Lean performance indicatores

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Lean Performance Lean Performance Indicators:Indicators:

Relevant Metrics that Sell Results and Relevant Metrics that Sell Results and Drive Ongoing ImprovementDrive Ongoing Improvement

IIE Annual ConferenceVancouver, BCMay 20, 2008

2© 2008 Mike Osterling and Karen Martin

Learning Objectives

Three key performance indicators that must be included in process measurements.How to calculate staffing requirements.How to translate lean improvements into numbers with bottom-line impact.The difference between lagging and leading indicators, and the need for both operational and financial metrics.How to speak the language of executives and decision makers.


Metrics vs. Measurement

Measurement – the act of collecting data for metricsMetric – a system of related measures that facilitates the quantification of some particular characteristic


What is the Purpose of Metrics?

To establish a baseline from which to measure improvementTo monitor process performance

Assess progressDetermine negative trends so proactive, corrective action can be taken

To shape behaviorTo drive decisions / actionTo sell improvement across the organization


Process Design Mantra

Because measurement is NVA and resource-intensive:

Minimum effort to achieve optimal outcomes.

Efficient – time and resourcesEffective – quality


Attributes of Effective Metrics

RelevantBalancedEasy to collect / dynamicTimelyVisibleDesigned to drive action / change behavior



Relevance

Do your metrics

provide clear direction?


Relevance: Key Considerations

What are our key business issues?What specific problems are we trying to solve/prevent?How will the data be used?What behavior change do we want to see?


The Organization Becomes What it Measures

If your organization measures / rewards:

Managers and workforce pay more attention to a, b, & c


Relevant Metrics for Office/Service/Technical Processes

QualityFirst Pass Yield = % Complete and Accurate (%C&A)

CostProcess Time (PT) - touch time / productivity

Delivery / ServiceLead Time (LT ) – throughput / turnaround time


Key Metrics: Quality

%Complete and Accurate (%C&A)% of the time the downstream customer(s) can perform their work without having to “CAC”:

Correct information or material that was suppliedAdd missing information that should have been suppliedClarify information provided that should have been clear


Key Metrics: Time

Process time (PT)The time it takes to actually perform the work, if one could work on it uninterruptedIncludes “think” time if process is analytical in natureaka “touch time,” work time, cycle time

Lead time (LT)The elapsed time from the time work is made available until it’s completed and made available to the next person or department in the chainaka throughput time, turnaround time, elapsed time


Time-Related Metrics: Value Stream or Activity Level

Lead Time

Order / Request

Delivery / Receipt

Process Time

LT = PT + Waiting

Available to work on

Available to next

process

15

Current State VSM - Order Fulfillment Loop

Customer

Enter Order

Order Entry

PT = 5 mins.%C&A = 90%

5

Pick and ship order

Warehouse

PT = 15 mins.%C&A = 99%

5

2 hrs.15 mins.

4 hrs.5 mins.

2 hrs.20 mins.

2 hrs.15 mins.

10 hrs. Total LT = 20.9 hrs.Total PT = 55 mins.AR = 4.38%

Run Credit Check

Finance

PT = 20 mins.%C&A = 99%

1

PO

On-time delivery = 55%

10 hrs.2 hrs.2 hrs.4 hrs.

SAP System

2 hrs.

Review & approve PO

Sales

PT = 15 mins.%C&A = 90%

25

PT = Process Time LT = Lead Time C&A = % Complete & Accurate AR = Activity Ratio (PT/LT x 100) RFPY = Rolled First Pass Yield

Value Stream Loop: Domestic Order Fulfillment Current State Value Stream MapCustomer Demand: 150 orders / day

RFPY = 55.6%

Excel

Account data Sales Order

Shipper

Approval

2 x weekly

%C&A = 70%


Summary Metrics: Time

Total PTFactor in determining labor requirements

Total LTIndicates speed of delivery to customer & cash flow

Activity Ratio (AR)The percentage of time work is being done to the patient/item/data passing through the processAR = (∑PT ÷ ∑LT) × 100100 – AR = Idle time


Summary Metrics: Quality

Rolled First Pass Yield (RFPY) = %C&A × %C&A × %C&A × … Out of 100 occurrences, the number of times the data/material/people pass through the entire process with no rework required (expressed as a percentage).


