Increasing efficiency with the right KPIs: How to identify and reduce losses

 Operational inefficiencies often go unnoticed in many companies, leading to significant financial losses. Amid rising costs, increasing uncertainties, and new regulatory requirements, companies must continuously evolve their processes to stay competitive. This is where Key Performance Indicators (KPIs) come into play. These measurable values not only reflect the progress and success of administrative and production processes but are also indispensable tools for creating transparency and identifying losses. With targeted measures based on the right KPIs, companies can achieve significant cost savings and strengthen competitiveness without resorting to short-term cuts in other areas.

Importance and selection of the right KPIs

KPIs are essential for managing and optimizing business processes. They reflect various performance aspects and act as a compass, providing measurable insights into progress toward strategic objectives. The value of KPIs lies in their ability to create transparency and pinpoint areas with potential for improvement.

However, not all KPIs are equally relevant. Selecting the right KPIs in alignment with a company’s goals and vision is critical to success but is often neglected in practice. The following table presents a selection of key KPIs from the field of Operational Excellence that should be used to identify and systematically reduce losses. The effectiveness of these KPIs depends on a well-structured approach to defining loss categories, a comprehensive data collection system, and ongoing analysis to ensure that losses can be anticipated and optimized.

What makes a good KPI?

A good Key Performance Indicator (KPI) should be clearly defined, measurable, and meaningful to the organization. It serves as an effective tool for guiding and optimizing processes. Below are the key characteristics of a good KPI:

When selecting and aligning KPIs, the concept of the “Magic Quadrant” should also be considered. This quadrant consists of the four dimensions: Quality, Time, Cost, and Personnel. For all these components, it is crucial to ensure a balanced evaluation and include indicators from each perspective. Additionally, potential goal conflicts between KPIs must be identified and avoided across all levels.

The following table summarizes the attributes of high-quality KPIs:

Identifying and analyzing losses: leveraging modern software

The use of software solutions for identifying and analyzing losses offers significant advantages but also comes with some challenges.

Advantages

Automation: Software solutions automate data collection and processing, reducing the risk of manual input errors. This not only accelerates the entire process but also enhances data accuracy. By eliminating time and resource demands previously spent on manual tasks, companies can operate more efficiently.

Visualization: Complex data and KPIs are presented in standardized, easy-to-understand graphics and dashboards. These visualizations help immediately identify patterns, trends, and anomalies, enabling leaders to make informed decisions more quickly to address inefficiencies or losses before they escalate.

Real-Time-Data: With software solutions, companies gain access to real-time data, allowing them to respond to issues immediately. For example, production downtime or inefficient processes can be identified and resolved promptly, reducing costs and time losses.

Analysis: Learning software powered by pattern recognition (AI) can independently identify key areas of focus within loss data and propose targeted action fields. This allows experts to concentrate on developing solutions and understanding connections rather than spending time on analysis and data collection.

Disadvantages

Costs: Implementing software solutions can require significant upfront investment, including costs for licenses, hardware, and adapting the systems to existing infrastructure. Additionally, there are ongoing costs for maintenance and updates.

Technology Dependency: Reliance on software carries the risk of system failures or technical issues. If the software goes down, critical data may not be collected or analyzed, leading to delays and potentially further losses. Security vulnerabilities and data privacy concerns also pose risks.

Complexity and Training: Adopting new software requires employee training. Not everyone may be immediately comfortable with the new technology, which can lead to initial frustration and even resistance. Time and resources are necessary to ensure effective training and utilization of the software.

Best Practices for KPI Implementation

Identification and Selection of the right KPIs:

Definition und Delimitation: Once the KPIs are chosen, define their parameters clearly. This includes specifying the data collection method, calculation process, and the exact purpose of the KPI. Additionally, document why the KPI is relevant to achieving strategic goals.

Developing and Cascading KPIs: A KPI cascade logically links and derives KPIs to connect strategic, tactical, and process levels. Strategic KPIs reflect overall goals and visions, while tactical and process KPIs measure specific metrics that contribute to achieving strategic objectives. The cascade ensures that goals are broken down effectively, helping employees understand how their daily tasks contribute to the overarching vision.

Implementing Data Collection Systems: Data collection systems are critical for continuously measuring, monitoring, and analyzing company performance using the identified KPIs. Building and continuously improving these systems enables precise tracking of progress toward goals.

Continuous Review and Adjustment: Regularly monitor and adapt KPIs, loss metrics, and data collection systems to changing conditions. Train employees, encourage their participation, and assign responsibility for KPI monitoring and process optimization. By embedding accountability and fostering a data-driven culture, the KPI system becomes a cornerstone of sustained success.

METHODS FOR DEVELOPING KPI SYSTEMS

• KPI Tree: To create consolidated KPI sets down to the level of losses.
• RACI Matrix: For clear structuring of responsibilities based on KPI trees.
• KPI Repository: To clarify objectives, calculations, definitions, and control logic of KPIs.
• SIPOC: To establish process relevance, ensure customer and supplier focus, and verify the interconnectedness of the entire process.

Measures to reduce losses: the path to Operational Excellence

KPIs, objectives, and losses are intended to make progress toward strategic business goals measurable and transparent. The focus is not merely on optimizing processes for their own sake. Instead, every optimization measure should directly serve the ultimate goal of bringing the company closer to its long-term vision through increased efficiency and process improvement.

Based on collected data, companies can identify processes and sources of loss that, once reduced, enable goal achievement. Typical measures such as Major Kaizen & Focus Projects, implementing new technologies, employee training, or adjusting existing workflows, not only reduce inefficiencies but also turn the company’s vision into tangible successes.

A Continuous Improvement Process (CIP) is crucial to ensure that measures are regularly evaluated and aligned with evolving strategic goals. Pilot projects can be used to test new optimization steps on a small scale before broader implementation—always with a focus on achieving long-term goals rather than merely short-term efficiency gains. Progress is safeguarded through excellent shopfloor management and a comprehensive control structure.

Conclusion

KPIs are essential for identifying losses and implementing targeted improvement measures. They provide a transparent view of current performance data, enabling companies to track their strategic goals with precision. Modern software solutions enhance this process by automating and visualizing data collection and analysis.

Companies should view KPIs not just as tools for measuring the status quo but as instruments for continuous performance optimization. An effective KPI system helps minimize losses and ensures the successful implementation of corporate strategies.

In our whitepaper, we delve into the critical elements of a holistic transformation toward Operational Excellence.