Are Your Metrics Causing You to Lose Money?

Manuficient - Metrics

As Peter Drucker, one of the founders of the study of modern management, once said, “if you can’t measure it, you can’t manage it.” Rather you agree with this statement or not, the practice of measurement, or expressing things, events, and ideas numerically, is only increasing in the way we run our businesses. Metrics are critical to Continuous Performance Improvement since they provide the frame of what exactly we’re working to improve. They also provide us a perspective on things that can be imperceivable through everyday experiences. Lets look at professional basketball for example. Witnessing every game in an NBA season is not only impractical, it’s not even possible for most of the people on earth. However, with a few good metrics, you can get a quick snapshot of an entire season in just a few minutes. This is no different if you’re an executive or manager of a manufacturing company with several areas of responsibility. Without good metrics, your ability to effectively prioritize and allocate resources is severely diminished, if not completely lost. In other words, metrics can tremendously improve management effectiveness.

With that said, metrics can also completely ruin your life if ineffectively applied. As technology continues to make it easier to capture data, more and more metrics appear. But all metrics are not created equal. It takes some skills to design metrics that actually drive performance and provide you with mission-critical information in a timely manner. In the realm of Continuous Improvement, metrics should serve one primary function: provide the timely process feedback needed to drive performance improvement. I often see companies heavily invested in metrics that don’t even come close to doing this. Consequently, these metrics quickly reach a point of diminishing returns and long outlive their usefulness; resulting in dysfunctional organizational behaviors.

The following are a few traits of dysfunctional metrics:

  1. Metrics that systematically exclude improvement opportunities – The way you measure productivity is crucial to how productive you will likely become. I’ve seen cases where efficiencies over 100% were being reported on a daily basis; yet operating costs and lead times were increasing for no good reason. This is a sign that key areas for improvement opportunity are being ignored by the efficiency metric. For example, many companies measure adherence to schedule to gauge their efficiency, which is usually based on the average historical production rates. This metric inherently drives a mentality of “let’s just try not to get worse.” This measure of efficiency fails to reveal opportunities to reduce process waste that could be resulting from planned and unplanned downtime, rate loss, yield losses or others. The gold standard for measuring manufacturing productivity is Overall Equipment Effectiveness (OEE). World class execution is considered 85%, which very few factories on earth have been able to achieve. Your metrics should show you how much better you could be and give you some insight into what to do to get better. If a factory is not using OEE, there’s a good chance they could make dramatic reductions in their operating costs and lead times. The best way to implement OEE is to use the Impruver.com. It does a great job of creating shop floor enthusiasm and excitement around your lean implementation and a culture of getting better every day.
  2. Vanity Metrics – These metrics only highlight how well the organization (or the reporting manager) is performing. They are very common and even seductive but have no place in a continuous improvement culture. Their whole purpose is to make people feel good but do not drive any real action or desire to make things better. One example of a vanity metric that I see everywhere is “Days Since a Recordable Incident”. While it’s vitally important to maintain a safe working environment, reporting this metric provides no insight to what specific opportunities exist to make the workplace more safe. As long as the number is “high enough”, everyone gets a pat on the back for not killing themselves today and go on without addressing any of the behaviors or conditions that will inevitably result in someone getting hurt. It also contributes to a culture of hiding injuries to protect the metric. A better metric would measure safe behaviors and conditions against perfection. For example, I’ve used safety audits that evaluate behaviors and working environments for any potential risk, then scores the results against well-defined criteria for a safe workplace. If someone does get hurt, the auditing criteria is modified to safeguard against the conditions that led up to the injury. This is an example of how metrics can incorporate organizational learning. Impruver has artificial intelligence that learns from you as you go. Standard run rates are updated automatically when you exceed the previously established rate for a product on a line. This continuously raises the bar and makes opportunities for improvement more easily identified.
  3. Long Reporting Intervals – Metrics designed for management should help you get better. If you are receiving a report weeks or even months apart, then you may go months before you even realize there’s a serious problem. Sure you can rely on people to be communicative and escalate issues informally, but we all know that this isn’t a reliable way to run a business. As a leader, ask yourself how long is too long before you are alerted of an issue. That should give you some insight to how frequently performance should be reported. The best systems are real-time with alerts for min-max performance thresholds. Other good systems report hour-to-hour at the line level, and day-to-day at the factory level. This allows for quick and resolute action on performance issues as they arise. Impruver automates these processes to ensure that you are the first to know when performance reaches unsatisfactory levels.
  4. Burden of Metrics – High-burden metrics create stress for the entire organization. Burden is considered the amount of time and effort required to acquire data, complete calculations, and report performance. Burden is suffered by the Line Operator who is incurring significant downtime to collect data, the Supervisor who has to constantly double-check and provide feedback to the Operator, and the Plant Manager who is constantly questioning the integrity of the metrics and requiring revisions / explanations. I’ve worked with factories that had Industrial Engineers spending over 20 hours per week collecting data and generating reports. This is a massive waste of time and talent; and very few people on the planet enjoy doing this. High-burden metrics don’t stick. As soon as the pressure lets off to keep producing the data or reports, they will gradually go away. Impruver employs a great data input design that only requires less than one minute per production run input using the plug-and-play version of the system. This not only  engages the line operator with the Continuous Improvement system, it also performs all calculation and reporting functions automatically. The data goes straight from the shop floor to all internal stakeholders instantaneously.

