Monitoring Business Performance Leads to Improving Business Performance

In a recent article, I focused on the issue that the operation of any organization has plenty to offer in terms of letting management know what is working and what needs to be addressed. Once there is agreement on this, the next questions usually relate to what to do and how to do it. The key to success here is to get executive visibility into the operation so that focus can be put on issues that 1) matter and 2) can be controlled and affected. Monitoring current and future performance factors will be much more effective than monitoring performance for decisions made in the past. For instance, controlling the purchasing process to buy only what is needed when it is needed will affect the bottom line much more that paying attention to the utilization rate of a fixed asset which was bought and paid for some time ago. Three steps can be utilized to facilitate this process of monitoring key issues for performance improvement:

• Measure Critical Few Performance Criteria
• Analyze Results and Recommend Actions
• Implement Focused Improvement Activities

Measurement activities need to target the life line issues that must be satisfied in order for the organization to survive. They also need to be factual, without emotional influence, so that owners of the process can objectively evaluate their performance and identify issues. Selecting a few key measures that tie directly to success will focus attention on the factors that affect success and will allow people to get a quick, substantive picture of current performance. Using drill down type metrics to provide more detailed information regarding the specific performance is fine, but it is most important that the appropriate message is received by the appropriate people via the top level measure. Areas to focus on include:

Customer Value: This is the most important area for any organization. What the customer considers as value is the only thing that is of importance to the organization. Having everyone understand how their actions relate to what the customer wants will allow them to re-evaluate what they do so that they can focus on eliminating wasteful non-value added activities. One way to think of value added activities is to consider if an item could be listed on the invoice for the activity in question. If not, then its value should be questioned. Suggestions for measures here include on-time delivery, total order lead time, quality per complaints/returns, and repeat business or lost customers. These metrics need to be at the customer level and not departmental level since the customer sees one organization, not a group of departments, some that perform well and some that don’t.

Operational Performance: Operational flexibility will allow the organization to adjust with the changes in demand without having to make major sacrifices in order to do so. By making a connection between what the operation does (actual supply) and what it needs to do (actual demand), those involved can begin to understand which of their activities are wasteful and which are value added. Suggestions for measures in this area include total operational throughput (as defined by deliveries to customers, not additions to inventory), processing lead time (quote to cash), non-capital investment (inventory, supplies, etc, not fixed assets), and ability to make changes to the schedule.

Financial: Cash. Let people know what is happening to the money in the organization on a regular basis (weekly or daily) and let them know how they affect this cash flow. Once workers understand this and see their impact, they will probably focus more on making good decisions. Obviously, this information must be presented in accordance with corporate information sharing policy, but the more people can relate their actions to the money being spent, the more they can affect the outcome. Some suggestions include cash flow - inflows and outflows, spending trends as a function of shipments, and comparisons to plan that are adjusted for volume differences. Simply showing the bottom line is ineffective because people typically cannot relate their actions to this measure.

All too often metrics are created, detailed and publicized that have little effect on improving performance. In order to be effective, it is important to improve the executive visibility to operational drivers, replace “gut-feel” decisions with “fact-based” decisions and educate everyone in the organization about the operational life-line drivers of performance. By making a direct connect between the metrics of performance and the actions of people, positive results from improvements are possible.

Are you Best-in-Class?

Lean Transformation Strategies

Lean transformations that effectively improve the culture and performance of
an enterprise use an integrated approach across people, business processes,
and technologies. Based on the survey responses of over 800 manufacturing
professionals, the Aberdeen Research Group has identified specific strategies for manufactures to deploy at every stage along the Lean journey. Survey results show that firms enjoying Best-in-Class performance share several common characteristics which include:

• Lean processes are standardized across the enterprise and are based on best practices.
• Executive ownership of Lean initiatives exists, and these executives have worked to establish Lean Centers for Excellence across the enterprise.
• External consultants are utilized to set expectations, help establish best practices, and train the appropriate number of internal champions.
• Lean Scheduling software solutions are used to standardize processes and support decision makers in real-time.

Aberdeen has identified required actions for enterprises at every point of the
Lean journey. In each case, the required actions have been validated by the 800
survey respondents and shown to improve KPI performance in defects, first
pass yield, on time delivery, and throughput. Actions to reach Best-in-Class include:

• Use external Lean domain experts to begin training, set expectations and establish best practices for pilot Lean initiatives.
• Establish executive ownership of local Lean initiatives and establish a pilot Lean Center of
• Excellence to support best practices across the enterprise.
• Use manufacturing operations management capabilities to enable Lean tools that support Lean Scheduling and Execution initiatives.

Are you Best-in-Class?

Measurement is Key to Lean Success

Aberdeen research studies have consistently reported that the majority of manufacturers
have begun some form of Lean initiative and are at various states along their Lean journey. Manufacturers are focusing on improving operational factors in an effort to garner profits to the organization while continuing to meet customer expectations. They also report that:

• While most companies indicate that they are Lean to some degree, few are Best-in-Class: adequate measurement and control is one missing link.
• Operational factors are among the top three reasons driving Lean Measurement and Control
• Operational metrics are often misunderstood or misaligned with strategic goals

Going through a lean transformation requires change to occur in all areas of the business and without some basic metrics beings in place, it is difficult to know where you have been and how you are succeeding in your effort. Developing metrics also forces the organization to determine what it is they are really trying to achieve by going lean so it facilitates getting everyone on the same page from the outset.

These metrics need to be basic, straightforward and close enough to the operation that those involved can actually influence them. Things like cycle time, changeover time or WIP inventory are things that people can see, touch and affect. Things like ROI, P/E ratios and ship-on-time percents are difficult since people have a hard time relating what they do day-to-day with these results. What is important is that the metrics being used at the tactical level support and contribute to the results desired at the strategic level, so careful consideration must be made when developing the lean metrics to be used.

Lots of things can be measured in a lean effort, so pick the few that are critical to your success. I'd love to hear what metrics are being used in your lean effort, so please let me know.