Key Performance Measures – 04/11/23

Key Performance Measures (KPMs)

Roundtable Series

L E A NE N T E R P R I S E

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The Measurement Paradigm

We don’t know what we don’t know…

We can’t act on what we don’t know...

We won’t know until we search...

We won’t search for what we don’t question...

We don’t question what we don’t measure.

Excerpt from Six Sigmaby Michael Harry, PH.D. & Richard Schroeder

We know measures are a result, not a cause...To change results we must change behaviors!

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What are Lean KPM’s?

Key Performance Measures (KPM’s) are:• Macro & Micro Metrics that reflect customer demands and

measure organizational performance!

• Typically deal with the following main categories:– Customer’s Demand Rate.– Organizational Effectiveness– Costs & Profitability– Quality– On-Time Delivery – Innovation

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Examples of Lean KPM’s at the Corporate LevelFinancial Measures:• Sales Growth• Improved Cash Flow• ROI or ROE

Operations Improvements:• Inventory Turns• Overall Throughput• Lead Time Reductions

Customer Value:• On-Time Delivery %• Customer Lead Time Reductions• Customer Satisfaction Ratings

Productivity Improvements:• Overall Efficiency % Gains• Sales per Employee

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Examples of Lean KPM’s at the Value Stream Level Primary Measures:

• Units per Person• On-Time Delivery % by

Product Family• Quality- First Pass Yield• Average Cost per Unit• Dock-to-Dock Times

Support Measures:

• OEE at the Constraint Level

• Average of Cross Training Hours per Person.

• Number of OSHA Recordable Safety Incidents

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Examples of Lean KPM’s for Work Cells Primary Measures:

• Days of Raw, WIP and Finished Goods

• Operational Equipment Effectiveness (OEE)

• Quality- First Pass Yield

Support Measures:

• Cross Training Charts• 5S Audits• Number of Kaizen or Continuous

Improvements

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Strategic Framework for Lean KPM’s

• Company Vision Statement: What does it look like? A clear mental picture of an organization’s future!

• Strategic Themes: What is our competitive advantage? Should be 3 to 5 Major Initiatives that will create organizational “competitive advantage!”

• Critical Business Objectives: What goals will drive our competitiveness? Convert strategic themes into organizational-wide goals!

• Critical Operational Objectives: What processes or systems do we need to change? Streamlined methods and systems that improved to positively impact the Critical Business Objectives!

• Critical Key Success Factors (KSF’s): Who will do it? When? Represents the actions that individuals and teams must execute to change behaviors, methods, and systems!

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Lean KPM’s – Customer

Customer Metrics• Lead Times • Cycle Times• Order Fulfillment• On-Time Delivery

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Lean KPM’s – Organization

Organization Metrics:• Profitability• Safety • Employee Turnover• % of Workforce engaged in Continuous Improvement/Kaizen Events!

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Lean KPM’s – Cost

Cost Metrics:• Economic Impact and ROI Calculations• Team Productivity & Efficiency• Space Requirements/Savings• Inventory (Raw, WIP and Finished Goods)• Overhead Spending• Working Capital• Cash Flow

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Lean KPM’s – Quality

Quality Metrics:• Total Cost of Quality (materials, scrap, rework, warranty, environment, labor and services.)

• First Pass Yield• Quality-at-Source vs. Inspection & Test

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Lean KPM’s – Delivery

Delivery Metrics:• Reliability (one time and accuracy) • Schedule Attainment• On-Time Delivery %• Customer Satisfaction Evaluation (CSE) Ratings

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Lean KPM’s – Innovation

Innovation Metrics:• Labor Cost Reductions • Material Cost Savings• Any Type of Cost Avoidance Savings• Concept-to-Market Time Improvements

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Other Lean KPM Options

• World Class Principles• Balanced Scorecard Model • Performance Management (PM)

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Schonberger & Associates, Inc.

World Class by Principles

World Class by Principles (WCP) is:

• A set of operations and performance concepts!

• A work-in-progress international benchmarking study with WCP research partners in Germany, France, U.K., Sweden, Finland, Italy, Mexico, Hong Kong/China, Australia, the U.S., others

• An assessment tool for organizational performance evaluation!

• A comprehensive, universal strategy!

• System of implementation for next-century, much-elevated competitiveness!

