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Key Performance Measures (KPMs)  Roundtable Series Key Performance Measures –   07/27/10 L E A N E N T E R P R I S E
The Measurement Paradigm <ul><li>We don’t know what we don’t know… </li></ul><ul><li>We can’t act on what we don’t know......
What are Lean KPM’s? <ul><li>Key Performance Measures (KPM’s) are: </li></ul><ul><ul><li>Macro & Micro Metrics that reflec...
Examples of Lean KPM’s at the Corporate Level <ul><li>Financial Measures: </li></ul><ul><li>Sales Growth </li></ul><ul><li...
Examples of Lean KPM’s at the Value Stream Level   <ul><li>Primary Measures: </li></ul><ul><li>Units per Person </li></ul>...
Examples of Lean KPM’s  for Work Cells  <ul><li>Primary Measures: </li></ul><ul><li>Days of Raw, WIP and Finished Goods </...
Strategic Framework for Lean KPM’s <ul><li>Company Vision Statement:  What does it look like?  A clear mental picture of a...
Lean KPM’s – Customer <ul><li>Customer Metrics </li></ul><ul><ul><li>Lead Times  </li></ul></ul><ul><ul><li>Cycle Times </...
Lean KPM’s – Organization <ul><li>Organization Metrics: </li></ul><ul><ul><li>Profitability </li></ul></ul><ul><ul><li>Saf...
Lean KPM’s – Cost  <ul><li>Cost Metrics: </li></ul><ul><ul><li>Economic Impact and ROI Calculations </li></ul></ul><ul><ul...
Lean KPM’s – Quality  <ul><li>Quality Metrics: </li></ul><ul><ul><li>Total Cost of Quality (materials, scrap, rework, warr...
Lean KPM’s – Delivery  <ul><li>Delivery Metrics: </li></ul><ul><ul><li>Reliability (one time and accuracy)  </li></ul></ul...
Lean KPM’s – Innovation  <ul><li>Innovation Metrics: </li></ul><ul><ul><li>Labor Cost Reductions  </li></ul></ul><ul><ul><...
Other Lean KPM Options <ul><li>World Class Principles </li></ul><ul><li>Balanced Scorecard Model  </li></ul><ul><li>Perfor...
World Class by Principles <ul><li>World Class by Principles (WCP)  is:  </li></ul><ul><li>A set of operations and performa...
Principles of Customer-Focused  Performance Key Performance Measures –  07/27/10 I. General 1 Customer/product focus 2 Ext...
Balanced Scorecard <ul><li>Customer Management </li></ul><ul><li>Internal Operations Management </li></ul><ul><li>Employee...
Beyond the Balanced Scorecard: Measuring Corporate Performance <ul><li>Benefits of improved Performance Measurements inclu...
Performance Management (PM) Behavioral Model <ul><li>ABC Model </li></ul><ul><ul><li>A = Antecedents </li></ul></ul><ul><u...
Performance Management (PM) The Four Consequences <ul><li>Consequences that Increase Performance </li></ul><ul><ul><li>Pos...
Why Lean KPM’s – SUCCEED!  <ul><li>Lean KPM’s Succeed when: </li></ul><ul><ul><li>Owners or upper managers “walk-the-walk”...
Resources & Websites <ul><li>Performa Article:  Lean Measures for Lean Enterprises </li></ul><ul><li>Strategic Management ...
Lean Enterprise Websites <ul><li>www. 3 60vu.com   (NIST/MEP for Firms) </li></ul><ul><li>www.lean.org   (Lean Enterprise ...
Lean Implementation Benefits Key Performance Measures –  07/27/10 Lead Time Reductions 0 25 50 75 100 Percentage of Benefi...
Spirit of High Performance <ul><li>An organization with a “spirit of high performance” emphasizes achievement and excellen...