Common Office Findings

Low AR (PT/LT x 100)1-5%

Low RFPY (%C&A x %C&A…)0-20%

19

Future State VSM - Order Fulfillment Loop

Customer

Review & enter order

Sales

PT = 20 mins.%C&A = 99%

25

Pick and ship order

Warehouse

PT = 15 mins.%C&A = 99%

5

4 hrs.20 mins.

2 hrs.15 mins.

2 hrs. Total LT = 8.58 hrs.Total PT = 35 mins.AR = 6.8%

PO

On-time Delivery >90%

2 hrs.2 hrs.

SAP System

4 hrs.

PT = Process Time LT = Lead Time C&A = % Complete & Accurate AR = Activity Ratio (PT/LT x 100) RFPY = Rolled First Pass Yield

Value Stream Loop: Domestic Order Fulfillment Future State Value Stream MapCustomer Demand: 150 orders / day

RFPY = 78.4%

Sales Order

Shipper

Daily

SAP access for sales

Cross train sales on OE

Streamline OE process

Rationalize freight carriers

Daily

shipments

Standard work @ OE

New customer OE

format

1

2 3

%C&A = 80%

Auto credit check

Redefine

credit check criteria


If the numbers don’t change in the desired direction, you’ve

implemented a change, not an improvement.


50%12# IT Systems50%24# Steps41.0%78.4%55.6%RFPY55.3%6.80%4.38%AR (PT/LT x 100)

36.4%35 mins55 minsPT59.0%8.58 hrs20.9 hrsLT

Projected % Improvement

ProjectedFuture State

Current StateMetric

Projected freed capacity = 12,500 hrs = 6.01 FTEs

Value Stream Performance Targets


Translating the reduction of non-value-adding activity into bottom-line numbers

Spaghetti Diagram-

ECN

Visualize travel of:

PeopleProduct (“the thing”)

ECN Process = 12.5 miles

Spaghetti DiagramEmergency Services

Waiting Area

Benefits Verification

Patient History

VitalsPhysician

Office

Imaging

Exam Room

Laboratory

Check-out / Billing

ORDER CASH

Desk

Table

Desk

Desk

Desk

Desk

TableDesk

Table

Desk Desk

Table Table Staging Area

6, 7, 8, 96, 7, 8, 9

Desk

6, 7, 8, 96, 7, 8, 9

6, 7, 8, 96, 7, 8, 9

DeskDesk

Table

Table

Start

Table Table

1

12

4c

4a3

2

11 10

cart

4b

Spaghetti Diagram – Mail Room(Shows people or product travel)

SNAP

MainTech

DEPTHEAD

C.O.

SK

DAAS

BO1

ITEMMGR

ISEA

SUPV

CRANESUPPLY

PEOIWS2

CRANEDEPOT

STOCKPOINT

MainTech

C.O.

ISEA

SUPVPEOIWS2

STOCKPOINT

SNAPDEPTHEAD

SK

DAAS

BO1

CRANESUPPLY

DOCKSIDE

Current State Future Future State

Circle DiagramCurrent vs. Future State

Handoffs= 47Lead Time = 486 hrs (60.7 days)Process Time = 108 hrs (13.5 days)

Handoffs= 10 (78% improvement)Lead Time = 90 hrs (11.3 days)Process Time = 58 hrs (7.3 days)


The Cost of Unnecessary Motion

Distance traveled to printerWork Group A = 92 ft. per occurrenceWork Group B = 696 ft. per occurrence

120 occurrences / day = 4,656 miles/yearWalk pace = 1 mile per hour = 582 days/year of unproductive, non-value-adding time = 2.2 FTEs


The Cost of Searching

1,500-employee healthcare organizationEach employee spends 10 minutes per day looking for “stuff”Average pay = $22 per hour41.7 hours wasted time per year per employee!

