1 © the delos partnership 2003 performance measurement changing behaviours by changing measures

1 © The Delos Partnership 2003

Performance MeasurementPerformance Measurement

Changing Behaviours by changing measures


Performance MeasuresPerformance Measures

Introduction


Behaviour IssueBehaviour Issue

•If you measure me irrationally I will behave irrationally

•If you change the way you measure me,I will change the way I behave

•If you change the way you measure me, and don’t explain what that means, no-one will know how I will behave - not even me !


TraditionalTraditional Measures Measures

• Inventory level• Volume• Machine utilisation• Labour productivity• Actual vs. Budget• Overhead recovery• Purchase price variance• Overtime vs. Budget


Problem With Problem With TraditionalTraditional MeasuresMeasures• Accountancy based• Backward looking• Focus on Efficiency• Encourage Functional behaviour• Inventory treated as an asset• Purchase Price Variance hurts manufacturing• Measures people causing fear and blame and

disintegrated behaviour


Performance Measurement is Performance Measurement is about understanding processes about understanding processes and thereby improving them and thereby improving them by examination and analysisby examination and analysis

Performance Measurement is Performance Measurement is about understanding processes about understanding processes and thereby improving them and thereby improving them by examination and analysisby examination and analysis

Measurement is ……Measurement is ……


ProcessProcessProcessProcess


MeasureMeasureMeasureMeasure

ResultResultResultResult


Delos Business ModelDelos Business Model

DemandDemandDemandDemand SupplySupplySupplySupply

VisionVisionVisionVision

PrioritisationPrioritisationPrioritisationPrioritisation

SupportSupportSupportSupport

InnovationInnovationInnovationInnovation

StrategyStrategyStrategyStrategy


Changing BehavioursChanging Behaviours

CULTURE/BEHAVIOUR

TECHNO

LOG

YWAYS O

F

WO

RKING

Use theseTo Measurethese

To Change this


Performance measurementPerformance measurement

Principles


Measurement - BasicsMeasurement - Basics

VISION AND STRATEGY

OBJECTIVESOBJECTIVES

TARGETSTARGETS

MILESTONESMILESTONES


BenchmarkingBenchmarking

• Benchmarking is a process to evaluate company’s performance against– Sites within same company– Companies within the same industry– Companies within different industries– Companies in different businesses

• Collect the best practices of the best to make you the best


World Class Performance – World Class Performance – Engineering industryEngineering industry

Measure Average Top 10 % YOU ?

Delivery Reliability % 94 99.9

New Products in last 5 years %of revenue

4 63

Scrap Rates - % 3.9 0.8

Total Stock-turns (per annum) (1)

13 30

Training Days per Employee

7 20

(1) Sales Value/Total Stock : assuming average Variable Cost Ratio = 60 % then

Figures would be 8 18Source : Cranfield University


Establishing New Establishing New MeasuresMeasures• Define simple vision – meaningful• Establish perspectives that need to be

measured and hence objectives• Establish Targets for each measure• Benchmark against best of the best to

establish targets• Agree milestones to provide progress

charts



Link to company objective – improving profitability


Business Excellence and Business Excellence and PerformancePerformance Do Business

Excellence Performance measures help the company?

What is the link to the benefit of the company?

What’s the cash value of non-financial performance measures?


Assume that Profitability is the Goal Assume that Profitability is the Goal

ROCEROCE

ProfitProfit CapitalCapital

SalesSales CostsCosts

MaterialMaterial LabourLabour OverheadOverhead

FixedFixed CurrentCurrent

StocksStocks CreditorsCreditors DebtorsDebtors

The Core Measures and Financial EffectThe Core Measures and Financial Effect

18 © The Delos Partnership 2003Demand Accuracy

ROCEROCE






Demand Accuracy Demand Accuracy

19 © The Delos Partnership 2003Perfect Customer Orders

ROCEROCE






Perfect Customer OrdersPerfect Customer Orders


Link Measures to the GoalLink Measures to the Goal

ROCEROCE






Business Excellence Performance Measures are the Foundation;

Profitability is a result


The Core Measures and Financial EffectThe Core Measures and Financial Effect

Relationships to RoCE components– All influence cash flow



Detailed Measures


Define the MeasuresDefine the Measures

Each measure needs– Definition– Purpose– Horizon– Source of Information– Reports– Accountability

• For Measure• For Reporting

– Objectives/Targets/Milestones– What to do with the measure


Forecast AccuracyForecast Accuracy

Definition

Purpose

Horizon

Source of Information

Percent of items within a tolerance

Assess the degree of flexibility required by the supply side and to improve the process

Cumulative lead time (= purchasing plus manufacturing LT)

Forecasting module Sales module


Forecast AccuracyForecast Accuracy

Forecast Accuracy by Family

0%

10%

20%

30%

40%

50%

60%

Family A Family B Family C Family D Family E Family F

Family

% accuracyTarget

Above Target


Performance TargetsPerformance Targets

Objective

Target

Milestone

What would your target be ?