Thank you. Key Performance Measures –   07/27/10 L E A N E N T E R P R I S E
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Lean Key Performance Metrics

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Lean Key Performance Metrics

  1. 1. Key Performance Measures (KPMs) Roundtable Series Key Performance Measures – 07/27/10 L E A N E N T E R P R I S E
  2. 2. The Measurement Paradigm <ul><li>We don’t know what we don’t know… </li></ul><ul><li>We can’t act on what we don’t know... </li></ul><ul><li>We won’t know until we search... </li></ul><ul><li>We won’t search for what we don’t question... </li></ul><ul><li>We don’t question what we don’t measure. </li></ul><ul><li>Excerpt from Six Sigma </li></ul><ul><li>by Michael Harry, PH.D. & Richard Schroeder </li></ul><ul><li>We know measures are a result, not a cause... </li></ul><ul><li>To change results we must change behaviors! </li></ul>Key Performance Measures – 07/27/10
  3. 3. What are Lean KPM’s? <ul><li>Key Performance Measures (KPM’s) are: </li></ul><ul><ul><li>Macro & Micro Metrics that reflect customer demands and measure organizational performance! </li></ul></ul><ul><ul><li>Typically deal with the following main categories: </li></ul></ul><ul><ul><ul><li>Customer’s Demand Rate. </li></ul></ul></ul><ul><ul><ul><li>Organizational Effectiveness </li></ul></ul></ul><ul><ul><ul><li>Costs & Profitability </li></ul></ul></ul><ul><ul><ul><li>Quality </li></ul></ul></ul><ul><ul><ul><li>On-Time Delivery </li></ul></ul></ul><ul><ul><ul><li>Innovation </li></ul></ul></ul>Key Performance Measures – 07/27/10
  4. 4. Examples of Lean KPM’s at the Corporate Level <ul><li>Financial Measures: </li></ul><ul><li>Sales Growth </li></ul><ul><li>Improved Cash Flow </li></ul><ul><li>ROI or ROE </li></ul><ul><li>Operations Improvements: </li></ul><ul><li>Inventory Turns </li></ul><ul><li>Overall Throughput </li></ul><ul><li>Lead Time Reductions </li></ul><ul><li>Customer Value: </li></ul><ul><li>On-Time Delivery % </li></ul><ul><li>Customer Lead Time Reductions </li></ul><ul><li>Customer Satisfaction Ratings </li></ul><ul><li>Productivity Improvements: </li></ul><ul><li>Overall Efficiency % Gains </li></ul><ul><li>Sales per Employee </li></ul>Key Performance Measures – 07/27/10
  5. 5. Examples of Lean KPM’s at the Value Stream Level <ul><li>Primary Measures: </li></ul><ul><li>Units per Person </li></ul><ul><li>On-Time Delivery % by Product Family </li></ul><ul><li>Quality- First Pass Yield </li></ul><ul><li>Average Cost per Unit </li></ul><ul><li>Dock-to-Dock Times </li></ul><ul><li>Support Measures: </li></ul><ul><li>OEE at the Constraint Level </li></ul><ul><li>Average of Cross Training Hours per Person. </li></ul><ul><li>Number of OSHA Recordable Safety Incidents </li></ul>Key Performance Measures – 07/27/10
  6. 6. Examples of Lean KPM’s for Work Cells <ul><li>Primary Measures: </li></ul><ul><li>Days of Raw, WIP and Finished Goods </li></ul><ul><li>Operational Equipment Effectiveness (OEE) </li></ul><ul><li>Quality- First Pass Yield </li></ul><ul><li>Support Measures: </li></ul><ul><li>Cross Training Charts </li></ul><ul><li>5S Audits </li></ul><ul><li>Number of Kaizen or Continuous Improvements </li></ul>Key Performance Measures – 07/27/10
  7. 7. Strategic Framework for Lean KPM’s <ul><li>Company Vision Statement: What does it look like? A clear mental picture of an organization’s future! </li></ul><ul><li>Strategic Themes: What is our competitive advantage? Should be 3 to 5 Major Initiatives that will create organizational “competitive advantage!” </li></ul><ul><li>Critical Business Objectives: What goals will drive our competitiveness? Convert strategic themes into organizational-wide goals! </li></ul><ul><li>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! </li></ul><ul><li>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! </li></ul>Key Performance Measures – 07/27/10
  8. 8. Lean KPM’s – Customer <ul><li>Customer Metrics </li></ul><ul><ul><li>Lead Times </li></ul></ul><ul><ul><li>Cycle Times </li></ul></ul><ul><ul><li>Order Fulfillment </li></ul></ul><ul><ul><li>On-Time Delivery </li></ul></ul>Key Performance Measures – 07/27/10
  9. 9. Lean KPM’s – Organization <ul><li>Organization Metrics: </li></ul><ul><ul><li>Profitability </li></ul></ul><ul><ul><li>Safety </li></ul></ul><ul><ul><li>Employee Turnover </li></ul></ul><ul><ul><li>% of Workforce engaged in Continuous Improvement/Kaizen Events! </li></ul></ul>Key Performance Measures – 07/27/10