= 30 FTEs= $1.4 million in non-value-adding expense


Calculating Freed Capacity

Total PT (in hrs) X # occurrences/year# FTEs Required Available work hrs/year

=

Freed Capacity

= CS FTEs - FS FTEs

FTE = Full-time Equivalent2 half-time employees = 1 FTE


Freed capacity: “Hard” Benefits

Absorb additional work without increasing staffReduce overtime / temp expensesReduce payroll through natural attritionTime to innovateConduct ongoing continuous improvement activities / perform root cause analysisGenerate additional revenue


PT reduction of 6 mins/CT scan6 mins/scan x 250 CT scans/yr

= 1,500 mins (25 hrs) in freed tech capacity /year1,500 / 12 mins tech time per scan = 125 additional scans possible per year

125 additional scans = $437,500 ($3,500/scan) in additional revenue potential without adding additional staff

Freed Capacity to Increase Revenue


Better quality; better safetyWork fewer nights and weekends; more quality time for self, family, friends and communitiesGet/stay caught upTalk and work with your customers and suppliersMentor staff to create career growth opportunitiesProvide additional job-specific trainingCross-train

Freed capacity: “Collateral” Benefits


Assessing Customer or Workforce Satisfaction

A five question 5-point Likert scale questionnaire is better than nothing.Anecdotal feedback is valuable.BUT statistically sound sample of a validated survey is ideal.Make sure surveys ask the right questions!

1. The supplies I need are available at all times.

2. If an item is out of stock, I receive it within the necessary timeframe.

3. The supplies I use are located close to where I need them.

4. Overall, I’m pleased with supplies availability, location, and organization.

5. How often do you obtain supplies from your dept’s “official” stock locations?

6. How often is an item you need out of stock?

7. What improvements would you like to see related to the supplies/materials you use?

Strongly StronglyAgree Agree Disagree Disagree

Supplies Management Survey – StaffName (optional):___________________________________ Date: _____________________

Title/Role (optional): _______________________________ Area/Dept: _________________

__________ times per day

__________ times per week


Other Performance Metrics

On-time deliveries (customer service)Back ordersLead time / WIP QueueLongest time in queue% time service standards are metComplaints or phone calls per “order”Customer retentionWorkforce satisfaction / turnoverInventory turns, days on hand


Other Performance Metrics (continued)

Process yieldSetup / changeover timeUnits produced per total hours workedAccounts Receivable (days)Cost of Product Sold (COPS)Expenses (materials, shipping, overtime)Process time at bottleneck stepOEE (Overall Equipment Effectiveness)

Balanced, but Relevant?


Break10:20-10:30


Group Activity

Pair upUsing the worksheets provided, calculate:

Activity Ratio for the current and future statesRolled First Pass Yield for the current and future statesThe projected Freed Capacity for the future state due to:

Motion reductionReduction in handoffsEfficiency gains due to technology

10 minutes to work; 5 minutes to discuss



Balanced


Metric Attributes: Balance

Time and Quality (efficiency & effectiveness)Operational and FinancialIndividual and TeamDepartmental and Value StreamInternal and ExternalLeading and Lagging


Metrics - Leading vs. Lagging

Leading indicatorsPredicts future performance / likely outcomesProvides opportunity to take corrective action that alters the eventual outcome

Lagging indicatorsReflect things that have already happened“Historical record” – what happened in the pastNo ability to alter the outcome


Leading vs. Lagging Indicators

X X X X X X X

Lagging Indicator

Leading Indicator

Outcome


Leading Indicators

Building permits (in relationship to economy)Hours of safety training (in relationship to accident rate)Hourly output (in relationship to hitting daily goal, or customer service level)Weekly progress on two-month project

Time, budget, etc.Internal quality level (customer complaints)


Lagging Indicators

Missed time incident rateCustomer service levels (e.g. on-time delivery)Quarterly sales (communicated at the beginning of the next quarter)Machine downtimeCustomer complaints

A metric can be both leading and lagging



Easy to Collect / Dynamic


Metric attributes: Ease

We seek pleasure and avoid painConsider short term measurement

Only until sufficient data is obtainedMetrics should be dynamic based on need, not a static program

Consider who measures, what they measure, how often they measure and modify as needed

Easy and Accurate Metrics


Collecting Metrics: Key Consideration

Accuracy vs. Precision?


Accuracy vs. Precision

What decision are we trying to make and how much information do we need to make it?

Do we need to collect precise quality data for three months or is it “accurate enough” to accept what the customer anecdotally tells us is their experience?If work sits for 8 hours before it’s touched, do we need to do a time study to determine the process time when we’re determining where to focus our efforts to reduce lead time?