Forecast Accuracy

0

20

40

60

80

100

120

-9 -8 -7 -6 -5 -4 -3 -2 -1

Months

% of Items


Customer Service –The Perfect OrderCustomer Service –The Perfect Order

Define a standard for each

– Quality: as agreed or otherwise defined

– Time: on the agreed day (and specific time)

– Quantity: the exact quantity within agreed tolerances

– Place: to specified location

– Form: in agreed physical form including packaging

– Paperwork: with all agreed paperwork required by customer Manufacturing records

Batch record

Dispatch and delivery notes

Sales invoice with correct pricing and terms


Customer ServiceCustomer Service

Definition

Purpose

Horizon


Each element of the Perfect Order

Flexibility required to meet customer needs

MTS - none

MTO - product lead time

Sales order entry


Root Cause AnalysisRoot Cause Analysis

Imperfect Orders

Imperfect Orders

PeopleProcesses

Unrealistic Promises

Lack ofTraining

Systems Data

Order Entry

Pricing

No Customer RequiredDate

AvailabilityInaccurate Order Due Dates

Wrong Product Codes

DeliveryLack ofTraining

Functionality


Customer Service

0

20

40

60

80

100

120

-4 -3 -2 -1 0 1 2 3 4

Months

% of Items


Objective

Target

Milestone



Schedule AchievementSchedule Achievement

• Schedule = Agreed sequence of activity• Across business/value chain• Others are dependent on schedule completion

• Measurement = # Activities completed on time x 100%• # Activities scheduled for

period

• Not just production Schedules• Purchasing• Product Launch• Maintenance• Cash Collection


Schedule Achievement - Schedule Achievement - ProductionProduction

Definition

Purpose

Horizon


Number of works orders completed to required date into stock or next operation

Improve manufacturing process

Product Lead Time

Shop Floor control module



0

10

20

30

40

50

60

70

80

90

100

J F M A M J J A S

Schedule Achievement

% of Orders

Objective

Target

Milestone



Supplier PerformanceSupplier Performance

Definition

Purpose

Horizon


Number of deliveries received into stock on or before due date/time

Improve supplier delivery process

Purchasing Lead Time or Time Fence

Vendor Schedule or Purchase Order`



0

10

20

30

40

50

60

70

80

90

100

Jan Mar May Jul Sep

Supplier Achievement

% of Orders

Objective

Target

Milestone



Right First TimeRight First Time

Measurement = Defects per sample/batch x100% Sample/Batch Size

Quality applies to more than just Products• Process execution & information quality • Purchase Orders• Sales Order Capture• Warehouse Picking• Accounts payable schedules


Right First Time - Production QualityRight First Time - Production Quality

Definition

Purpose

Horizon


Number of works orders completed to required specification first time

Improve manufacturing process and material acquisition process

Product Lead Time

Quality checks via in line SPC process



0

10

20

30

40

50

60

70

80

90

100

J F M A M J J A S

Right First Time

% of Items

Objective

Target

Milestone



New Product Development PerformanceNew Product Development Performance

Definition

Purpose

Horizon

Source of information

Number of new products developed on time

Improve NPD process

New product development time

Activity schedule in planning system or project plans



0

10

20

30

40

50

60

70

80

90

100

J F M A M J J A S

NPD Achievement

% of Projects

Objective

Target

Milestone



Additional MeasuresAdditional Measures

• BOM Accuracy

• Inventory Accuracy

• Routing Accuracy

• Work Centre Accuracy

• Planning Data Accuracy

Without Data accuracy there is no

reliable information

Without Data accuracy there is no

reliable information



Link to Appraisal


Intent of New Performance Intent of New Performance MeasuresMeasures

Designed to:– Create value from strategy– Motivate, energise and align efforts– Enable

Focused on:– The future - “How can we improve?”– Behaviours, actions, decisions– Customers, Stakeholders & Shareholders– Opportunities– Causes or drivers of success

Feels:– Active– Supportive– Positive– Warm


Appraisal ProcessAppraisal Process

• Continual through the S & OP process• Should involve 180˚ appraisal and appraisal

of peers through honest feedback• Requires enhanced people and team skills• Give and receive constructive review• Requires removal of blame culture• Reduced need for the cult of the hero


Link the Appraisal Process Link the Appraisal Process to the Strategyto the Strategy

StrategyStrategy Grow BusinessGrow Business Increase Market ShareIncrease Market Share

MeasuresMeasures

StrategyStrategy Grow BusinessGrow Business Increase Market ShareIncrease Market Share

MeasuresMeasures

SalesSales/Mktg/Mktg Manager Manager … ….. … ….... … …......

SalesSales/Mktg/Mktg Manager Manager … ….. … ….... … …......

Supply ChainSupply Chain Manager Manager … ….. … ….... … …......

Supply ChainSupply Chain Manager Manager … ….. … ….... … …......

R & D ManagerR & D Manager … ….. … ….... … …`̀......

R & D ManagerR & D Manager … ….. … ….... … …`̀......

New Product DirectorNew Product Director … ….. … ….... … …......

New Product DirectorNew Product Director … ….. … ….... … …......

Customer DirectorCustomer Director … ….. … ….... … …......

Customer DirectorCustomer Director … ….. … ….... … …......

SupplySupply DirectorDirector … ….. … ….... … …......

SupplySupply DirectorDirector … ….. … ….... … …......

Finance, IT DirectorFinance, IT Director … ….. … ….... … …......

Finance, IT DirectorFinance, IT Director … ….. … ….... … …......

FinanceFinance Manager Manager … ….. … ….... … …`̀......

FinanceFinance Manager Manager … ….. … ….... … …`̀......


Goal DeploymentGoal Deployment

EmployeesOwner

Supply ChainOwner

InnovationOwner

CommunityOwner

CustomerOwner

ShareholderOwner

TARGETSSenior Management

Business Support

Supply Management

Demand Management

New Activity Management

PERSPECTIVE

Process Owners

GOALS

Objectives

PROCESS



• Measures Processes to bring about improvement

• Processes improve profitability

• Detailed Measures should be owned by by Directors or Process owners

• Measures should be incorporated into appraisal process

1 © the delos partnership 2003 performance measurement changing behaviours by changing measures

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