[Editor’s note: Affiliate Bill Waddell’s post “Manufacturing’s 5 Golden Metrics” generated several comments from our readers. What about customer satisfaction? What if Operations does a great job with the 5 key metrics, but the design or performance of the product does not meet customer requirements? Bill’s response: “That’s the fourth metric – quality - which must be quality in the eyes of the customer.” Measuring performance from the customer’s perspective is critical, so below is a short post describing some of the metrics used by our clients to do this.]

Most organizations measure “what’s in it for them” while using lagging key indicators such as profit, sales and accounts receivable when looking at their numbers. These indicators measure what has happened in the past rather than what will happen in the future. Managing your business by focusing on lagging indicators is analogous to driving a car by looking into the rear-view mirror: it’s confusing and creates unpredictable results.

Your challenge is to guide and adapt your company in a predictive manner so it creates value for the customer. That’s why it’s important to create and track a set of customer-focused leading indicators to help you determine the direction in which your company is headed.

Here are some examples of Customer-Focused Leading Indicators that our clients are using. Every company is a bit different, so we’re not suggesting that all of these are right for you, but they should give you some ideas for defining indicators relevant to your business.

· On-Time Delivery
On-time delivery is an excellent indication of how well your company is currently functioning. If all of your operations are running smoothly, there’s a good chance that your on-time delivery is within acceptable parameters. If you are promising your customers a certain delivery date and not delivering, you give the perception that your company is incompetent and doesn’t place a high value on its customers.

And be sure you measure on-time delivery using the customer’s original requested delivery date, not a promise date assigned by your order entry system or customer service representative. If the product is not in the hands of the customer when the customer needs it, the value of your product diminishes severely. Charts tracking on-time delivery (daily, weekly or monthly) should be posted where employees can readily see them.

· Lead Time
Lead time measures the length of time between when customers place an order until they receive their product or service. If the number of days or hours is less than your competitors’, that’s a competitive advantage. Demands from your customer’s world are causing them to demand shorter lead times from you and other suppliers. Tracking lead times and posting them so employees see their current performance can help improve the company’s performance in this key indicator.

· Time to Answer Inquiry
This measures how long it takes you to respond to a customer’s inquiry. This can be a request for information, a response to an ad, etc. Tracking inquiry response time and responding quicker than competitors can translate into a competitive advantage.

· Response Time
Hospitals are beginning to measure how much time elapses when a patient pushes the call button beside their pillow until a nurse or staff employee arrives. Most lawyers return phone calls within 24 hours. Customer service representatives for merchandize catalogs and 911 operators should answer the phone within three rings. Other businesses could benefit from a “response time” key indicator as well. Unmeasured and unchecked, customers may interpret your lack of attention as a lack of caring about their business.

· Fill Rate
This key indicator measures what percentage of time the right products are available for customers. Obviously, the higher the fill rate, the more sales you are going to make. Conversely, if the right product is not available or on the shelf at the right time — it’s hard to make the sale.

· Error Rate
The Error Rate measures how many mistakes were made in your organization while fulfilling a customer’s order. Mistakes often equate to wrong products being shipped or increased delivery time.

· Target Segments
All customers are not the same and not all customers are worth pursuing. It’s important to understand which customers you provide the most value to. These customers will most likely result in your highest margin and/or profit.
Measure sales and growth rate by segments to ensure you’re growing in the segments that bring you the most value and can lead to higher future profits.

· Volume by Customer
If you track customer sales by dollars or units per month and some of your key customers begin ordering less frequently, it might be an early indicator they are giving business to one of your competitors. It also is important to track the growth rate of your customers. If a customer’s business is growing significantly and the number of orders from them is not increasing, perhaps you’re missing an opportunity.

· Product Up-Time
This measures the percentage of time your company’s product is up and running in the customers’ environment. If your product constantly breaks down or is unreliable, it could severely diminish the value of your product or service in your customers’ eyes.

· Unused Product
Unused product can let you know which items are not effectively fulfilling a need or purpose. For example, a restaurant has a large white dry-erase board directly above a trash bin. The bus boys mark the name of any portion of a meal that a customer has eaten less than 50 percent. The restaurant tallies up the totals each month to determine which items are frequently not eaten.

· Returns/Rejects
This indicator focuses on how many products customers return or reject.

· Complaints
Complaints can be a vital source of information. The number of complaints is important, but so are the types of complaints. Complaints offer companies an opportunity to re-engineer parts of their businesses that are failing.

The reason for fixing this problem area is two-fold:
1. Your customers are unsatisfied.
2. Your employees are probably spending a significant amount of time fixing these problems.

And be careful that you don’t shoot the messenger: Knowing about a customer complaint is vital, so don’t admonish your staff if more complaints are logged. This is one of the few metrics that we don’t recommend having a target for “improvement”. The last thing you want to do is ding your organization because the volume of reported complaints goes up. An upward trend may mean that your organization is doing a better job of listening to the customer and informing you with what’s going on. Remember that complaints are an opportunity to learn what the customer doesn’t like about your product or service. What isn’t reported, you can’t fix.

· Surveys
Surveys are a valuable tool to measure current customer satisfaction on a wide variety of product and service attributes. Surveys also can measure the relative importance your customers place on each attribute. Companies should attempt to excel at those attributes customers rate most important while diminishing their investments in those areas that are least important from the customer’s perspective.

· Retention Rate
Customer turnover can be an effective indicator of the value customers are receiving from your product or service.

· Referral Rate
The referral rate will measure what percentage of your business comes from referrals. It also can sum up your overall success rate at creating value for your customers.

The Bottom Line

These are just examples of leading customer-focused indicators that we helped our clients put together…each of these may or may not be appropriate for your business. Once your organization determines which indicators it wants to quantify and measure, establish a baseline of current performance (again, except for “number of complaints” – see text above). Then, set goals to increase your performance in these critical areas. As customers feel more value from you in the marketplace, this will drive the company’s bottom line in a positive direction.