Use of Opposing Metrics are Critical

Use of Opposing Metrics are Critical

author: Lee Buttolph

What metrics do you track for your company?  Like anything, if you aren't careful your metrics could be easily manipulated.

Lets look at an example.  Cost of Goods Sold per Unit Made

This seems like a logical metric to track for a company.  The cheaper you can make a product the more money you can make or the less you can charge versus the competition.

How can this metric be manipulated?  Ramp up production with little regard for customer demand.  The increased production offsets the Factory Overhead Costs and some of the Direct Labor.

I would recommend an opposing metric of Inventory Turns to Cost of Goods Sold per Unit Made.  This will tell you if your manufacturing is making product for customers or for the warehouse.

Let try another example.  Sales per Employee

Many companies use this since payroll is such a large expense if you can increase sales faster than you have to increase employees margins should increase.

How can this metric be manipulated?  Reduce the number of employees.

I would recommend an opposing metric of Total Number of Employees Required.  This should be set at a high level in the company.  It is the number of employees needed to smoothly run the company.

The "5 Things" matrix is built around this concept.  Contact us to learn how to build a proper metrics system.