The right metrics make all the difference in running a successful operation. The wrong metrics can send us down a path of dysfunction and actually make us more disconnected from what’s important. Your metrics should help you get better and instill a culture of Continuous Improvement. So to answer the question in the title: no, your metrics aren’t causing you to lose money. Being inefficient causes you to lose money but your metrics aren’t doing you any service if they aren’t giving you complete, real-time, and actionable information.

Copyright © Calvin L Williams blog at calvinlwilliams.com [2015]. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Calvin L Williams with appropriate and specific direction to the original content.

Why American Companies Struggle with Lean Implementation

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Its no secret that American companies have had their share of fits and stalls with the implementation of Lean Manufacturing. Why is it that some companies are able to generate so much steam and momentum with their Lean efforts while some can’t even create the slightest inertia? As a Manufacturing Efficiency expert, I’ve had the privilege to lead several Lean implementations myself and support clients who were in desperate need of a Lean initiative. Here are some of my key observations for why American companies struggle to implement Lean:

1) Lack of true Lean expertise – Many companies simply staff lean roles in the factories and leave them to sink or swim. They either select people who already work at the facilities who have generally done a good job or they bring in someone from the outside who seems to have a grasp on the concept on Continuous Improvement. Granted just about anyone can learn the basics of Lean, it takes an experienced hand to navigate the politics and shape an palatable strategy for a true and sustainable implementation. These people not only need to have a strong grasp (and good experience) with executing lean tactics, they also need to have a strong competency for change management and political savvy.

2) Lack of leadership buy-in and support – At the lowest level, the factory manager needs to have a strong grasp of Lean and be fully bought in to leading an implementation. It needs to be a prerequisite for the job of managing the factory. At the highest level, Lean competency would be a strong consideration for any job or promotion within the supply chain division of the company (especially manufacturing). The VP of Operations would be a former implementor of the Lean initiatives. The Directors would be Black Belts (or at least Green Belts) with experience leading significant OEE improvements. The factory manager’s job performance would be heavily dependant on hitting milestones against Lean performance metrics. At that point, you’ve got a winning recipe for success.

3) Lean is counter-intuitive for American culture – Lean was developed and honed within the Japanese culture. Japan has a very strong culture for discipline, order, and process optimization. In contrast, America has a strong culture of instant gratification and individualism. Imagine the sumo wrestler or the samurai in Japan. Their characteristics are discipline, focus, endurance, loyalty, and control. This is reflective of the Japanese (and Lean) culture. Then imagine the cowboy or rock star in America. Their characteristics are rapid gratification, individualism, and heroism. These are reflective of American values as well. Lean is a discipline of manufacturing that is founded on the systematic elimination of waste. It is tailored to Japanese culture. In America, when something goes wrong (ie machine breaks down or materials don’t arrive), it is natural to point the finger at the person standing there holding the bag. We assume that someone messed up and we quickly move to take disciplinary action. Rarely do we take a step back and ask what conditions exist for this type of issue to occur and how can the system be designed to eliminate the possibility of this type of error. Fixing the system takes time, trial, and error. Its just easier to discipline or replace someone when there seems to be a problem. Also, since many corporate managers only stay in a critical leadership role for a short amount of time (often less than 4 years), their promotion is dependant on immediate and dramatic results. A thorough and sustainable Lean implementation takes at least 5 years – and that’s with skilled implementers and competent / dedicated leaders at the helm.

Most companies think of Lean as a manufacturing process improvement initiative. They see the tactics such as 5S, Kaizen Events, Root Cause Analysis, and Andon Systems. What they don’t see is that Lean also requires an organizational adjustment. This includes changing the rules of the game and what is required to get ahead in the company. The desire to get ahead is the driving engine for the American economy. No single American company will change that. Therefore, as in sumo wrestling, American companies need to leverage the desire to get ahead – to drive manufacturing efficiency. Lean has a fantastic set of principles and tools for driving manufacturing efficiency. For starters, manufacturers should align their employee performance management systems with Lean implementation requirements. The people capturing the greatest gains in savings, efficiencies, and productivity improvements need to be regarded as the rock stars. Even those unsuccessfully attempting to drive positive change should be recognized and appreciated for their efforts. For a company that is serious about a Lean implementation, there should be a direct connection between promotions and compensation to impact on factory efficiency improvement for all factory employees.

© Calvin L Williams blog at calvinlwilliams.com [2015]. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Calvin L Williams with appropriate and specific direction to the original content.