Nov 5th 2019

Service Level KPI: an example

Operations management

post by
Luca Castelletti

Service levels provided in delivering a product to the end customer are increasingly viewed as an intrinsic component of the value provided. Let's see a practical example of monitoring such value by using a set of KPIs.

It is now clear that customers consider not only the characteristics and the quality of the product purchased as significant but also the services associated with the purchase, such as respecting the agreed delivery dates.

This trend is particularly clear to those companies which offer their customers not only the sale of the product (for example machines and systems) but also and especially, an efficient after-sales service of spare parts and highly qualified technical support.

In the course of a project carried out on behalf of one of these companies, we were able to see how the ability to manage after-sales service with speed and punctuality had become a strategic source of competitive advantage. In such a context, it was particularly important for the company to be able to measure its performance.

To this end, working with with the after-sales manager, we set up a comprehensive KPI Dashboard of speed and service that enabled us to evaluate performance by analysing various relevant aspects.

The process of creating the Dashboard involved several steps which provided for:

  • the identification of the characteristics inherent in the service to be monitored – we discussed which factors are actually affecting the ability to provide the service within a time considered acceptable by the customer and hence established which KPIs to calculate;
the definition of key order dates, necessary for the calculation of KPIs - once the KPIs had been identified, it was necessary to define the data to be used in calculating them; in particular, the need to keep track of a series of key dates regarding the orders emerged
  • identifying gaps in the management software and customization needs with a view to recording the dates - the list of dates to be recorded was agreed with the software house and the customisations to be carried out on the software were defined
  • the design of the new order registration procedure and the relative staff training - the meaning of some dates that were already filled had to be redefined and the registration of those not yet processed was begun.

    The new procedures for compiling orders were formalised through a written procedure.

     In the first months of compilation, it was necessary to verify compliance with the procedure set by the after-sales office to be sure of the significance of the recorded dates;
  • identification of the data extractions needed for calculating the KPIs - the extractions necessary for preparing the Dashboard were agreed in detail with the IT manager
  • creation of the Dashboard - the Dashboard was designed (and then refined) numerically and graphically;
  • communication of KPIs to management and employees of the after-sales office - once the Dashboard results were verified and certified, the process of sharing the output with the management and after-sales office began. This phase is particularly important in ensuring alignment of the instrument with company policy and goals, as well as with the operating staff in order to gain feedback on the results of the work carried out and to implement any corrective actions or improvements.

Let’s take a look at the set KPIs.

Respect for delivery dates (punctuality)

This is without doubt the most classic of service KPIs. It indicates the performance of the company in complying with the delivery dates agreed with customers. It may be beneficial not only to evaluate how many order lines were delivered on time as compared to the agreed dates, but also to assess how delays are distributed by grouping them into gradual and relevant categories. In the case in question, we focused attention on the order lines delivered with a delay of no more than one week.

Average delay

The measurement of the average delay, given by the difference between the expected and actual delivery dates, helps in assessing the degree of inconvenience caused to customers in cases of late delivery. The impact of the delay clearly varies across different markets and different types of customers.

Delivery management time (speed)

Customer service is measured not only in terms of punctuality but also in terms of speed of response. In the case of the company taken as an example, the speed of after-sales service was a critical factor. For this very reason it was decided that three different lead times would be monitored:

  • Required LT - delivery time requested by the customer
  • Confirmed LT - delivery time promised to customer
  • Actual LT - actual delivery time

The comparison between these LTs allows us to understand how the customer is being served and how this service is positioned with respect to initial expectations.

Order management time

The company also decided to monitor the time that elapses between the receipt of an order from the customer and its entry into the system. This measurement is interesting because, on the one hand, the time of placing the order becomes an integral part of the LT delivery (the company starts the process of purchasing shipments only when the order is entered into the Management System); on the other hand, the customer receives a response on the delivery date at this stage (a delay in the response may increase the customer's perception of disruption).


Invoicing times

This indicator, calculated by comparing the date of shipment with the date of invoicing, does not clearly have a link with customer satisfaction, but ensures some control over a process that has a direct impact on the company's cash flow.

 

To conclude

The illustrated KPIs have been implemented in a series of steps, with specific partial views to analyse particular situations.

For instance, since the company had implemented actions to select materials to be kept in stock and to size such stocks, the level of delivery performance for this subgroup of items was illustrated separately, in order to assess the effectiveness of the material management policies.

A separate analysis was conducted to measure service to class A customers, who are clearly the focus of attention from a commercial point of view.

There is clearly no a priori limit to the development of the analyses; the effort which needs to be made is to identify the most suitable and significant set for each individual company context. This example, however, helps us to understand the potential that companies have to keep their competitive levers under control.

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