Building an indicator tree: linking strategy and the shop floor in industrial SMEs

Have you ever felt overwhelmed by a flood of indicators, unsure of which ones are actually useful? Or unable to connect your company's big strategic goals to concrete field-level actions? This is exactly where the indicators tree makes sense.

This simple and structured visual tool connects your strategic objectives to daily actions. It gives meaning to the numbers, connects everyone’s actions to the global objectives, aligns teams… and helps you manage with clarity.

What is an indicators tree (KPI tree)?

An indicators tree is a cascading visual representation that links a strategic objective to concrete indicators at each level of the organization.

It helps to:

• Start from a clear strategic direction (for example: improve customer satisfaction)

• Identify the dimensions that influence this objective (leadtime, quality, communication…)

• Break down these dimensions into intermediate indicators (Delivery performance, scrap rate, response time…)

• And go all the way down to field-level actions (supplier delivery compliance, workshop rework rate, etc.)

It is a tool for management, understanding, training, and collective alignment.

Why is it particularly useful for industrial SMEs?

In an SME, it is common to have indicators tracked "just because we’ve always tracked them," or because they are required by a customer or during an audit. But they’re often isolated, unshared, misunderstood… and rarely used to drive decisions.

The indicators tree helps you to:

• Structure and prioritize useful indicators

• Avoid unreadable dashboards

• Make each function’s contribution to company goals visible

• Identify the right action levers at each level

And above all, it allows an operator, a warehouse worker, or a team leader to understand: "Why am I tracking this indicator, what is its purpose, and how do I contribute?"

Start by sorting through existing indicators

Before even building a new indicators tree, it is helpful to assess the current situation: which indicators are you already tracking? What are they supposed to measure?

If a KPI can't be linked to any key objective or concrete action, you need to question its usefulness. There's no point in tracking a figure that no one uses to decide or act?

This clarification exercise is an important (and sometimes surprising) first step: it lightens dashboards, refocuses on the essentials, and opens the door for a true structuring of useful and shared indicators.

A progressive method, tailored for SMEs

You don't need to build a complete tree from day one. Start simple :

1. Choose a key strategic KPI as a starting point - For example, on-time delivery performance (OTD). This indicator generally speaks to everyone: clients, production, logistics, management...

2. Identify the 2nd-level levers that influence this indicator - Ask yourself the question: "What can cause this indicator to vary?", "What are the causes of non-achievement?" (Your Pareto diagram!):

• Adherence to the production schedule

• Material availability

• Supplier on-time delivery (SOTD)

• Rework or scrap rate in the workshop

• ...

3. Go one or two levels deeper- For each identified lever, find what directly influences it and what indicator can track it. Examples:

• Rework rate depends on adherence to operational standards

• Supplier lead time adherence depends on forecast quality

• Production schedule depends on the absenteeism rate or the TRS (Overall Equipment Effectiveness - OEE)

4. Assign each KPI to a role or function - At each level, identify who is responsible. This gives meaning and makes performance loops more effective. Examples:

• Supplier delivery performance (SOTD) → procurement manager

• Rework rate → quality/production team

• Schedule adherence → workshop manager or supply chain manager

5. Visualize the tree as you go - Even if you start with a simple hand-drawn diagram or a mind map, the important thing is to start. The tree will grow over time as you refine your understanding and management.

This approach allows clear, focused, and engaging performance management.

💡 To illustrate the method, here is an example of a partial indicators tree, built around a common strategic objective in industry: on-time delivery performance (OTD). This diagram shows how you can start from an overall objective, identify levers, tactics, break down operational indicators… and also visualize potential trade-offs between performance areas.

The 7 steps to build a complete indicators tree

1. Clarify your strategic objectives (with the Balanced Scorecard)

Ask the question: "What are we trying to achieve mid-term?"

Examples:

• Improve customer satisfaction

• Reduce operating costs

• Secure supply chain

This is your strategic level.

2. Identify key themes or levers

For each objective, list the levers that directly influence its achievement.

Example for "Improve on-time delivery performance (OTD)":

• Supplier delivery performance (SOTD)

• Adherence to internal schedules

• Material availability

These are the major tactical axes.

3. Define level 2 indicators (or tactical)

Link each lever to measurable KPIs.

Examples:

• For supplier delivery performance → % of orders delivered on time

• For the production schedule → Weekly schedule adherence rate

• For materials → Critical component stock out rate

4. Go to the operational level

Each level 2 indicator can itself be influenced by other factors. Move down to level 3 or 4 by asking the question: "What drives this indicator?"

Examples:

• Workshop rework rate impacts the FPY (First Pass Yield), which impacts on-time delivery performance (OTD)

• Supplier lead time depends on forecast accuracy

5. Assign ownership to each indicator

An indicator without a pilot and without root cause analysis and Pareto is a useless indicator. For each level, identify who is responsible for monitoring and promoting the indicator:

• On-time delivery performance (OTD) → Supply chain manager

• Supplier on-time delivery performance (SOTD) → Purchasing/procurement manager

• Supplier order release rate → Procurement

• Rework rate → Production manager or operators

The goal is to show that everyone, at all levels, contributes.

6. Visualize your KPI tree

Use a chart, diagram, or digital tool to represent the tree. It should be clear, shared, and understandable by all. Keep it up to date!

7. Monitor and adjust over time

An indicators tree is not static. It evolves according to priorities and your strategic objectives. Integrate it into your rituals (quarterly reviews, team management…).

📌 What if some indicators were… in conflict?

In an indicators tree, it sometimes happens that improving one indicator negatively impacts another. Classic examples:

• Wanting to reduce costs at all costs may lead to a decrease in quality or a leadtime increase.

• Wanting to drastically improve inventory turnover may impact delivery performance due to an increase in missing parts.

That’s why some experts recommend showing “red links” between conflicting KPIs.

They signal potential trade-offs to monitor and discuss.

🛠️ Concretely, this helps:

• To anticipate side effects before launching an improvement action

• To open the discussion with teams: "If we push this lever, what could we weaken?"

• To make clear compromises between expected performances

A KPI tree isn’t just a structure — it reveals key decisions you need to manage effectively.

To go further

• Start small: focus on one strategic KPI (OTD, customer satisfaction, material cost…)

• Pair the tree with a Balanced Scorecard to frame your strategic monitoring

• Use it as a teaching tool internally: for training, alignment, engagement.

In summary

🎯 The indicators tree is:

• A simple visual tool to connect strategy and field-levels actions

• A lever for alignment and accountability

• A concrete way to clarify priorities and contributions

Want to test the relevance of your current KPIs? Start with this question: "Is this indicator directly related to a strategic objective or an operational lever that we control?"

If not… it may be time to do some clean up! 😉