Major Issues

The key issue with the current performance measurement system is its inability to accurately capture the metrics that can provide key insights. Currently, the KPIs used in the CPDN warehouse do not account for the root cause of poor performance or a basis for corrective action. Our past performance levels have been very good but recent complaints from customers and pharmaceutical manufacturers have subjected the system to scrutiny and there is a need to conceptualize a more robust performance management system with a view to maximize customer satisfaction and manage the expectations of key stakeholders.

Analysis

Exhibit 1 depicts calculations done based on last month’s performance. There were 2000 lines backordered that resulted in backordered sales of approximately $910,000. Furthermore, the backorder rate (Exhibit 2) was at 6.67%. This is one of the indicators that are not currently measured and clearly have a major impact on the business. UPS logistics and CPDN lose credibility every time customers order directly from the manufacturers, putting in question the need for an agency such as CPDN. There is also the issue of customer safety in case drugs are not available in life threatening situations at the hospitals. I believe the key areas of concern with a new performance management system are maintaining confidentiality to avoid collusive trade practices, prioritizing and tracking critical KPIs and developing a robust framework for root cause analysis and corrective action.

Recommendations

Exhibit 2 depicts a list of nine KPIs that have been suggested to manage the warehouse operations and improve customer service. These KPI’s have been categorized under efficiency, quality and financial buckets based on their nature. The indicators have also been assigned “owners” to manage the issue of accountability. The main criteria behind choosing these KPIs was to maximize customer satisfaction bearing in mind the need to maintain confidentiality and drive accountability. Of these nine KPI’s, 5 have been identified as being critical (highlighted in green in exhibit 2) due to the impact that they have on customer service and stakeholder management. The pharmaceutical manufacturers are assigned ownership of days of inventory, backorder rate and inbound shipping accuracy. UPS logistics is assigned ownership of outbound shipping accuracy and inventory accuracy. An important point to note is that UPS logistics is responsible for tracking and maintaining all the KPIs regardless of ownership. The new KPIs indicate a significant change in how the warehouse operations are run and would require a comprehensive process of implementation and review.

Action Plan

Implementation of the new performance management system would involve several steps. Firstly, the KPIs would need to be approved by the Operations committee and CPDN. The committee and CPDN will also help determine the criticality of the KPIs and any changes that may be required to make. Once the indicators have been confirmed, targets for each indicator must be benchmarked against industry standards. Secondly, a new framework for performance management would have to be deployed at the warehouse. This would require presenting the indicators to all the managers and employees at the warehouse and training them on how to use them properly. There will also be a need to collect more data more often, which would require potentially updating the standard operating procedures and work methods. The data collection can be manual or automated wherever applicable. Thirdly, the indicators need to be reviewed on a regular basis. It is suggested to have daily 5-minute briefings with the staff to review the previous day’s performance. It is also recommended to send weekly performance reports to CPDN and the Operations committee. Since the data for all pharmaceutical manufacturers will be aggregated, the confidentiality will be maintained. Meanwhile, if there are any problems with particular manufacturers, UPS can directly work with them to resolve the issues.
Finally, a comprehensive process for root cause analysis must be developed to ensure that all performance related issues are resolved effectively and in a timely fashion. I also recommend that CPDN, UPS and the Operations Committee convene monthly to review the performance, re-establish targets and develop action plans to improve customer satisfaction and foster continuous improvement.