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Product Run KPI's

May 9, 2008
"If you can't measure it, you can't manage it" is a maxim that many managers nowadays take to heart. This signals a more scientific and objective approach to management, in contrast with the personality-based, subjective management of the past. The necessary measurements are usually done by making use of the concept of KPI's, or key performance indicators.

KPI's are measurable, well-defined quantities that are selected in order to describe a particular aspect of (usually) an organization's performance. That is, these KPI's are benchmarks that indicate the health and prosperity (or otherwise) of an organization with respect to some particular aspect.

This rather general concept subsumes the earlier indicators which were mostly focused on the financial aspect or business side of things. In the past, most management approaches, if they measured anything at all, usually only measured parameters such as profits and costs, leaning heavily towards the economics of the business. Key performance indicators nowadays come not only from the financial aspect, but also from such aspects as training, customer service, and even product runs. Hence the use of KPI's allow for the objective treatment and management not only of money matters, but of virtually any aspect of the business, as long as the appropriate indicators are chosen.

A product run is a long process, with many different possible key performance indicators at each stage. The product run is usually conceptualized in terms of a product life cycle or PLC, which consists of four stages: introduction, growth, maturity, and decline. This is a general cycle that may not apply to some particular cases, but it is still a good starting point for management.

In the introduction stage, the product is new, and is only beginning to come into the market. Key performance indicators here would look at how the product is received, and how effectively it is advertised and promoted. It would also be important to monitor the manufacture and supply chain of the product, to ensure that it is capable of future growth.

In the growth stage, the focus of the indicators subtly shifts. There is now a movement towards broadening the customer base, and hence the KPI's must follow suit. Initial customer response becomes important to gauge, in order to determine which demographics are most receptive.

The next stage is maturity. Here, the focus becomes maintaining a foothold on the market share obtained during the growth stage. So the product itself must be analyzed and improved, if necessary, in order to deal with emerging competition. The indicators to be monitored would then revolve around comparisons of the product with its competitors, as well as possible innovations on the existing product.

The last stage is the decline, and is where the firm must make an important decision - to continue or discontinue the product. To this end, the key performance indicators are sales figures and manufacturing costs. If the costs outweigh sales, then it might mean that the product's life is over.

As seen in these simple examples, the KPI concept is very useful and flexible. Selecting the right product run KPI's can ensure a fruitful, well-managed product run.
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