Business never takes a day to be built; it takes continuous, restless efforts of days and nights, months, and even years to get established. A thriving business is the consequence of restless days and along with all those efforts, you need to continuously track and analyze the five major and most important pillars of your business – finance, marketing, sales, manufacturing, and staffing.
But tracking and analyzing these five pillars all at once might be a bit overwhelming for you. Therefore, in this article, we explain the fundamentals of a business – the key performance indicators in operations. Along with that, this article also explains a few important KPIs one needs to have a grip on to handle daily business chores easily.
Let’s dive in!
What Are KPIs in Operations?
KPIs or metrics in operations are defined as the quantifiable measurements used by businesses to increase their efficiency and to gauge their performances in day-to-day operations.
Advanced companies and businesses use operation KPIs to make an estimate of their day-to-day working efficiency. KPIs can measure everything on a daily basis – from production to sales, marketing, and HR.
Benefits of Tracking KPIs in Operation
Tracking KPIs in operation has several benefits. One of the most significant one is that you get a hold on real-time data.
Other benefits include:
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Improved efficiency:
- KPIs help businesses specify all those areas where operations can be optimized. This practice can lead to a better use of resources.
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Better decision-making:
- KPIs in operation provide real-time data and an understanding of what can be used to make wise decisions and allocate resources effectively.
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Increased accountability:
- KPIs help to monitor the performance of the teams and allows them to effectively achieve the goals.
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Improved customer satisfaction:
- Tracking KPIs in operation can help gauge and enhance customer satisfaction. This leads to increased loyalty.
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Enhanced visibility:
- KPIs provide a clear view of operations, facilitating administrators to specify and settle issues in a matter of no time.
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Increased competitiveness:
- Businesses stay ahead of their competitors by constantly enhancing operations because of tracking KPIs.
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Better communication:
- Progress in performance can be monitored using KPIs and the stakeholders can be made aware of the performance. This builds trust and confidence among them.
Operations KPIs That Every Business Must Measure
Let’s now dive into the operation KPIs every business must measure to ensure productivity and efficiency.
Finance Operations KPIs
Working Capital
Working capital is defined as the sum of money that remains in a company after all the current assets are removed from the current liabilities. The assets include on-hand cash, accounts receivable, inventory, etc.
Working capital in simple words is the immediately available cash. For everyday operations, you need capital I.e the money that can be invested in business at the moment.
Working capital is used to measure the financial well being of your business. It can help the managers in your finance department decide if your company can pursue growth opportunities or not.
Net Profit Margin
Net profit margin is the profit that a business makes after all the operating expenses have been taken care of. When you subtract all the operating expenses from the total revenue, you get net profit margin.
This KPI like working capital also determines the financial well being of your business. It shows how much profit can be generated by your company or in simple words, it determines the profitability of your business.
Cash Conversion Cycle [CCC]
The time taken by a company to convert the inventory into cash is called Cash conversion cycle. It includes the time taken by the business to sell the inventory and to collect the payment from customers.
Ideally, the Cash conversion cycle needs to decrease over time, because the longer the time taken to convert inventory into cash, the longer it might take for you to clear out your liabilities.
Throughput
Throughput is a very commonly used KPI which calculates the capacity of your manufacturing company to produce a certain number of goods in a certain time period.
This KPI is useful in measuring the production capacity of the machinery you use in your company. It helps your team and manager get a real insight into day-to-day functioning of the manufacturing plants.
If your throughput decreases, it might indicate that your manufacturing plant has some issue.
Capacity Utilization
Capacity utilization measures the capability of your manufacturing plant to work efficiently when compared with the optimum utilization.
Your company might have spent a huge sum of money on high-end machinery, and if not working properly and efficiently to their full potential, you may feel like you have wasted all your money. So the point of capacity utilization is that your machines work at an ideal cycle time.
Marketing Operations KPIs
Click-Through Rate [CTR]
Click through rate is the average number of times your ad has been clicked compared to the number of impressions it gets.
Not every impression corresponds to a click. This KPI estimates the percentage of impressions that results in a click on your ad.
This KPI has been widely used by marketing professionals to get a better understanding of their marketing campaign. This KPI gives them an insight into whether their marketing campaigns are working or not.
Cost Per Acquisition [CPA]
Cost per acquisition is the amount of money, time and resources you spend to get new customers, or in other words, it is the cost incurred to transform a potential lead into a loyal customer.
