh, maybe you guys are gonna have some insights there on that. So I think Mike was talking about the o e e from the manufacturing perspective. Chris, I believe spoke about utilization. And I don't even know if this comment is going to be controversial or not, okay? Uh, but when I look at these two KPIs, I'm thinking that they both are probably utilization of resources if you really think about from the macro perspective. Um, and so in one case, you are looking at machines which are very expensive. And the second one, labor, especially when you talk about software engineers, very expensive, okay? <laugh>. So in both cases, I think they are very similar KPIs. I don't know if you guys agree, uh, don't agree to follow over to you.
Paul Vragel (00:32:22):
Well, I'm, uh, uh, I'll give you another view on, on a c on a couple things. So, uh, <laugh>, o o e is a composite measure,
Sam Gupta (00:32:33):
Paul Vragel (00:32:33):
And if you really, you, you could have four different machines all operating at the same o e e and have completely different reasons for that occurring at each machine. So o e by itself, it, it's a very high level, but if you really want to get into it, you really wanna know what's, what's actually happening. You, you need to decompose that and understand what those different factors are. Uh, you know, resting on, resting on o e e, it, it has a certain measure of usefulness, but if you really want to fiig, figure out why you always need to, to dive in that. And, uh, so I mean, as, as utilization, there's, there's a lot of factors that, that go into that. The e D M machine that didn't have a spare reel of wire there, okay, it's not running. Why is it not running? Okay, well the next, the next machine they deferred the maintenance on, so it actually broke down. And the third one, the operator got sick and there was no operator to replace it. These are entirely different, entirely different things. Let just to give some added dimension to that, that kind of metric. And the worker got
Chris Gini (00:34:10):
Covid, so there, there we got throw Covid in
Paul Vragel (00:34:12):
There. So there's, there we go. Yeah, COVID does everything. And then, and, and, uh, and I've also found that, uh, uh, best practices, uh, you, you need to, you need to add a little question to that, uh, which is for who or for whom, I guess to be correct. Uh, because really you may not have the same situation as the situation that you're, that you're benchmarking. And, uh, we've, we've found it helpful to, uh, take that a step further and think about next practices, what do, given where we are, what would we here do next as our to, to make that a part of our, uh, way of doing business. So, uh, yes, company size matters and, uh, this, this is a way to differentiate things that, uh, one size company can do. And it's a best practice for them, for them. Uh, another company, next practice for them is, uh, is an entirely different, uh, thing or, or some variation on that theme, uh, that, that the, uh, the larger company might not even consider. But maybe as a smaller company, you need to be partnering, partnering with three other companies to do something entirely different at one scale, at the next scale, there's a different set of next practices.
Sam Gupta (00:36:07):
Okay? Amazing. Thank you so much, uh, Paul for that. So Chris, I'm actually coming, uh, over to you and, uh, opening up the next, uh, segment. Um, so obviously you can touch on any sort of comments or comments as well as if you have any stories, um, you know, those are my favorites, or we are talking about really worst KPIs that you have seen in your experience, uh, people tracking those. And sometimes they could be actually funny to be honest, and I'm going to clear with one of the KPIs that I have personally seen, and I'm like, <laugh>, why would you track this? Okay. Does that make any sense? Okay, so this is a manufacturing company, smart, c e o, super brilliant, uh, you know, top guy. And, um, typically when you are tracking manufacturing business, mark was right. Paul was right, that you are looking at on-time delivery, you are looking at, you know, uh, maybe order to cash KPIs or whatever you wanna define, but you never sort of track the time, how much time employees are, um, you know, taking, yes, you are going to clock in on the job, and that's how you sort of, uh, track the cost, but you don't micromanage.
