© 2016 Impact Dakota

Measuring Success: What Metrics Should I Use?

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Measures and Management – Outcome Measures

Using outcome indicators is like looking out the back window of a car to see where you’ve gone

Measures and Management

Today’s environment requires leading indicators or measurements that can predict, determine and influence desired outcomes

Managing the trends of the leading indicators is an absolute regarding successfully managing within the enterprise and providing the best desired outcomes

Measures and Management

We can then use those measures, and others, to monitor and promote particular behaviors by our employees

Managing the trends of the leading indicators is our view of successfully managing all areas of the enterprise So, the premise is to measure both leading and lagging indicators; but, it must be done in some context-- specifically, within the context of our purpose and vision

Measures and Management

This system integrates the overall strategy for the enterprise to a series of cascaded goals and objectives that are linked down through the organization It then is used to establish the measurements of these goals at each level, and the key performance indicators (KPI) needed to ensure that the processes remain healthy These measures are a mixed set of the proper leading and lagging indicators

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A key performance indicator (KPI) is a business metric used to evaluate factors that are crucial to the success of an organization.

Key Performance Indicators (KPIs)

KPIs advise tactical courses of action. Before KPIs can be identified, the following requirements must be met: • A predefined organizational process • Clear business objectives for the process—alignment with Purpose. • Quantitative and qualitative measurements • An active approach to finding and remedying enterprise variances KPIs are above all else, a set of indicators to measure data against an enterprise success gauge (Purpose). Ultimately, they help an organization assess progress toward declared goals.

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Key Performance Indicators (KPIs)

Where we are now

Where we want to be

Problem

Problem

Where we are now

Where we want to be

Where we are now

Where we want to be

Problem

Problem

Where we are now

Where we want to be

1) Are you working on the right problem (alignment with current business goals and objectives)?

2) Have you clearly defined the problem?

3) What are the unique measures that clearly captures performance towards achieving the goals and objectives.

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KPIs communicate what is important for strategic decision-making and prompts real-time actions

Seek to move from traditional, lagging, accounting measures that drive wrong behaviors to a system that measures and motivates excellent business practices within the enterprise

Measures and Management

KPIs: Measures and Management

Two types: - Static: These are metrics that are fundamental to performance measurements (cost, quality, delivery). These will require continuous tracking but may or may not be KPIs. - Dynamic: May change based on

Vision/Purpose/Goals established—these are always KPIs.

Fundamental Measures

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+ Accountabilities and Actions at all levels

Measures and Management

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Each key measure should contain both the actual and expected levels of performance so that problems are quickly identified and resolution actions are immediate. Visual displays with trends alert us to impending problems. No more “what happened?”.

“what’s happening?”

“what happened?”

Fundamental Measures– Process Level Measurements

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5S Score

Fundamental to managing daily production performance

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No. of Orders Expected to Ship for PeriodNo. of Orders Actually Shipped for Period

=

No. of Units of Inventory CountedDaily Line Output Rate=

No. of Actual Good Parts by Process ANo. of Expected Good Parts by Process A x(

)No. of Actual Good Parts by Process BNo. of Expected Good Parts by Process B(

)...

=

Total VS Cost for Period

No. of Products Shipped for Period=

Accounts Receivable

Total Credit Sales=No. of Days( )

Value Stream Performance

Measurement What Does it Measure? Lean PrincipleSales per person Productivity of the value tream, expressed in

terms of sales amount achieved per person. Sales amoumt divided by the number of people in the value stream.

Increase value created with the same or less resources

On-time shipment The ability of the value stream to ship products to customers on the day (or time) required by the customer. Percentage of sales order lines shipped on the right day.

Bring all the processes within the value stream under control.

Dock-to-dock time (Production lead time)

The amount of inventory throughout the value stream expressed in days or hours. Total amount of inventory within the value stream divided by the rate of shipment of products.

Increase the rate of material flow through the value stream.

First Time Through (FTT)

The ability of the value stream to make the product and perform the service perfectly every time. The product of the FTTs calculated at each step in the value stream process

Make to standard work every time throughout the value stream processes.

Average product cost

Total value stream cost divided by the number of of products shipped to customers

Continuously reduce the amount of resources required to make and sell the products.

Accounts receivable days outstanding

The amount of money owed by customers expressed in days of shipments. Total amount of money owed by customers for products shipped from the value stream divided by by the average shipment sales value.

Increase the rate of cash flow through the value stream.

