ROIC-Driven Management: Defining KGI and KPI in PLM and SAP Programs for Tier 1 Automotive Suppliers

For Tier 1 automotive suppliers pursuing ROIC-driven management, PLM and SAP implementation projects are not merely system upgrades—they are strategic initiatives to improve capital efficiency.
In this context, one of the most critical capabilities for a project manager is a clear understanding of how to define, structure, and operate KGI and KPI effectively.

1. Understanding KGI and KPI

Let us begin by clarifying the terminology.

KGI (Key Goal Indicator) is a quantitative metric used to measure the achievement level of ultimate business objectives. In other words, it represents the final outcome a company aims to achieve.

For Tier 1 automotive suppliers, typical KGIs include:

• ROIC (Return on Invested Capital)
• Operating profit margin
• Revenue growth rate

KPI (Key Performance Indicator), on the other hand, measures whether the processes leading to KGI achievement are functioning effectively.

Simply put:

• KGI represents the “result”
• KPI represents the “process that produces the result”

In PLM and SAP implementation projects, KPIs may include:

• Master data readiness rate
• Test completion rate
• User training adoption rate

These KPIs directly influence business outcomes such as inventory turnover improvement or reduction in development lead time.

A practical way to interpret this is:
KGI quantifies business goals, while KPI quantifies the controllable drivers that influence those goals and breaks them down into actionable operational elements.

2. Linking KPIs to ROIC Through a KPI Tree

To truly support ROIC-driven management, project KPIs must be structurally connected to corporate KGIs through a KPI tree.

KPIs must be designed so that their achievement directly contributes to achieving the KGI.

A typical Tier 1 structure looks like this:

• Top-level KGI: ROIC target
• Business KGIs: Operating margin, inventory turnover days
• Business KPIs: Inventory turnover rate, procurement lead time, defect rate, utilization rate
• Project KGIs (PLM/SAP): Reduction in development lead time, reduction in inventory days
• Project KPIs: BOM consistency, master data readiness, test completion, training participation

By structuring these relationships in a tree format (KGI → KPI → initiatives), organizations can clearly identify bottlenecks when ROIC improvements are not realized.

3. Three Steps to Define KGI and KPI

The process of setting KGI and KPI in manufacturing and project environments follows three essential steps.

Step 1: Define KGI
First, ensure alignment with corporate strategy.
For Tier 1 suppliers, this means linking PLM/SAP initiatives to mid-term management targets such as ROIC or operating margin.

Step 2: Define KPI
KPIs must be directly linked to KGI.
If they are not, achieving KPIs does not guarantee business success.

Typically, KPIs are derived by working backward from the KGI.

For example, if reducing inventory days is a KGI, relevant KPIs may include:

• Inventory visibility improvement
• Cycle count accuracy
• Demand forecast accuracy

These are processes that SAP implementation can directly influence.

Step 3: Quantify Using SMART Criteria
Both KGI and KPI must be measurable.

The SMART framework is commonly used:

• Specific
• Measurable
• Achievable
• Relevant
• Time-bound

Examples:

• Achieve 80% master data readiness by end of month
• Complete 100% of test cases before go-live

4. Key Perspectives for Project Managers

Finally, here are essential operational perspectives for project managers.

(1) Share the ROIC Story
Clearly communicate how each KPI contributes to ROIC improvement.
During project kickoff and steering committees, explicitly link KPIs to financial outcomes to ensure alignment across stakeholders.

(2) Co-create KPIs with the Field
KPIs should not be imposed top-down.
They must be defined collaboratively with operational teams to ensure feasibility and execution commitment.

(3) Use KPI Trees for PDCA
KPI trees enable visualization of issues and bottlenecks.
In regular project reviews, identify where deviations occur and link them to corrective actions such as training, organizational changes, or system adjustments.

This is how ROIC-driven management becomes operationalized in real projects.

Conclusion

KGI and KPI are not just performance metrics—they are the backbone that connects enterprise strategy with execution.
In PLM and SAP programs for Tier 1 automotive suppliers, the ability to design and operate KPI structures that directly link to ROIC is a defining capability of successful project leadership.

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Reference Links

• Asana「What is KGI?」
  https://asana.com/resources/what-is-kgi
• ClearPoint Strategy「What Is a KPI, How To Use It」
  https://www.clearpointstrategy.com/what-is-a-kpi
• Investopedia「Key Performance Indicators (KPIs): Definition and Examples」
  https://www.investopedia.com/terms/k/key-performance-indicator-kpi.asp
• Harvard Business Review「The Performance Management Revolution」
  https://hbr.org/2018/10/the-performance-management-revolution

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Disclaimer

Parts of this article were developed with reference to generative AI suggestions and were reviewed, refined, and supplemented based on the author’s professional expertise and judgment.

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