Timely


Metric attributes: Timely

Leading indicators allow us to alter outcomesReal-time feedback

More accurate recallDelayed feedback lessens learning

Problem solving is most effective while the “trail is still warm”



Visual

Operational MetricReal-time tracking – Month-end Close


Communication Boards

Visual Management - Strong Use of ColorAbsenteeism as a leading indicator for…?

Administrative MetricsEngineering Change Releases

36% 31%51% 48% 37% 30%

45%58%

76% 77%61%

0%

20%

40%

60%

80%

100%

Feb-06 Mar-06 Apr-06 May-06 Jun-06 Jul-06 Aug-06 Sep-06 Oct-06 Nov-06 Dec-06On-

Tim

e R

elea

se

4839

3239

33 3629

19 1611

17

0

10

20

30

40

50

60

Feb-06 Mar-06 Apr-06 May-06 Jun-06 Jul-06 Aug-06 Sep-06 Oct-06 Nov-06 Dec-06 JAvg

. Day

s to

Rel

.

Administrative MetricsRFQ Defects

0

2

4

6

8

10

12

14

16

18

InformationMissing

CalculationError

Page Missing

Request for QuoteTop 3 Quality Issues

Total forMonth



Designed to Drive Action / Change

Behavior


Metrics must drive action!

Before collecting, have a plan in mind re: what you’re going to do with the data.If you’re not going to do anything with or about the data, STOP MEASURING!


Driving Action requires Clear Accountability

Who owns the process?Who measures?Who analyzes?Who drives improvements?Who monitors results?

62

Balanced, Visual, Clear OwnershipMetric Description Owner FY07

TargetApr

TotalMay Total Status

Production Output Output in Units VS Mgr 75,000 81500 110300

Batch Deviations

% Batches are Right the First time VS Mgr 80.0% 81.8% 80.5%

Quoting Leadtime

Days from receipt of RFQ until sent to

customerDave 5.4 6.6 6.9

Promise Date Accuracy

% On time for Promise Date Dave 96.0% 85.0% 89.0%

Engineering Release Time

Days from receipt of PO until documentation

releasedVicky 4.7 5.6 4.7

Problem Resolution

Number of calls to resolve customer

issuesDave 2.1 2.4 2.3

Qua

lity

Quality Release Backlog

# of lots waiting for release by quality

engineersVS Mgr 80 99 77

Prod

uctio

nC

usto

mer

Ser

vice


Translating improvements into meaningful results

Selling your results


Benefits of Reduced Lead Time

Improved customer satisfactionImproved retentionMarket share gainsBusiness expansion (new products)

Improved qualityFewer handoffsFaster feedback

Improved workforce moraleReduced turnoverRecruiting advantage (“employer of choice”)

Improved cash flow (time value of money)


Benefits of Reduced Process Time

Reduced lead timeImproved qualityReduced expensesImproved workforce moraleFreed capacity


Benefits of Improved Quality

Reduced expensesLabor, material, utilities, etc.

Improved customer satisfactionRetention, market share gains

Improved workforce moraleMotivated, innovativeEmployer of choiceReduced expenses associated with turnover


Selling Your Results: Considerations

People focus on their own work.Leaders don’t always understand the importance of metrics

Nor the bottom line impact of your improvementsMust speak their language

Improvement teams must understand the results they’ve achieved and sell them to peers

Will generate momentum among the workforce


Summary

Minimum necessary measurements & metricsChoose your sample size wiselyBalanced, timely, visibleAvoid analysis paralysis – metrics must drive action!

Involve the workforceLeadership sets strategy; workforce determines tacticsHave them participate in tracking, posting and communicating resultsLet them lead corrective action discussions

Convert results into dollarsCost reductions, cost avoidance, revenue enhancement


Learning Objectives

Three key performance indicators that must be included in process measurements.How to calculate staffing requirements.How to translate lean improvements into numbers with bottom-line impact.The difference between lagging and leading indicators, and the need for both operational and financial metrics.How to speak the language of executives and decision makers.

70

Resources by Mike Osterling & Karen MartinAvailable through Productivity Press

October 2007 Summer 2008

Auto-Calculates Process Metrics


Karen Martin, Principal7770 Regents Road #635San Diego, CA 92122(858) [email protected]

Additional Questions

Mike Osterling, President 4320 Woodland Drive La Mesa, CA 91941 (619) 572-3632 [email protected]

Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.

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