Balanced Scorecard and KPIs G&S Review Project Balanced Scorecard and KPIs 1

Our approach is to use a balancesd scorecard as opposed to a list of KPIs.The Balanced Scorecard is a tool that can create the focus for making performance come alive for everyone Creating a cross-functional team to drive it Plan Review Do Establishing Plan-Do-Review at all levels to deliver it Leaders and Champions to lead it Target Actual Deliver excellent service Quality developments , delivered to plan Increase awareness of the potential of IT Meet our budgets Projects delivering business benefit Follow the financial control processes We have the skills to deliver We all live the values Objectives set and reviews completed Morale is good Everyone has a PDP We receive all the information needed to do our jobs Deliver the IT Change Programme Deliver to our technology blueprint Effective supplier management processes Effective resourcing Internal processes are efficient and effective Customer satisfaction Building understanding of the measures to prove it Developing communication processes to shout about it Training in skills to support it 2

Strategy is at the centre of the Measurement System, reflected in 4 balanced critical success factors Balanced Scorecard Financial Quadrant “How do we look to our shareholders?” Customer Quadrant Operations/ Internal Quadrant “How do we look to our customers?” STRATEGY “What business processes are the value drivers?” People Quadrant “Are we able to sustain innovation, change and improvement?” Reference: “The Balanced Scorecard — Measures That Drive Performance, “Robert S. Kaplan, David P. Norton, Harvard Business Review, Jan-Feb ‘92.

It is important to start by defining what makes any good Balanced Scorecard operate effectively Baselining and Tracking * Historical Future Cascade and Drill Down throughout the business G&S Objectives G&S Personal Development Plans Good Links Corporate Strategy Corporate Scorecard Performance Measurement System Balanced Measures Operators Customer External Quality based Non-financial Internal Time-based Cost-based Finance People Plan Review P-D-R and Management by Exception Do We need to ensure that G&S processes are aligned with, and support, a balanced set of measures within Supplies and as part of the business as a whole.

Defining Measures/KPIs 4

These are measures of effect To drive forward Performance, you need some Lead Indicators and Lag Measures. . . Lead and Lag Measures: an example LAG MEASURES LEAD INDICATORS Heading Heading Petrol consumption Oil consumption Tyre wear Washer levels Scratches and bumps Engine wear Speeding fines • Text Speed Engine revs Engine temperature Fuel level indicator Oil level indicator Warning light status Defensive driving Tiredness breaks • Text • • These are measures of effect These may impact on EFFECT CAUSE . . . where INDICATORS control and communicate BEHAVIOUR which will lead to a measurable result!

The Balanced Scorecard has four areas of focus Balanced Scorecard features The 4 areas of focus or quadrants are: - Customer - Operations - Finance - People Each measures/KPI has a budget and a target Budgets are usually set centrally Targets are set by the Supplies Team Target Actual Deliver excellent service Quality developments , delivered to plan Increase awareness of the potential of IT Meet our budgets Projects delivering business benefit Follow the financial control processes We have the skills to deliver We all live the values Objectives set and reviews completed Morale is good Everyone has a PDP We receive all the information needed to do our jobs Deliver the IT Change Programme Deliver to our technology blueprint Effective supplier management processes Effective resourcing Internal processes are efficient and effective Customer satisfaction Each BSC quadrant is broken down into segments and then measures/KPIs These represent the drivers of performance

Measures/KPIs need to be be SMART………. SMART Measures/KPIs SPECIFIC To the business: sends one message MEASURABLE Can be quantified ACHIEVABLE And sets clear guidelines for “how” REALISTIC Implies stretch but within reason TIME-BASED/TARGETTED Establishes a clear deadline, e.g in line with annual budgets/targets . . . and prioritised (ease of implementing, business impact/benefit) in order to establish the top measures per quadrant for focus.