You know how much time you are literally taking, and you are not going to over-engineer your entire course just to track the time how efficient employees are. That's probably not very good for the employee morale in the legacy days, I guess. I mean, we have seen this, but as a c you wanna create the overarching KPIs, uh, and you wanna give them freedom, uh, rather than coming across as micromanaging. So that's what I have seen from my experience, especially in the manufacturing industries. I've not seen that anywhere else, but in this particular case, they had done it just because they didn't understand how to implement, um, E R P, how to sort of create those KPI funnels. So Chris, over to you, any KPIs that you have seen? Yeah, you
Chris Gini (00:37:46):
Know, yeah, and I, and I'm gonna go back. I didn't overload you on the front end, but, but honestly, in our world, we live in lots of KPIs and, and typically, which one are you focusing on? The one that turned red or that's yellow and ha and gun head red. And so I've got customers that there, there could be 40, 40 different metrics, and you're like, oh, which one's important? Well, like I said, it's the one that's trending wrong, yellow and red, the green ones. And, and I think that the comment about benchmarks, it's a feedback loop, right? We got a box, everything comes out sampled, we tune, we tune benchmarks, we take last year's performance. We look at how we did, we set a goal, let's, let's make that better. And then we measure, okay? So that's it. We're measuring. And so as you think about variance, and, and again, I can go down the rabbit hole on the metrics and the operational performance and manufacturing.
Hey, I wanna look at standard labor variances, micro, macro, oh, I'm looking at, at the p and l shop, wages don't equal shop or shop applied to manufacturing. Oh, I can't tell which work order's a problem. Macro, micro. So we still have to have the data, but again, the large dashboards that have a lot of different KPIs, and they're, and again, they're by group, are they inventory related? Turnover, inventory, values, defects, I mean, on production. I mean, you have lots of different classifications, but again, what are we focused on? The ones that deviate from goal or from the benchmark by some percentage, and it's real time, right? And those are the ones that get attention. And if you're the ceo, I don't wanna look at three, I wanna look at 40 of them. Why? Because most of I'm not paying attention to, but hey, this one's, this one's got a problem, it's trending, drill down.
And so the other thing I'll comment on is actionable KPIs. I live in a wonderful world with Microsoft Dynamics F and o, where we can take a business intelligence, power BI dashboard, click and drill right through, and go right into the transactional activities to remediate change or make a change as opposed to looking at a report, I gotta go over here and do something. Now, these are connected, connected actions. So if you don't live in a world with actionable bi, that's an evolution that started showing up. It's, it's out there in play. But that means you can go right, drill down, drill down, okay, now I see the problem. Wow, now I'm into the manufacturing order, I can see what's going on. Oh, what's going on here? Oh, I got a problem of variance on an operation, right? These are the ones that'll let us take action.
So again, some of the, some of the usefulness of BI is just that it has to be actionable. People get buried in paper, they don't know what to do. What decision do I make? Okay? So as these b these KPIs help lead you to the action. I'm sure Mark has seen some of those examples to him, Paul, and so forth. But, but that's the big one. It's the variance, it's the goal setting, and you're measuring performance of these metrics against goal, and you're revising them, right? How do we do last year? Well, I'm, I'm raising some of my performance criteria and great, now we reset, we're performing, we're measuring, but I, I think that, you know, even as a ceo, is he gonna wanna look at all the KPIs? I'd wanna see 'em all. Why not? They're all important. I think that's the thing is you're like, okay, which one's the most important?
Which one do I look at every day? But it's macro click, micro click, micro, micro. And I think those are the worlds that we need to evolve to, but uh, but the actionable thing is a big deal. And the other, and triggers. So then we go back to autonomous behavior that sits behind KPIs. Wow, I don't have to call anybody. I don't even have to look at it. And guess what? System took action. So now that we've got artificial intelligence living behind business intelligence, we can drive behaviors. And so again, we're, we're kind of getting onto that realm of, well, how do we really use KPIs to run the business? Well, people are part of it, don't get me wrong. But to get automation and to get actionable, whether it was a person taking the action or whether there's an autonomous function in there that triggers a behavior, triggers a change, triggers a notification.
