President's Column
Tracking Improvement:
Why Measure Performance?
Most companies just don’t measure performance improvement very well. So if your company doesn’t have an operational performance measurement system in place you’re not alone.
But why measure performance?
First, it’s the best way to communicate a company’s strategy throughout an organization. Performance measurement requires establishing your strategic objectives, and then breaking them down into lower level objectives and metrics.
Second, performance measures are essential for assessing the effectiveness of a strategy. See the featured article “Customer-Focused Leading Indicators” to learn how to create performance measures that are an early-warning if your strategy runs askew with customer requirements.
Third, with performance measures in place, deviations are detected earlier, enabling managers to step in and minimize the damage or make the most of an opportunity. The capability of detecting deviations, often called abnormality management, is fundamental to creating a closed-loop lean management process such as PDCA.
So performance measurement is a critical early step to a successful lean initiative. That’s why it is also one of the first things we look for while assessing a client’s current situation.
What do you need to put in place an effective performance measurement process? The good news is that an expensive software solution isn’t required. What we typically recommend is a simple, straight-forward measurement process with carefully selected metrics that complement business objectives. The process is sometimes based on Hoshin Kanri or an A3 planning system adapted from Toyota’s model.
Want to get started? Read this issue of “The LEAN Executive”, visit our Policy Deployment web page, and then feel free to contact us.
-- Mark Edmondson Mark@LEANaffiliates.com
Favorite Bookmarks
Daily Smile
Subscriber or email information is never
shared with anyone for any reason.
|
|
`Would you tell me, please, which way I ought to go from here?'
`That depends a good deal on where you want to get to,' said the Cat.
`I don't much care where--' said Alice.
`Then it doesn't matter which way you go,' said the Cat.
Why “Performance Measurement” as the theme for this issue? Well, just like the Cat from Alice in Wonderland, one of the first questions we ask a client is “where do you want to go?”
Then we listen:
Are there clear, unequivocal, quantifiable business objectives?
Are these objectives communicated in a meaningful way throughout the organization?
Are there a complementary set of metrics reviewed on a regular basis that track progress with these objectives?
Are these metrics relevant to what’s important to the customer?
What we’ve discovered over the years may surprise you: Many -- dare we say it -- most companies don’t know where they are, and they don’t know where they are going. Yes, we’ll often see standard cost accounting reports showing esoteric financial variances and cost allocations. Problem is, this information typically arrives late, is irrelevant to the customer, and is confusing to line management.
We’ve also discovered that companies that do know where they are and where they are going tend to be the market leaders. They are also more successful with leading and sustaining large change initiatives like their lean enterprise transformation.
And what do these leading companies have in place that most other companies don’t?
What often makes the difference is a simple, effective way of tracking performance improvement. And that’s what this issue of “The LEAN Executive” is about.
As always, your comments and suggestions are welcome - please follow the links at the bottom to send a note to the editor, or to forward this eNewsletter to a colleague.
Yours in success,
The LEAN Affiliates Team
|
A View From the Factory
Manufacturing’s 5
Golden Metrics
By Bill Waddell |
|
One of the most widely discussed aspects of lean manufacturing is performance measurement, which makes a lot of sense because it is probably the most important element of manufacturing management. You get what you measure. Since most companies measure their performance by metrics based in traditional accounting principles, they get traditional – that is to say, not very lean – results.
Another shortcoming with many performance measurement schemes, including those advocated by quite a few ‘experts’, is a failure to differentiate between measuring overall process (or value stream) outcomes, and measuring specific activities or attributes of a portion of the value stream.
Manufacturing performance is optimized when management recognizes that there are five golden metrics – five measures of overall value stream performance that really matter – and all other measurements are subordinate...
Read the rest of Waddell's article
|
Examples of Real Metrics
Customer-Focused
Leading Indicators
By Mark Edmondson |
|
[Editor’s note: Affiliate Bill Waddell’s post “Manufacturing’s 5 Golden Metrics” (see article above) 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.
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...
Read the entire article
|
Lean but Heavy Thinking
Talking Points from
The LEAN Executive Blog
|
|
What’s that you say? You don’t have a real-time, enterprise performance management system with integrated business intelligence and a drill-down capable executive dashboard?
September 6th, 2006 - by Mark Edmondson
If you Google “Enterprise Performance Management”, the search results include all the major business software companies: Oracle, PeopleSoft, SAS, SAP, Microsoft, Business Objects, Infor, Lawson and more. These are nice looking sites, so I’m thinking they must have real products with a lot of real customers. But after working with hundreds of companies over the years, our Affiliate team just has not seen an “enterprise performance management system” from a software company that is used effectively by a manufacturing company...
Are You Struggling to Improve 4%?
August 2nd, 2006 - by Mark Edmondson
Reading Seth Godin’s article “The Mediocre Emergency” reminded me of a meeting I had awhile ago with the CFO of a privately held $1 billion company. I asked her about their financial goals, and she replied that they had an aggressive target to improve profits by 4% this year. I felt their “aggressive target” was limiting, so I shared with her two facts that I hoped would shift her thinking...
Crossing the Lean Rubicon
July 15th, 2006 - by Bill Waddell
Over the past week or two I have been in a couple of manufacturing plants, and talked to the execs from a couple more, and there seems to be a common thread among them - first, their lean transformation is not gaining the traction and generating the results they expected, and second, they have made half hearted commitments to value stream management.
There is not a lot of doubt among the folks that set off to become lean that the value stream - the entire process from receipt of customer order to receipt of customer payment and every step in between - must be the central focus...
Takin’ On Indy In An Edsel
July 2nd, 2006 - by Bill Waddell
It seems more than a little ironic that most senior managers have absolutely no idea what the cost of the product they make is. It would seem to me that getting accurate cost information would be the first order of business before launching into grand strategies to change the costs.
In most manufacturing companies, direct labor amounts to less than 10% of the total cost – more often down around 5% or less. The sheer lunacy of assuming that the cost of making something is this relatively insignificant number plus anywhere from 400-800% to cover everything else should be obvious. Yet that’s the way it’s done almost everywhere...
The mission of The LEAN Executive blog is to discuss management issues in lean transformation. Topics include:
- How do you plan and organize an enterprise-wide lean initiative?
- The role of lean accounting and management systems
- Overcoming resistance to change
- What resources are needed?
- Planning for Rapid Improvement
- What are other companies doing?
|
Recommended Reading
Operational Performance Measurement:
Increasing Total Productivity
By Will Kaydos
|
|
A thorough overview of the process for defining, justifying, designing, implementing and analyzing results for performance measurement systems. Includes numerous real world examples which show how the general principles are converted into specific practice.
|
|
|