Fundamental Measures– VS Level Measurements

Vision and Purpose: “We will become the supplier of choice to customers that require small order quantities of custom, electronic circuit boards, with the shortest lead times in the industry, through mastery of flexible manufacturing” 1. Provide some plant-level KPIs—Provide alignment rationale 2. Provide some line-level KPIs—Provide alignment rationale 3. Provide some process-level KPIs—Provide alignment

rationale

Exercise:

Measures and Management: Communication and Alignment

Two questions that must be answered after our Vision/Purpose/Goals are established: 1) How will our V/P/G be communicated throughout the enterprise? 2) How will we ensure that the objectives and measurements at all levels are in alignment with our V/P/G?

KPI Development

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Purpose Objective

MAI

N K

PI

SUB

KPI

PRODUCTIVITY

PRO

CESS

KP

I’S

X

X

Main KPI - KPIs selected through catch-ball process that will be primary indicator to align with the Purpose.

Sub-KPI’s - KPIs that link to main KPI and are important to measure for dept/area/group/team.

Process KPI’s – Measuring critical processes and metrics that align with sub-KPIs through to the Vision (Purpose). (dependent on maturity of area for these KPIs)

Key Performance Indicators (KPIs)

Managing the Process

1. Communication of Purpose – cascading throughout the organization, from the Strategy level to the Project/tactical level

2. Development of plans to achieve objectives at all levels: Objectives (SMART) Actions Key Indicators (KPIs)

3. Gaining vertical and horizontal alignment (catchball) 4. Deployment/execution 5. Regular progress reviews and actions (manage in real

time).

Establishing our Objectives (Future State) Objectives should follow the S.M.A.R.T. Criteria:

Managing the Process

Communication and Alignment through ROI

Responsibilities

Objectives

Indicators (KPIs)

Managing the Process

To be recognized as the leading source for electronic security solutions to residential,

commercial and industrial customers everywhere, by providing high quality products faster than our competition

Enterprise Purpose

Plant Manager Responsibility 1*

Increase average on-time delivery performance of Value Streams A & B to 99%

On-time delivery of all products from Plant 1

VS A on-time delivery rate (#)

Objective 1*

Indicator 1*

VS B on-time delivery rate (#)

*Typically involves multiple Responsibilities, Objectives and Indicators at all levels

Managing the Process

To be recognized as the leading source for electronic security solutions to residential,

commercial and industrial customers everywhere, by providing high quality products faster than our competition

Enterprise Purpose

Value Stream A Manager Responsibility

Reduce cumulative VS A inventory levels to 2 days

Increase average on-time delivery performance of Value Stream A to 99%

VS A NVA time (#)

Objective 1

Indicator 1

Plant Manager’sObjective

Managing the Process

To be recognized as the leading source for electronic security solutions to residential,

commercial and industrial customers everywhere, by providing high quality products faster than our competition

Enterprise Purpose

Manufacturing Engineer VS A Responsibility 1

Reduce cumulative VS A inventory levels to 2 days

Increase VS A on-time delivery performance from 65% to 99%

Days of WIP (#)

Days of Finished Goods (#)

Objective 1

Indicator 1

Indicator 2

Value Stream

Manager’s Objective

Managing the Process

To be recognized as the leading source for electronic security solutions to residential,

commercial and industrial customers everywhere, by providing high quality products faster than our competition

Enterprise Purpose

Project Level Responsibility 1

Resolve constraint at diode process to meet daily capacity requirement of 45 units

Reduce cumulative VS A inventory levels to 2 days

Changeover time (#)

First Pass Yield (#)

Objective 1

Indicator 1

Indicator 2

Manu-facturing

Engineer’sObjective

The Lean Enterprise – Strategic Planning

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Notice the linkages of the Leader OBJECTIVES and Subordinate RESPONSIBILITIES

Vision – 3 to 5 Years

Top Management

Annual Responsibilities Objectives

Responsibilities Objectives

Responsibilities Objectives

etc…

Division Management

Value Stream Management

Front Line

Become

Become

Becomes

Responsibilities and Objectives become more detailed and specific As they cascade down through the enterprise

Strategic Planning Example Measures and Management

Regular Progress Reviews and Actions

Supervisors, Team Leads

VS Managers, Supervisors

Plant Manager, VS Managers, Supervisors,

Team Leads

Measures and Management

Visual Management

Measures and Management

Post as close to the source as possible

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Although KPIs look at set targets and monitor performance, the ability to look at trends or to make comparisons enables broader analysis of data. By combining trends based analytics with KPIs, it becomes possible to develop predictive analytics as well:

Visual Trend Analysis

ExpectedActual

Perf

orm

ance

Time

Take action here

Not here

KPI Dashboard

Measures and Management

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Measures and Management

Measuring Success: What Metrics Should I Use?