Again, now we're taking people and stepping them back, and we're letting the system really take these metrics versus goals. Looking at variance, what's the tolerance? That tolerance was tripped. I got a 9 1 1 alert, I'm gonna get an email. And that's where we really start letting KPIs help us run the business as opposed to somebody had to show up, look at it, make a decision. That's, that's old school. I'm sorry, but we're getting a little more current. But, but again, those are things I'd like to share with the audience because as you're looking at, and, and again, it doesn't matter what e r p system you have, you wanna come layer power BI anywhere you can do that, you can add code and actions behind Power bi. You just have to have the right technical professionals know how to do that. But you can do that almost in any system where, what's the most important and what's the one where you can't rely on a human to make a, a timely decision that could really impact the business.
And they're slow moving KPIs, right? Oh, okay, that one inventory value's too high. We're not gonna fix it overnight. That's gonna be a concerted strategy is how do you bring down inventory value if you've overstocked and you're trying to watch cash, but that's a longer term metric, right? There's short-term metrics, long-term metrics. Shipping performance is one of those things that, hey, we're watching it. How do we remediate it? And then, but, but recovery isn't gonna be, and again, then within how we address shipping performance, we may have sube we're watching that are really determine how do we impact shipping performance. First one was like, well, how quickly did we release the order? Well, did we, what was the fill rate? Okay, well what are all those things impacting shipping performance, sub metrics. So the concept of a metric and a sub metric, cuz we gotta click, we gotta drill down.
Paul said it, how do I really see what's causing this behavior? And it's not gonna be one thing, but that's challenging for people. And, and what I would say is it's evolution. There's a lot of math, um, worse KPIs. The, the, the calculations are wrong. I, I'll just say that right now. I've had people that have constructed KPIs and, and for whatever reason they didn't prove out their math and there was a circumstance that failed and they looked at it and made a decision and they were like, well, that was wrong. And um, we gotta go rebuild the kpi. But that's, I think that what you're hearing is validation. So once you build these things, test them. Make sure that the, the math holds true under all circumstances so you can trust 'em because your confidence in look in the KPI said it's red, I gotta believe there's a problem. Okay, I gotta believe that. But you gotta be able to click, get to that next level and really be able to investigate at a very micro level. So, but again, I'm not gonna list all the, cuz there's hundreds, there's hundreds that are important. And again, which one do I look at? Red? I wanna see it yellow actually before it goes red, frankly. So
Sam Gupta (00:43:29):
Love it. Click, click, click. Thank you so much, uh, Chris for that. So Mark, coming over to you. Uh, any comments over comments, any stories and be charitable or funny KPIs,
Mark Lilly (00:43:40):
<laugh>? So, um, a, a couple things. One is, um, I, you, you, you typically improve what you measure, right? Com companies find that especially, especially in the manufacturing, so that that can be good and bad, right? When you put the KPIs out there, hey, these are the important metrics, so, so folks understand that and they'll, they'll tend to tend to drive towards that really well. On, on the flip side, and I think you were touching on this, Sam, around efficiency is if, if you're not sure of your non, you know, like, like your cycle times for example, or ESP especially, um, you know, human related tasks like assembly or things like that, right? You, you go out, well we, we need to know what our assembly, what our, our tack time or our, our cycle times are. And right? You go out and measure it and people know they're being watched and they're, they're going pretty fast.
When when the, when the camera's off or the, the, the person with the stopwatch is gone, right? Then, then things are a little bit different, right? So, so reality can be very different from the metrics from that standpoint. Um, switch topic a little bit on, on utilization and um, you, you, you said you wanted to be controversial. This is, this may be very controversial, but that, that is measuring utilization, right? Especially in manufacturing companies. I want to be clear cuz you know, there there's different types of utilization, but in a manufacturing company we, we see this, right? You, you walk around, you, you take a, a factory uh, tour and you see in different departments the graph with the, with the utilization, you can see that utilization is being, is a, is a kpi and it's being, it's being driven, right? The thing with driving utilization is, and honestly I just, I just learned this, you know, a a few years ago, is that there is a direct inverse
Exponential correlation between utilization and Q times. Hmm. The higher your utilization, the longer your Q times are gonna be in any department. What does that mean? Your lead times are gonna get longer. The, the, the better your utilization is cross departments, the longer your lead time through production is gonna be. So, so there's a balance point and really the balance point or the, the, the sin we often see Mike touched on it a bit, you know, you know, 20% of what you produced is, is not worth using, right? But the other, the other sin you, you do is what my dad used to call wow years, right? While, while you have an order that you can ship for a hundred this month, just build 500 more, right? We'll save the setup. You gotta, you're gonna be efficiency, your utilization will be up, right? And, and that's, that's the wrong answer. So, so there's a balance point between what you want and, and really what it comes down to. And now, you know, ala ala Ellie Goldratt and the goal is if you can find out where your bottleneck is today and where your even, where your bottleneck will be in the future, and then maximize utilization in the bottleneck, that's where you want to be. And the utilization in the, in the, in the, in the work center supporting the bottleneck, it really doesn't matter in, in, in the, in the overall sense of maximizing your throughput through production.
