Lean Performance Measurement Systems
Table III
While these characteristics are important, the elimination of non-value added activity is one of the more prominent factors in the concept of “Lean Thinking”. We defined Lean, in our first article as, “a continuous flow of value adding activities” … “a value adding activity is, any activity that adds value to the product as defined and paid for by customers”.
Therefore, “leanites” are on an endless search for a process that gets from one point to another; in the quickest most effective manner. Unlike, activities littered with non-value added activity (i.e., wait time, distance/travel, storage, handling, expediting, paperwork) are the prime targets for elimination by a Lean Measurements process. Adhering to the Value Chain requires a Lean metrics package that includes the following characteristics, where metrics are typified by being:
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Similar to most critical success factors, there are several basic measurements that are predominant in support of a Lean Metric System:
The Lean Approach considers 3-4 metrics as key. At the tier one level (dashboard), operations metrics include customer satisfaction index, cost of quality, new product development cost, and shareholder measurements like ROI, EBITDA. These performance measurements set in motion the foundation for tier two and tier three level metrics (Figure 1), and are structured in a hierarchy that has consistent reporting format, measurements definitions, is visible across all functions, graphically displayed and is used for training.
At the plant or tier two levels, when creating Lean performance measurements, an organization must keep in mind the difference between a traditional and process focus approach as outlined in Table IV. Conversely, defining Lean performance measurement from a process point of view can take the form as depicted in Figure 1. The distribution between outcome and diagnostic metrics, cross-functionality, results and outputs, internal/external scope, and balance are more pronounced and are shown in Table V. In either approach, we suggest that you consider Leading or Lagging metrics as well. We define the distinction between the two below in Table VI. As we move from Tier-One metrics through to Tier-Three (Shop-Floor) Level, performance measures are prominently displayed in the work areas in the form of boards, charts, or graphs. Common display formats are:
We suggest that those being measured should be the ones who produce the measurements. For example, if we are measuring customer service on cycle-time per order entered then one of our customer service representatives should produce the daily measurements (Figure 2). If another department generates these metrics, it is guaranteed that your metrics will mean nothing to those being measured. The reps will question its validity and accuracy. Employ manual signals, the simple any performance measurement system is the ability to monitor and shape behavior. Linking measurements to the corporate vision provides an organizational road map all can understand and follow. The inter-relationships and dependencies between departments as depicted in Figure 1 provides us a visual understanding of how the system works.
A successful development of performance metrics meets the needs of finance, customer requirements, business strategy, and innovation and learning factors at all levels. Metrics address the question, "where are we going", "how will we change to meet our business needs?", "what is our target performance", and “where is performance improvement required?” Remember, “If you don’t measure it, you can’t improve it” and “if you measure the wrong thing, you will get the wrong result….behavior.” |
