Using Key Performance

Indicators to Drive Results!

October 28, 2014Bill Pellino – Smith & Gesteland

Heather Schommer – Profit Enhancement Solutions

About the Presenters

• Bill Pellino– Bill is a partner at Smith & Gesteland and

leads the firm’s manufacturing/ distribution business segment. In addition, Bill is a business valuation analyst and assists clients with valuation and mergers/acquisition needs.

– 80/20 Practice Group

– As a leader in our 80/20 practice group Bill has worked closely with clients to help them improve their operations and profitability.

– Business Valuation

Bill is a Certified Valuation Analyst (CVA) issued by the National Association of Certified Valuation Analysts and also holds the ABV (Accredited in Business Valuation) certification.

About the Presenters• Heather Schommer

– Heather is a Strategic Advisor in the Profit

Enhancement Solutions group and is a key

player in analyzing products, customers,

services and divisions to guide companies in

achieving profitable market share growth.

Heather works closely with members of the

management team to employ various tools

from the 80/20 toolbox. Heather is a trusted

advisor, and companies seek her input in

monthly operations meetings to identify

processes and improvements used to drive

80/20 through organizations.

– Prior to Smith & Gesteland, Heather spent

nearly seven years in the banking industry

working closely with small to medium sized

businesses across a variety of industries, and

this experience gave her a deep

understanding of small business needs.

Heather is an expert in working with business

owners to understand their organization’s

financial and strategic goals.

3

A key performance indicator (KPI) is a type of

performance measurement. KPIs evaluate the

success of an organization or of a particular

activity in which it engages. - Wikipedia

What is a Key Performance Indicator?

Poll # 1

Knowing the Score

Why is this important?

• Allows management to maintain

a better pulse on the

organization.

• Promotes data driven decisions.

• Keeps the business focused on

its goals.

• Gives employees a metric to

rally around and drives

appropriate behavior.

If you don’t know where you’re

going, any road will lead you

there.

Where to start?

• What are the company goals?

• What is it that you want to improve?

• Measure the critical few. Don’t measure everything.

3 Year Strategic Plan

Annual Company Goals

Annual Department/ Individual Goals

KPIs

Poll # 2

What our clients say

“Getting the entire team on board with KPIs and their

importance.”

“The process of developing KPIs and making sure

they align with the company’s vision, mission and

strategies.”

“Determining what KPIs are best for each

department.”

“It takes time to develop a culture that embraces KPIs

and what they represent.”

Biggest challenges in getting started…

Key Performance Indicators

(KPIs)

• Helps an organization define and reach its goals.

• Can be used in all departments.

• Measure the “80s” vs “20s”.

Examples: On Time Delivery

Quality (% rework, amount of scrap, etc.)

Production rates (# of widgets per hour)

Revenue per day

Customer satisfaction scores

Revenue per Employee

• If you don’t track this, START!

• When this benchmark is trending up, generally the

operating income is as well.

Re

ve

nu

e /

Em

plo

ye

e

Operating Income

KPI Examples

Operations

– Process or machine downtime

– Scrap rate

– Rework level

Finance

– Margins

– Working capital

– Percent A/R dollars past due

KPI Examples

Customers

– Customer retention rates

– Customer complaints

– Customer satisfaction scores

Marketing

– Conversion rates

– Cost per lead

– Search engine rankings

Visual Management

• Simplification is key.

• Post metrics in high traffic areas.

• Use colors.

• Anyone should be able to quickly know whether

metrics are being hit or missed.

Poll # 3

Bowling ChartImprovement

Measure

Jumping

Off Point*# January February March April May June July August September October November December YTD Annual

Target

1 On-time Expectation 88% 89% 90% 91% 92% 93% 94% 94% 96% 97% 99% 100% 100%

delivery 85% Actual 87% 88% 91% 91% 91% 92% 90%

2 # of 12 per Expectation 0 0 0 0 0 0 0 0 0 0 0 0 0

Recordables year Actual 0 0 1 0 0 1 2

3 Jobs with 120 per Expectation 10 9 9 8 8 7 7 6 6 5 5 4 84

Hardware Errors year Actual 8 8 7 12 7 9 51

4 Field Install 60 per Expectation 5 5 4 4 3 3 2 2 1 1 0 0 30

Errors year Actual 6 7 8 7 2 3 33

5 Scrap Costs $360K Expectation $30K $30K $30K $25K $25K $20K $20K $15K $15K $15K $10K $10K $245K

per year Actual 28,666 24,001 36,875 31,356 22,067 45,000 187,965

6 Expectation

Actual

7 Expectation

Actual

Hit

Miss

*Starting Point (where you are currently)

Poll # 4

We’re Measuring. Now What?

• Communicate, communicate, communicate!

• Review regularly

o At least monthly

o Encourage employees to take ownership

o Communicate results and actions to improve/maintain

performance

• Establish incentive / bonus programs to drive behavior

o Don’t underestimate employee engagement

o Benchmarks allow for clear targets to be set

What our clients say

“Morale has improved. Our employees feel like they are

a part of something.”

“KPIs have driven accountability among the

employees.”

“The biggest benefit is pulling so much data down to just

a few items.”

“Once we started measuring, we were able to easily

identify the poor performers and top grade accordingly.”

$10M Light Manufacturer

BEFORE

• Steep growth trajectory.

• Production was strained trying to keep up with

demand.

• General feeling of chaos in the factory.

Management team was constantly putting out fires.

• Employees were disengaged, morale was poor and

turnover was becoming an issue.

• Management was frustrated. Felt there was

nothing that could be done.

$10M Light Manufacturer

AFTER

• Visual KPI boards are located at each production

line.

• Employees are engaged and understand the goals.

• Morale and turnover has improved.

• Management is confident in the factory’s ability to

handle future growth.

Summary

• Start today!

• Aim to find the critical few metrics that will

drive the greatest results.

• Use Visual Management tools.

• Engage employees in your goals.

• Take action based on what the data is

telling you.

Questions?

Brief survey on exit

Contact Information

Bill Pellino, CPA, CVA – Partner

Smith & Gesteland

Bill.pellino@sgcpa.com

608-828-3111

Heather Schommer, Strategic Advisor

Profit Enhancement Solutions

Heather.Schommer@8020-solutions.com

608-828-3149

www.sgcpa.com

www.8020-solutions.com