Sam Gupta (00:46:49):
Yeah. So amazing insight. So I'm definitely gonna have a little follow up there for, uh, you mark, uh, for the audience so that they can follow along. So you might want to unpack a little bit there. So when you are saying when you increase the utilization time, the lead time increases. So do you have any more colors there?
Mark Lilly (00:47:06):
Um, any, any what? I'm sorry. Just,
Sam Gupta (00:47:09):
Uh, clarification in terms of how does that work so that audience can follow along?
Mark Lilly (00:47:13):
Yeah, sure. So, um, uh, by, by utilization I mean, you know, how, how much, um, not sure how to, how to clarify this if
Sam Gupta (00:47:22):
Anybody else can help. I mean if you already,
Mark Lilly (00:47:24):
So I learned it, I, I learned it in, in, um, in, in a book called factory Physics, quite honestly, yeah. Where it lays out kind of the mathematical explanations, but essentially the, the more so what what happens is if you're driving utilization in certain departments, even if you don't have material, like if previous operations and jobs aren't done, folks will go find material to, to get things going. So the more and more material that's in whip, the longer your lead times are gonna be the, the slower it's gonna be to get anything through whip. Similarly, on the reverse side, the less whip you have, the faster things are gonna be able to flow through whips or your lead times reduce. And that's, that's really what it's, so as that utilization goes up, you're, you're always trying to, trying to keep things as busy as possible so your queue times get longer and longer in each, in each area.
Paul Vragel (00:48:19):
Yeah, you might, you you might think of that as if this machine is always busy, we're never gonna find a time slot where we can put something new in there. So we're gonna wait and then the next one comes and we're busy again, so we're still gonna wait. And those, all of those weights add up to increased queue time. I mean that's a, that's a very simplistic view of that, but that's, that's the dynamic. You're, if you, if you, I mean essentially if, if you look at production as a, as a funnel, the, the further you get into production, the more capacity you want available to handle all of the variations. And if you essentially restrict that capacity because you're try, you've got these machines already running flat out, you, you lose that capability and flexibility and things start to wait around and material piles up and, and you get that, uh, and, and you and you get that effect.
I, I, I also <laugh> it's my, I also like the factory physics book. That's a, that's a, uh, that's a good thing. I, and well <laugh> one, one of the, one of the things that I saw was, so here's a, here's a metric that says we're gonna track first run quality very noble sounds, sounds great. So what they found was, okay, they get, uh, again, especially chemical, they run in, they, they, they manufacture the product, it goes into quality to test it and it comes back rejected, didn't meet the, didn't meet the spec and they do some modification and, and they come send it back into quality and it gets rejected. Okay. Fi and when you looked at it, you you'd, you'd look at that, um, you look at what's happening there and it, it seems like the, the operator or the engineering or there's something wrong in that side of it that's, that's not producing material to spec. When you looked underneath that the guy who was the head of quality would reject anything that wasn't at the center of the spec distribution. <laugh>.
