Specialty Food Magazine is the leading publication for retailers, manufacturers and foodservice professionals in the specialty food trade. It provides news, trends and business-building insights that help readers keep their businesses competitive.
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Karen Burns, assurance partner with Sensiba San Filippo, a leading San Francisco Bay Area CPA and business advisory firm, advised companies at all levels to establish strategic goals and create metrics around them. "You'll be surprised how well you can manage your business this way," said Burns, who is also founder of East Bay Manufacturing Group, which provides a forum for C-level manufacturing execu- tives to network and share industry-specific thought leadership and best practices. Burns spoke at the recent Specialty Food Business Summit, held April 2 – 4, in Chicago. But, the KPIs that work for one company may fail for another. Here are the steps to identifying the metrics that will help your business f lourish. Why Should You Care? Metrics may seem like a dry exercise, but KPIs can help you earn the trust of your customers. "Transparency is important for today's con- sumers who tend to be educated, demanding, and have the power to see and create trends, especially the younger millennial crowd that's driving a more collaborative experience," Burns said. To her, food trust and business performance are one and the same. "How your business performs is a direct indication of how much people trust your food," she added. At their core, KPIs tell you where the risks are in your organi- zation. If you fail to manage your risk, you may see operational dis- ruptions, poor financial performance, regulatory issues, employee disengagement and, ultimately, a deterioration of your brand. Measure, Measure, Measure KPIs help you not only define your goals, but also measure how those activities support your progress. However, without a solid strategic plan, measuring is ineffective. "There's so much data out there, and we create more every day. If you don't have a strategy and goals around the data, it's worthless," said Burns, who noted that 44 percent of consumer packaged goods companies say only one-third of the data they capture is turned into action. "Ultimately, the question you need to answer to create your plan is: If you were stranded on a desert island and you are the sole owner with no help, when the pigeon comes with the report once a day, what are the five to 10 pieces of data you would want to know to see if your organization was on track?" Once you come up with your goals, communicate them clearly across the company. And include leading and lagging indicators. Leading indicators offer guidance on future results; lagging simply tell you how you've performed. "Your goal is finding the right bal- ance of both," Burns said. Once you've established your KPIs, create a scorecard to measure progress and regularly adjust your indicators as needed to ensure relevance. The current stage of your organization will determine the appropriate KPIs, so be aware that what you pinpoint today as most important will likely change down the road. Five Key Benchmarks Measuring finances is a common place to start, but Burns warned against only looking at the numbers. "There are a lot of things you can't see on your income sheet directly. A strategy should govern the organization. All of the pieces must connect or they create problems," she stressed. Burns advised looking at the following five areas to create a comprehensive strategy. Ideally, you would have at least one metric from each, but your organization's distinct goals and needs will help determine areas on which you should focus. 1. Financial. The sooner you better manage your cash, the more quickly you can be better positioned with your suppliers. When con- sidering metrics, Burns suggested determining the best way to look at your revenue and gross margin for your specific business. "You can divide it up in so many ways—revenue by product, category, or geography. These are important things to know, especially under- standing what sells in what geographic area," she noted. Also, look at your assets. "You need your current assets to be greater than your liabilities. It may sound obvious but without it, you'll always find yourself on the borrowing end." And if current assets are very liquid, you still may be in a hole. 2. Products. Most specialty food companies need metrics around products. Knowing what your fastest-selling items are, the time it takes from raw material to finished good, the number and diversifica- tion of SKUs, and how long it takes to change over machines on the floor are hot topics. Look at out-of-stocks to determine bottlenecks. "They add costs so you want them to disappear," Burns advised. Inventory management also is paramount. "If you use prior sales as a metric, specialty food maker "Ultimately, the question you need to answer to create your plan is: If you were stranded on a desert island and you are the sole owner with no help, when the pigeon comes with the report once a day, what are the five to 10 pieces of data you would want to know to see if your organization was on track?" 136 ❘ SPECIALTY FOOD MAGAZINE specialtyfood.com