In reality the target and tolerance do not remain static Each measure should have tolerances to enable the Team to gauge how far adrift they are from where they should be Balance Scorecard Measures: Tolerance Levels Amber light Blue light Green light Upper Tolerance Level Target Lower Tolerance Level Performance Red light Time In reality the target and tolerance do not remain static Targets and tolerances plotted on a graph along with actuals (red line) give a picture of performance over time. 15

Suggested Balanced Scorecard measures/KPIs for Goods and Services Supply CUSTOMER PEOPLE Feedback from End User Meetings Sector Manager Reviews OTIF: On Time In Full User Satisfaction Surveys Quality of Goods or Services No. of days training per year % of buyers adequately competent in their commodities Staff Turnover/Throughput Employee Satisfaction Individual objectives and measures linked to Supplies KPIs Target Actual Deliver excellent service Quality developments , delivered to plan Increase awareness of the potential of IT Meet our budgets Projects delivering business benefit Follow the financial control processes We have the skills to deliver We all live the values Objectives set and reviews completed Morale is good Everyone has a PDP We receive all the information needed to do our jobs Deliver the IT Change Programme Deliver to our technology blueprint Effective supplier management processes Effective resourcing Internal processes are efficient and effective Customer satisfaction OPERATIONS FINANCE SRM Processes Benefits tracked (recorded savings) – per anum/quarter Cost of operations Total Cost of Ownership application Benefits form Supplier innovation Inventory reduction (VMI) No. of Suppliers Spend per Supplier No. of Supplier meetings Supplier Satisfaction Surveys No. of Suppliers covered by contracts/T.A. Time spent on supplier development % spend % error-free invoices % spend on contract % compliance with contracted payment terms % spend through auctions/eRFX

Managing Performance 4

At regular meetings, the management team should focus on the exceptions and agree next steps to tackle any identified issues Managing Performance with the Balanced Scorecard Major issues are identified using the Balanced Scorecard 2 Issue Resolution Team is formed 3 Target Actual % Ad Card Transactions Average Transaction Value Customer Service/ Satisfaction Footfall - No of transactions Training People Development Staff Morale Absenteeism Staff Availability Profit Protection Presentation Standards Availability on Priority Lines Store Controllable Profit Stockholding Stock Loss Dispensary Sales Growth Counter Sales Growth The Team works to identify the root causes of the problem 1 Plan PDR is employed by the Issue Resolution Team 4 The Team works to develop potential solutions to resolve the causes of the problem Review Do 7 Implementation of solutions leads to problem resolution and success for the Team 6 The Team presents recommendations to the Management Team 5 The Team plans and implements the solutions Through this process the members of the Issue Resolution Team will achieve sustainable improvement,ultimately saving time and effort for everyone. 6

In summary the Balanced Scorecard is a tool to help managers focus on the exceptions What it is What it isn’t Business-level set of balanced measures (finance, operations, customer, people) Tool to help understanding of how Supplies is performing as a business service Tool to help managers know where the most important issues are Gives a helicopter view of what’s going on . . All of the KPIs linked to each job in the store Tool to understand the detailed workings of the business Tool to tell managers how to address most important issues . . . all the detail underneath The Balanced Scorecard works well with consistent application of Plan-Do-Review to every activity.

To use the Balanced Scorecard effectively, a number of behavioral changes are required Behaviours that support the Balanced Scorecard (BSC) Managing by exception Following through next steps X Effort and actions focused on Red and Amber lights This ensures that adequate time is spent on the areas that need improvement, and allows time for celebrating successes Reporting data periodically Delivering data on time The Balanced Scorecard will be reliant on measures and actions being reported periodically,in a timely manner. Late submission of information will have an impact on the ability to deliver an accurate performance update Understand all the measures Target Actual The Senior Management Team must understand all the objectives and measures within the Balanced Scorecard Understanding the measures will be required when setting personal objectives, delivering progress updates and agreeing next steps. Continuous improvement The targets on the BSC may change through the process of Plan-Do-Review (P-D-R) This ensures that targets are reviewed continually and are of sufficient stretch, minimising unrealistic/unachievable targets Plan-Do-Review One Team Shared ownership of problems and actions for resolution Make Supplies performance visible by providing access to and displaying the Balanced Scorecard Involving the whole of Supplies in reviews of performance and corrective action.