So <laugh>, so, so he's, he is, he by himself is gating the production of the whole facility by this test standard and <laugh>, I I, I didn't, at that point I didn't need to ask cuz I knew what the answer was. I said, do you, do you know what your, uh, what the capability of your test is? I mean are you, can you discriminate within that, uh, within that spec range? Can, can you discriminate where, where you are or is your, uh, process capability for your test outside the range of the spec? No, an no answer seemed like perfectly logical metric, perfectly logical kpi abs absolutely meaningless until you did the Kpb k p i in your test procedure. And then accept the fact that you can accept things knowing where your test is at, you know, within the spec range, not necessarily just at the center. So it, it wasn't an obvious, uh, bad kpi, good, good kpi, all the process below it didn't match what they were actually trying to do.
Sam Gupta (00:52:24):
Okay, amazing. Thank you so much Paul. Uh, Chris you had a comment as well in between, uh, clarification.
Chris Gini (00:52:29):
Yeah, I think it is, is Mark's utilization comment. You're right. You, you know, you heard the, the metrics I threw out there, we talked about utilization backlog and I made the customer service comment, cuz you're right, we don't strive for a hundred percent utilization in our services team. So in manufacturing you might say, oh, we want a hundred percent utilization, but there's no flexibility in the schedule, is the problem, right? Mark? And so you have no capacity to pivot, rework in the services world. We don't wanna be at a hundred percent capacity also because if new opportunities show up, you can't respond. And so it, it is a, it is a delicate balance is to do you max out and then you, you delay somebody else if something shows up, you know, right? You get, somebody gets preempted versus you've got a little bit of capacity.
So you can, you've got that flexibility. But I think those are important ones for different industries to figure out what what's the right thing. Because even to that point is I can't, I can't be, I'll lose my delivery schedule right now, we're way out here because we talk about backlog. Well what do we do? We add more capacity, right Mark? Oh right, we need a second shift. We gotta, and there's a measure, right? Oh, when do I add more capacity? Well, when that backlog and this and right it's right and that's it. We need more capacity. So a a variety of metrics that'll lead you to that decision though. Right. Hey,
Sam Gupta (00:53:41):
Okay, love it. And I don't know if, uh, Chris, we lost Chris. Yeah. So, okay, so if we lost for everybody. Okay. Over to you Mike. Uh, you know, I know we are short on time, so
Chris Gini (00:53:51):
Sam Gupta (00:53:53):
Chris Gini (00:53:55):
Sam Gupta (00:53:56):
Okay. Chrisy are back. Okay. I'm actually gonna go to Mike now. Um, so Mike comments over comments, any stories and any sort of terrible or funny KPIs in your experience?
Well, I think, I don't know if it's a funny kpi P but we had a CEO that wanted to measure, or measure had us measure the fuel consumption of our trucks. You know, we were a manufacturing company, we are also did and Heva so fast, you know, fuel prices is a big expense. And he measured on, just like Paul said, we finally drilled down why this is, well all the trucks, they were going fully loaded west, they're driving into the wind, right? So tho they needed more fuel than the trucks going east on uncommon empty back west, man, it's a normal physics, right? Yeah. You have a 80,000 pound truck going into 25 mile an hour headwind. Same, same model, right? And he was actually so fascinated with this that he blamed the drivers and we put monitors in it on like, you know, the trucks were maintained on everything to the same standard.
So somebody actually said is where do those trucks go? Right? When this CEO spent literally days and weeks and had people chasing, and again, the, the, the, his driver was the fuel cost, right? Because you know, we need to make that up. And the other one, and that's really, uh, one that I never understood. We had a person measuring attendance to meetings and I'm like, what does that tell you when people go to meetings? My question would be, what comes outta the meeting? How productive is this meeting? But no, hey, I showed up to every meeting this year, right? So I get 500 meetings, I get the gold star. I never said a word, I never did anything. I never contributed to the team to anything. But I have the gold star because my attendance was perfect, right? I even sign up for my, this was the choke. I even sign up for meetings. I, I'm not even required, right? Just so I get the gold star, I'm like, why would it attract something non-tangible like attendance to the meeting versus productivity or things accomplished in the meeting outcomes of the meetings, right? So I think that's the two that I always shook my head at and said, really you have nothing to do so you can watch meeting attendance as a, as a kpi. <laugh>.
