Measuring success in a business is crucial for identifying areas of improvement and making informed decisions. Lean metrics are particularly useful in this regard because they focus on efficiency, waste reduction, and continuous improvement. Lean metrics enable you to measure, evaluate, and respond to your organization’s current performance in a balanced approach – without sacrificing the quality of your products or services to meet quantity objectives. Properly designed lean metrics also enable you to consider the important “respect for people” factors necessary for your organization’s success. The choice of Lean metrics should align with your business goals and accurately portray your organization’s performance and processes. You should also consider the total number of metrics to use. Using too many metrics can confuse your employees and slow your performance/process improvement initiative. On the other hand, using too few might not provide you with enough detail to properly focus your process improvement efforts. Once you decide on which metrics to use, regularly tracking and analyzing these metrics will help you identify areas for improvement and make data-driven decisions to optimize your business operations.

1. The Lean Transformation
Lean Metrics
Thought
Leadership Series
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2. Lean Metrics
• Lean metrics are
measurements that help you
monitor your progress toward
achieving your lean
transformation goals.
• Metrics can fall into three
categories:
• Financial
• Behavioral
• Core processes
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3. Financial Metrics
• You improve your company’s
financial performance by
lowering the total cost of
operations and increasing
revenue.
• If your company can become a
lower cost producer without
sacrificing quality or service
performance, it can enhance
its market position.
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4. Financial Metrics
•Costs
• Cash flow
• Direct and indirect labor
costs
• Direct and indirect
material costs
• Inventory carrying costs
•Revenue
• Sales
• Gross margins
• Return on assets
• Return on investment
• Warranty costs
Some Examples…
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5. Financial Metrics
•Hard-cost Savings
• Actually produce cash savings or increases in profit
• Directly affect your P&L
•Soft-cost Savings
• Assets that are freed up so they can be used for
another purpose
• Contributes no positive change to your P&L
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6. Financial Metrics
•Cost shifting
• Moving costs from one account to another without
creating any real savings
• Often hides waste rather than eliminating it
Goal: Reduce both your hard and soft cost savings
for the benefit of your organization.
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7. Case Example
A manufacturing company decides to implement quick changeover for one of its
fabrication lines. This enables the company to reduce batch sizes by a full 65%
and its inventory investment by 35%. These are hard-cost savings.
Before the company implemented its cost reduction efforts. Employees were
responsible for all aspects of inventory and stocking. Now the company requires
its suppliers to inventory and stock all raw materials at their site. By doing this the
company frees up nearly 50% of the storage space, for which it has no plans for
other uses. This is a soft-cost saving.
By requiring one of its suppliers to stock raw materials the company has shifted
the cost of stocking raw materials to its supplier.
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8. Financial Metrics
• Implementation Tips
1. Introduce financial metrics
to employees as a way for
them to understand the
impact of their lean efforts
on operations as well as
on the company’s bottom
line.
2. Encourage the use of
financial metrics in your
lean improvement
activities.
3. Provide training when
necessary.
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9. Behavioral Metrics
Behavioral metrics are
measurements that help
you monitor the actions
and attitudes of your
employees.
Employees’ commitment,
communication, and
cooperation all have a
significant impact on your
organization’s success.
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10. Behavioral Categories & Metrics
•Category: Commitment
•Performance Metrics
• Adherence to policies and procedures
• Participatory levels in lean improvement activities
• Availability and dedication of human resources department
• Efforts to train employees as needed
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11. Behavioral Categories & Metrics
• Category: Communication
• Performance Metrics
• Customer employee surveys
regarding quantity and
quality of company
communication efforts
• Elimination of service or
production errors caused by
ineffective communications
• Error reporting accuracy
and timeliness
• Formal recognition of
employees’ communication
efforts
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12. Behavioral Categories & Metrics
•Category: Cooperation
•Performance Metrics
• Shared financial risks and rewards
• Effective efforts toward reporting and resolving
problems
• Joint recognition activities
• Formal recognition of employees’ cooperation efforts
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13. Behavioral Metrics
• Implementation Tips
1. Implement techniques to gather project feedback,
meeting evaluations, employee appraisals and peer
evaluations
2. Conduct teamwork and facilitation training to
improve cooperation and communication within
your organization
3. Make sure your reward and recognition system is
aligned with your lean goals
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14. Core-Process Metrics
• Allow you to measure the
performance of your core
processes
• Product life cycle metrics
• Include the identification of
market potential, product
design, new product
launches, model extensions,
product use, and product
obsolescence
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15. Core-Process Metrics
• Order Fulfillment Metrics
• Include activities related to
sales, engineering,
procurement, production
planning and scheduling,
the production process,
inventory management.
Warehousing, shipping, and
invoicing.
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16. Core Process Metrics
•Results Metrics
• First-time through (FTT) quality
• Rolled-throughput yield (RTY)
• On-time Delivery (OTD)
• Order fulfillment lead time
OFLT)
• Invoicing errors
• Total cycle time
• Total lead time
•Productivity Metrics
• Inventory turnover rate (ITO)
• Overall equipment
effectiveness (OEE)
• Value-added to non-value-
added (VA/NVA) ratio
• Uptime
• Defective parts/million
Some specific examples…
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17. Core Process Metrics
• Implementation tips
• Measure all your core
processes in the value
stream for both productivity
and results
• Track the results and
compare them to your
desired outcomes
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18. Core Process Metrics
•First-time through (FTT)
• Measures the percentage of units that go through your
process without being reworked.
• Applicability to service processes- For example you can
use it to measure the number of sales orders processed
without error the first time they go through your order
fulfillment process
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19. Core Process Metrics
•Why Use FTT
• Increased output quality reduces the need for excess
inventory
• Improves your ability to maintain proper sequence
throughout the process
• Increasing quality before the constraint operation
occurs ensures that the operation receives no defective
product
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20. Core Process Metrics
• Calculating FTT
FTT = units entering process –(scrap+ reruns+ retests + repairs +
returns)
Units entering process
Example:
The purchasing process at ABC Energy generates 100, 000 purchase
orders a
year. Of these 5000 are returned for errors of which 2000 are reworked.
What
is the FTT.
FTT= 100,000- (5000 + 2000) = 0.93 or 93%
100,000
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21. Copyrights of all the pictures used in this presentation are held by their respective owners.
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22. ©Quantum Associates, Inc 2020
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