Most of the executives and managers with whom we come into contact already have a pretty good idea about where improvements need to be made, or could be made, in their operations and their supply chains.
Typically, we hear about areas like
- Better customer service levels
- Reduced inventory
- More accurate demand planning
- Increased transportation efficiency
- Improved visibility
- Enhanced procurement processes
Setting goals for improvement projects
By now, almost all our readers have probably heard the popular acronym for goal-setting. Using S.M.A.R.T., these state that all goals should be
- Specific
- Measurable
- Achievable/Attainable
- Realistic
- Time-bound
There is often confusion between the "Achievable" and "Realistic" portions of this acronym but the distinction is important to note. Attainability focuses on whether the goal is conceptually achievable—"I want to run a marathon in under 4 hours next year". Could you conceivably train yourself to run 26.2 miles in 4 hours? Of course, the average marathon finishing time is about 4:45 and finishing under 4 hour mark is a goal for many experienced marathoners.
When we look at whether a goal is realistic, we're taking a more specific look at the person or organization setting the goal. So is running a marathon in 4 hours attainable? Yes. If you work long hours in a sedentary job and have never run more than a 5K then is it realistic for you? Probably not.
The How-To of setting SMART goals
Let's walk through how we might help a client start to set SMART goals for an improvement project. For this example, we will say that the company's current customer service levels average around 84 percent as calculated using this formula:
Average Number of Customer Order Lines Shipped Complete and On-Time / Average Total Number of Customer Order Lines to be Shipped
Or, in this specific case,
18,480 / 22,000 (per month) = 84%
Next, for our hypothetical case, we will say that their cross-functional team has created a plan to move to a full-fledge Demand Driven MRP (DDMRP) implementation. They have laid out a rational plan, with our help, that says they can complete the implementation in about 90 days to 120 days. They believe that improvement will begin to be manifested at 60 days into the implementation, and that the company will improve to a 98 percent customer service level within six (6) months.
Furthermore, the plan suggests that they can achieve this improvement in customer service levels without any additional net investment in average inventory dollars.
So is this a SMART goal?
GOAL: Improve customer service level to 98 percent within six months without any additional net inventory dollars.
Lets start with the three simplest SMART Goal elements to identify:
S: Specific
Customer service levels are currently at 84%, the company would like to increase to 98%. The number– 98% – is the key here; saying "increase customer service levels" is not a specific goal, but setting a numerical objective is.
The second part of the goal, "without any additional net inventory dollars", is also specific; the numerical objective here is $0.
M: Measureable
There are two metrics to track in this goal:
- Customer Service Levels
- Averaged Inventory Dollars
With the rules in place to calculate these metrics, we know how to measure them. They are, therefore, measurable.
T: Timely
A SMART goal needs be time-bound meaning that we have a specific time frame in which we set out to achieve our goal. In the goal above we have factored in a time-related element, "within six months".
It will be simple enough to create a Microsoft Excel® workbook that can track and chart over time Inventory Dollars on-hand against the baseline average. In the same workbook, we can create a sheet—and a chart—that tracks week-by-week Customer Service Levels. This would be compared to a forecast improvement that begins at 84 percent 60 days after the commencement of the DDMRP implementation, and follows a straight-line trend up to 98 percent over six months.
That takes care of the 'T' in S.M.A.R.T.
Now, let's talk about the trickier parts:
The 'A' and 'R' the very heart of S.M.A.R.T. nevertheless, they are the most overlooked part of creating truly "smart" goals for improvement projects. These two pieces of SMART goals are the most difficult to identify and define because they're almost always specific to both the goal and the organization.
Lets start by taking another look at our goal.
A: Achievable
Is a 98% customer service level even possible without adding inventory dollars — or at all?
R: Realistic
If in fact, it is possible to achieve a 98% customer service level then does this company have the manpower and infrastructure in place to achieve that customer service level without adding inventory dollars?
Unless a cross-functional team has clearly identified the bottlenecks in the current modes of operation that have, heretofore, kept the firm and the supply chain from achieving a consistent 98 percent customer service level, then the "goal" is little more than wishful thinking.
I say this because, if such an improvement could be achieved without a clear comprehension of what is presently keeping it from being achieved, then it would already be done.
In a great many cases, the attainable and realistic analysis never gets much beyond the kind of language contained in that paragraph. The fact that someone—or some group of folks—have convinced themselves that their actions will improve customer service levels from their current level of 84 percent to 98 percent over six months does not, in itself, make the goal either attainable or reasonable.
Our approach is to help the supply chain's (or, company's) cross-functional team come to an indisputably clear understanding of their current situation and its bottlenecks by helping them apply the Thinking Processes originating with Eliyahu Goldratt (Theory of Constraints). By constructing and refining a Current Reality Tree (CRT), the team comes to find real clarity about the causes of their current situation and the fundamental changes that need to be made.
Building on this understanding as a solid foundation, they are then able to extrapolate to the clear and concise strides that are needed to carry out step-by-step improvements necessary to actually achieve the targeted 98 percent customer service levels.
In the absence of this clarity and detail, there is no "achievable/attainable" or "realistic," there are only wishes and desires.
Smart cannot be spelled without the 'A' and the 'R.'
Proceeding without these two elements makes your team only 'S.M.T.', not S.M.A.R.T.
About RKL eSolutions
Founded in 2001, RKL eSolutions provides business software and IT/Networking solutions for our clients. Our headquarters is in Lancaster, PA but we have a national presence and support clients coast-to-coast from several offices throughout the U.S.
But we’re more than just a technology company, as a sister company of RKL LLP – one of the largest and most well-respected accounting firms in Pennsylvania – we leverage our relationship to deliver a wide range of Business Consulting Services including Risk Management, Small Business Consulting, and more for our customers.