Cost per acquisition (CPA) is actually a marketing metric that estimates the expense of acquiring a paying customer, expressed as the cost per acquisition of a customer or the cost per action. It is estimated as the total expense of a marketing campaign divided by the number of conversions of potential leads into customers. (e.g. sales, sign-ups, etc.).
Customer Retention Rate
Customer retention rate, put in simple words, is the ratio of clients who continue to do business with your company over a given period of time or the number of customers that your company retains over a period of time.
This KPI estimates how well a company retains its customers and is an indicator of customer satisfaction and loyalty.
Acquiring new customers can be tiresome especially if you have just started your business. So you number 1 priority should be to satisfy and retain your existing customers rather than looking for new ones.
Sales Operations KPIs
Sales Cycle Length
Sales cycle length is the average time taken by the initial customer contact to the close of the sale from the time of first interaction with the lead. It measures how long it takes for a salesperson to move a prospect through the steps of the sales process and close a deal.
Attracting a new customer can be very difficult and to convince them to utilize your services may take hours, days, or weeks, depending on the efficiency of your sales team and the decision maker.
Sales cycle length can help you answer the following 3 questions:
- How much time do you need to get the data ready for prospecting?
- How much time will it take to get the first meeting booked with the key decision-maker?
- How much time will it take to close a deal with potential leads?
Close Rate
Close rate is another useful KPI to measure the number of sales possibilities that are converted into sales successfully. It is estimated as the number of deals won divided by the total number of opportunities. This metric provides a deep understanding of the effectiveness of a sales team. Not only that, but it also helps determine areas where further improvement is needed in the sales process.
Staffing and Human Resource Operations KPIs
Overtime Hours
Overtime hours as the name suggests is the extra number if hours that workers work in your company post the determined working hours.
Extra workload can make the employees work overtime which might become necessary keeping in view the rapid economic growth in the past few years.
Although beneficial for the company, it can have a negative effect on the self-esteem and overall productivity of the employees.
Absenteeism Rate
Absenteeism rate is a KPI used to measure the number of days an employee is absent from work. It is calculated as the number of days missed by the employee divided by the total number of working days.
This KPI helps organizations understand the effect of absenteeism on their business operations and overall productivity.
Employee Turnover Rate
Employee turnover rate, in simple words, is the number of employees who left an orgamizafiknafter working for a specific period of time.
Turnover can be of two types:
- Voluntary
- Involuntary
Voluntary turnover means the employee himself wants to the organization due to his personal reasons.
Involuntary turnover is when the company fires an employee because that employee might be unfit for the position and terminates him/her due to interdisciplinary actions.
How to Track KPIs in Operations with Dynamics 365?
To track KPIs in operations with Dynamics 365, you need to follow these simple steps:
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Identify KPIs:
- You first need to determine the KPIs according to your demand. Find out which KPIs are relevant to your operation and why you need that KPI.
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Set up data collection:
- Once you have determined the KPI you want, next connect Dynamics 365 to the relevant data sources to gather all the data which may be necessary for your KPIs.
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Create KPIs in Dynamics 365:
- After connecting Dynamics 365 to the data sources, use the KPI functionality in Dynamics 365 to create custom KPIs. Then configure them with the relevant data.
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Visualize KPIs:
- Dynamics 365 provides you with the ability to visualize your KPIs using charts, dashboards, and reports
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Monitor and adjust:
- Assess your KPIs regularly to monitor the overall productivity and performance and determine the areas where more improvement is required. If required, make adjustments accordingly depending on your needs.
FAQs:
Why are KPIs used in supply chain management?
Key performance indicators (KPIs) are used in supply chain management to estimate and observe the performance of various cycles and actions occurring in the supply chain. KPIs can help to:
- Monitor the efficiency and efficacy of processes
- Determine the areas where improvement is required
- Ensure customer happiness and satisfaction
- Assess the financial well-being of the supply chain.
How are KPI utilized in management of the supply chain?
KPIs are key performance indicators utilized by businesses to evaluate and optimize the efficiency and efficacy of various supply chain procedures.
Why are key performance indicators so important?
KPIs are important because they help you understand where you as an organization stands. It helps you set goals and gives you a deep insight into if you are making progress or not, if you are achieving your goals or not, and if you’re headed in the direction you want.