  10. 10. Lean KPM’s – Cost <ul><li>Cost Metrics: </li></ul><ul><ul><li>Economic Impact and ROI Calculations </li></ul></ul><ul><ul><li>Team Productivity & Efficiency </li></ul></ul><ul><ul><li>Space Requirements/Savings </li></ul></ul><ul><ul><li>Inventory (Raw, WIP and Finished Goods) </li></ul></ul><ul><ul><li>Overhead Spending </li></ul></ul><ul><ul><li>Working Capital </li></ul></ul><ul><ul><li>Cash Flow </li></ul></ul>Key Performance Measures – 07/27/10
  11. 11. Lean KPM’s – Quality <ul><li>Quality Metrics: </li></ul><ul><ul><li>Total Cost of Quality (materials, scrap, rework, warranty, environment, labor and services.) </li></ul></ul><ul><ul><li>First Pass Yield </li></ul></ul><ul><ul><li>Quality-at-Source vs. Inspection & Test </li></ul></ul>Key Performance Measures – 07/27/10
  12. 12. Lean KPM’s – Delivery <ul><li>Delivery Metrics: </li></ul><ul><ul><li>Reliability (one time and accuracy) </li></ul></ul><ul><ul><li>Schedule Attainment </li></ul></ul><ul><ul><li>On-Time Delivery % </li></ul></ul><ul><ul><li>Customer Satisfaction Evaluation (CSE) Ratings </li></ul></ul>Key Performance Measures – 07/27/10
  13. 13. Lean KPM’s – Innovation <ul><li>Innovation Metrics: </li></ul><ul><ul><li>Labor Cost Reductions </li></ul></ul><ul><ul><li>Material Cost Savings </li></ul></ul><ul><ul><li>Any Type of Cost Avoidance Savings </li></ul></ul><ul><ul><li>Concept-to-Market Time Improvements </li></ul></ul>Key Performance Measures – 07/27/10
  14. 14. Other Lean KPM Options <ul><li>World Class Principles </li></ul><ul><li>Balanced Scorecard Model </li></ul><ul><li>Performance Management (PM) </li></ul>Key Performance Measures – 07/27/10
  15. 15. World Class by Principles <ul><li>World Class by Principles (WCP) is: </li></ul><ul><li>A set of operations and performance concepts! </li></ul><ul><li>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 </li></ul><ul><li>An assessment tool for organizational performance evaluation! </li></ul><ul><li>A comprehensive, universal strategy! </li></ul><ul><li>System of implementation for next-century, much-elevated competitiveness! </li></ul>Key Performance Measures – 07/27/10 Schonberger & Associates, Inc.
  16. 16. Principles of Customer-Focused Performance Key Performance Measures – 07/27/10 I. General 1 Customer/product focus 2 External data 3 Eyes-of-customers successes 4 Associate involvement II. Design 5 Product/supply system design III. Operations 6 Reduce flow times 7 Rate-of-use synchronization IV. Human Resources 8 Training/certification 9 Recognition and reward V. Quality/process 10 Reduce process variation improvement 11 Associate ownership of data VI. Information/ 12 Cause control with few reports control 13 Performance measurement VII. Capacity 14 Facilities maintenance/improvements 15 Equipping for simplicity/focus VIII. Promotion 16 Market/sell every improvement
  17. 17. Balanced Scorecard <ul><li>Customer Management </li></ul><ul><li>Internal Operations Management </li></ul><ul><li>Employee Management </li></ul><ul><li>Financial Management </li></ul><ul><li>Organizational Learning & Innovation </li></ul><ul><li>Developed by Professor Robert Kaplan & David Norton of the Harvard Business School </li></ul>Key Performance Measures – 07/27/10
  18. 18. Beyond the Balanced Scorecard: Measuring Corporate Performance <ul><li>Benefits of improved Performance Measurements include: </li></ul><ul><li>Improved Employee Performance </li></ul><ul><li>Reduced Operating Costs </li></ul><ul><li>Reduced Cycle & Customer Lead Times </li></ul><ul><li>More Effective Strategy & Goal Development </li></ul><ul><li>Improved Internal & External Communications. </li></ul><ul><li>Source: Best Practices, LLC Website </li></ul><ul><li>www.best-in-class.com </li></ul>Key Performance Measures – 07/27/10
  19. 19. Performance Management (PM) Behavioral Model <ul><li>ABC Model </li></ul><ul><ul><li>A = Antecedents </li></ul></ul><ul><ul><li>B = Behaviors </li></ul></ul><ul><ul><li>C = Consequences </li></ul></ul><ul><li>Data Based </li></ul><ul><ul><li>No more hunches as to why people do things! </li></ul></ul><ul><ul><li>ABC Analysis determine what causes desired and undesired behaviors? </li></ul></ul><ul><ul><li>Well defined Performance Improvement Plan (PIP) to measure organizational and behavioral changes! </li></ul></ul><ul><li>Organizational Culture- focuses on changing the environment that people work in. </li></ul><ul><ul><li>Presented by Beth Foate, Ph.D from Alabama Technology Network (ATN) </li></ul></ul><ul><ul><li>at Modernization Forum 2001 in Cincinnati, Ohio </li></ul></ul>Key Performance Measures – 07/27/10