Sam Gupta (00:56:08):
Love it. Thank you so much Mike for that. Uh, I know we have three minutes right now. We can probably take one more comment from you Paul. Uh, Chris, do you have a comment?
Chris Gini (00:56:18):
No, I was gonna say, you know, there is a really cool k p that we built for a client and these guys uh, have about a million square feet of, and they pick and pack ships and they, during Covid went direct to consumers. So they're doing tens of thousands of picks a day. And so the analytics, we built them as a dashboard that looks at picker performance and it's pretty slick. So, you know, I mean if you're picking thousands of pairs of shoes, you better be good. But that's a graphical view of the workers out in the shop, out in the warehouse and charts behavior. So pretty cool. Everybody's like really picking performance down to the worker. And again, in warehouse applications that may be something that shows up, but in this example it was a custom dashboard for this customer to really monitor who's their champions out there in the warehouse and where the bottlenecks, et cetera, et cetera. So another great example of just being creative as to is that an important part of his business? Yeah, he's looking at velocity of how quick are they picking those hundreds of thousands of pairs of shoes per day. But anyway, it's all creative.
Sam Gupta (00:57:12):
Very interesting. So I guess, you know, I'm probably gonna have one quick comment there, Chris, on that comment. So, uh, you know, typically if you look at the warehouse systems, they are probably gonna have pick per hour. I guess that's the K KPI that to go with. And I don't know if I'm correct here or not, but I mean that's, so was it similar or different?
Chris Gini (00:57:28):
Uh, it's just graphical representation. There wasn't, there wasn't this particular exhibit or this dashboard out of the box in our solution. So again, remember, remember Dynamics incorporated a warehouse management system in there. I'm sure they've got analytics on picker performance, but this was a special, it was a custom dashboard and that's it. And I think that as owners, if people listen to this, is you don't have to deal with just out of the box again, noodle it on Excel and say, okay, can we build this if the data points are available? Yeah. But part of that is that evolution of thought as to how do you measure, and it's not gonna be the same in six months. It's not gonna be same in another six months. But that's a perfect example is this guy needed a custom view to manage his people differently than it showed up out of the box. That's it constructed. I
Paul Vragel (00:58:06):
I would add one, one, uh, uh, expansion of that thought, uh, <laugh> and, and, and we've seen this and where has operation it, the, the, the picker performance was as one aspect. The Putaway performance was a whole different aspect that if you, if you really look, you really needed to look at the whole thing because the putaway performance was dismal <laugh>, and then the, uh, the pickers who got to pick from the good locations looked like stars. And if they hit the bad location where the material was scattered all over the place in the location, uh, gave you another view. Again, again, it's, it's what are you, what are you looking at? How deep do you need to go to really understand what's driving that?
Sam Gupta (00:58:57):
Okay, amazing. Thank you so much Paul. So we are really close to our time now and uh, we are probably going to be short on closing advice, so I'm just gonna pick one person for the closing advice. Uh, mark, can I have you do the closing advice, if you don't mind?
Mark Lilly (00:59:11):
Sure, yeah. Um, if you're, uh, you know, take a, take a look at, I, I think everybody would agree, you know, take a h take a hard look at, um, what KPIs you're using today, um, that you have a supportive, supporting objective information underneath that. Whether it's, you know, picking people, you know, people type metrics, machine type metrics, overall financial cash flow metrics and make sure you have the underlying information that's gonna support those in an, in an objective way for you.
Sam Gupta (00:59:38):
Alright, amazing, great advice. Thank you so much guys for, uh, joining today. So that's it, uh, for the show. If you join for the first time, this was part of our digital transformation series for which we meet every Thursday at 5:30 PM Eastern. So make sure you guys are gonna be in next week. We are gonna come back with another K P I topic on that note. Thanks everyone for joining in tonight. Take care buddy. See you, everybody.
Mark Lilly (01:00:02):
Everybody. Have a good night. Take care.