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Principles of Customer-Focused Performance

I. General 1 Customer/product focus2 External data

3 Eyes-of-customers successes 4 Associate involvementII. Design 5 Product/supply system designIII. Operations 6 Reduce flow times 7 Rate-of-use synchronizationIV. Human Resources 8 Training/certification

9 Recognition and rewardV. Quality/process 10 Reduce process variation improvement 11 Associate ownership of dataVI. Information/ 12 Cause control with few reports control 13 Performance measurementVII. Capacity 14 Facilities maintenance/improvements

15 Equipping for simplicity/focusVIII. Promotion 16 Market/sell every improvement

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Balanced Scorecard

• Customer Management• Internal Operations Management• Employee Management• Financial Management• Organizational Learning & Innovation

Developed by Professor Robert Kaplan & David Norton of the Harvard Business School

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Beyond the Balanced Scorecard:Measuring Corporate PerformanceBenefits of improved Performance Measurements include:• Improved Employee Performance• Reduced Operating Costs• Reduced Cycle & Customer Lead Times• More Effective Strategy & Goal Development• Improved Internal & External Communications.

Source: Best Practices, LLC Website www.best-in-class.com

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Performance Management (PM)Behavioral Model• ABC Model

- A = Antecedents- B = Behaviors- C = Consequences

• Data Based- No more hunches as to why people do things!- ABC Analysis determine what causes desired and undesired

behaviors?- Well defined Performance Improvement Plan (PIP) to measure

organizational and behavioral changes!

• Organizational Culture- focuses on changing the environment that people work in.

Presented by Beth Foate, Ph.D from Alabama Technology Network (ATN)

at Modernization Forum 2001 in Cincinnati, Ohio

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Performance Management (PM)The Four Consequences• Consequences that Increase Performance

- Positive Reinforcement (R+): Performer gets something they want.

- Negative Reinforcement (R-): Avoiding something that the performer does not like.

• Consequences that Decrease Performance- Punishment (P+): Performer receives what they don’t want.

Punishment will only stop behavior.- Penalty (P-): Performer loses something they have. Penalties tend

to decrease the performance, with possible side effects.

Reminder: Behavior is a function of its consequences!

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Why Lean KPM’s – SUCCEED!

Lean KPM’s Succeed when:• Owners or upper managers “walk-the-walk”, not just “talk-the-talk!”• Properly aligned with Strategic Business Objectives! • Based on Leading Indicators of Future Performance vs. Lagging

Past Performance Metrics!• Very good understanding and integration of KPM’s with other

organizational information and objectives!• Excellent Balance between long-term strategic and short-term

financial measures!• Well communicated and very visual!• Meaningful and related well to daily work plans and activities!

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Resources & Websites

• Performa Article: Lean Measures for Lean Enterprises• Strategic Management 13th Edition by Thompson & Strickland • Performance Management in a Lean Environment at 2001

Modernization Forum in Cincinnati, Ohio by Beth Foate, Ph.D Alabama Technology Network (ATN)

• The Balanced Scorecard: Translating Strategy into ActionRobert S. Kaplan, Preface by David P. Norton

• http://balancedscorecard.com Open Ratings Website• http://www.bscnews.com/index.htm The Balanced Scorecard

Newswire• http://performainc.com Performa Inc. Website

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Lean Enterprise Websites

• www.360vu.com (NIST/MEP for Firms)• www.lean.org (Lean Enterprise Institute’s Website)• www.shingoprize.org (Shingo Prize for Manufacturing

Excellence)• www.missourienterprise.org (MEBAC Website)• www.mamtc.com/lean (MAMTC Lean Website)• www.sae.org (Society of Automotive Engineers) • (SAE J 4000-Lean Operations Standard)• www.superfactory.com (Global Manufacturing Excellence)• www.ame.org (Association for Mfg. Excellence)• www.nam.org (National Association of Mfgs.)• www.sme.org (Society of Manufacturing Engineers)• www.iienet.org (Institute of Industrial Engineers)• www.nwlean.net (NorthWest Lean Working Group)• www.productivityinc.com (Productivity Press)• www.asq.org (American Society for Quality)

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Lean Implementation Benefits

Lead Time Reductions

0 25 50 75 100

Percentage of Benefits Achieved

Productivity Increases

Inventory Reductions

Quality Improvements

Space Usage Savings

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Spirit of High Performance

• An organization with a “spirit of high performance” emphasizes achievement and excellence!

• Its culture is results-oriented, and it uses people management practices that inspire workers to do their best!

from Organizational DynamicsSummer 1994, “Creating the Climate and Culture of Success,”

by Benjamin Schneider, Sarah K. Gunnarson, and Kathryn Niles-Joley

Key Performance Measures – 04/11/23

Thank you.

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