  20. 20. Performance Management (PM) The Four Consequences <ul><li>Consequences that Increase Performance </li></ul><ul><ul><li>Positive Reinforcement (R+): Performer gets something they want. </li></ul></ul><ul><ul><li>Negative Reinforcement (R-): Avoiding something that the performer does not like. </li></ul></ul><ul><li>Consequences that Decrease Performance </li></ul><ul><ul><li>Punishment (P+): Performer receives what they don’t want. Punishment will only stop behavior. </li></ul></ul><ul><ul><li>Penalty (P-): Performer loses something they have. Penalties tend to decrease the performance, with possible side effects. </li></ul></ul><ul><li>Reminder: Behavior is a function of its consequences! </li></ul>Key Performance Measures – 07/27/10
  21. 21. Why Lean KPM’s – SUCCEED! <ul><li>Lean KPM’s Succeed when: </li></ul><ul><ul><li>Owners or upper managers “walk-the-walk”, not just “talk-the-talk!” </li></ul></ul><ul><ul><li>Properly aligned with Strategic Business Objectives! </li></ul></ul><ul><ul><li>Based on Leading Indicators of Future Performance vs. Lagging Past Performance Metrics! </li></ul></ul><ul><ul><li>Very good understanding and integration of KPM’s with other organizational information and objectives! </li></ul></ul><ul><ul><li>Excellent Balance between long-term strategic and short-term financial measures! </li></ul></ul><ul><ul><li>Well communicated and very visual! </li></ul></ul><ul><ul><li>Meaningful and related well to daily work plans and activities! </li></ul></ul>Key Performance Measures – 07/27/10
  22. 22. Resources & Websites <ul><li>Performa Article: Lean Measures for Lean Enterprises </li></ul><ul><li>Strategic Management 13 th Edition by Thompson & Strickland </li></ul><ul><li>Performance Management in a Lean Environment at 2001 Modernization Forum in Cincinnati, Ohio by Beth Foate, Ph.D Alabama Technology Network (ATN) </li></ul><ul><li>The Balanced Scorecard: Translating Strategy into Action Robert S. Kaplan , Preface by  David P. Norton </li></ul><ul><li>http://balancedscorecard.com Open Ratings Website </li></ul><ul><li>http://www.bscnews.com/index.htm The Balanced Scorecard Newswire </li></ul><ul><li>http://performainc.com Performa Inc. Website </li></ul>Key Performance Measures – 07/27/10
  23. 23. Lean Enterprise Websites <ul><li>www. 3 60vu.com (NIST/MEP for Firms) </li></ul><ul><li>www.lean.org (Lean Enterprise Institute’s Website) </li></ul><ul><li>www.shingoprize.org (Shingo Prize for Manufacturing Excellence) </li></ul><ul><li>www.missourienterprise.org (MEBAC Website) </li></ul><ul><li>www.mamtc.com/lean (MAMTC Lean Website) </li></ul><ul><li>www.sae.org (Society of Automotive Engineers) </li></ul><ul><li>(SAE J 4000-Lean Operations Standard) </li></ul><ul><li>www.superfactory.com (Global Manufacturing Excellence) </li></ul><ul><li>www.ame.org (Association for Mfg. Excellence) </li></ul><ul><li>www.nam.org (National Association of Mfgs.) </li></ul><ul><li>www.sme.org (Society of Manufacturing Engineers) </li></ul><ul><li>www.iienet.org (Institute of Industrial Engineers) </li></ul><ul><li>www.nwlean.net (NorthWest Lean Working Group) </li></ul><ul><li>www.productivityinc.com (Productivity Press) </li></ul><ul><li>www.asq.org (American Society for Quality) </li></ul>Key Performance Measures – 07/27/10
  24. 24. Lean Implementation Benefits Key Performance Measures – 07/27/10 Lead Time Reductions 0 25 50 75 100 Percentage of Benefits Achieved Productivity Increases Inventory Reductions Quality Improvements Space Usage Savings
  25. 25. Spirit of High Performance <ul><li>An organization with a “spirit of high performance” emphasizes achievement and excellence! </li></ul><ul><li>Its culture is results-oriented, and it uses people management practices that inspire workers to do their best! </li></ul><ul><li>from Organizational Dynamics </li></ul><ul><li>Summer 1994, “Creating the Climate and Culture of Success,” </li></ul><ul><li>by Benjamin Schneider, Sarah K. Gunnarson, and Kathryn Niles-Joley </li></ul>Key Performance Measures – 07/27/10
  26. 26. Thank you. Key Performance Measures – 07/27/10 L E A N E N T E R P R I S E

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