Performance Measurement
In order to monitor performance, assigning numbers can help understand what is happening and communicate results to others. Measurements can help establish achievable targets and take appropriate actions to make improvements. Measurements are useful at all levels throughout the organisation but it is crucial that the interaction of different measures is understood. Above all measure to take action - not simply to record history.
A good performance measurement framework to support Lean will focus on the customer and measure the right things. Performance measures must be:
- Meaningful, unambiguous and widely understood
- Owned and managed by the teams within the organisation
- Based on a high level of data integrity
- Such that data collection is embedded within the normal procedures
- Able to drive improvement
- Linked to critical goals and key drivers of the organisation
Traditional versus Balanced
Key Performance Indicators (KPIs) are the measurements within the organisation that provide for an overall indication of the health of the business. Traditionally, KPIs are dominated by historical, financial measurements but are more meaningful if they also include operational measurements.
Whereas a balanced approach considers four aspects of measurement: Financial, Customer, Process and Societal. As shown in the diagram above, traditional measurements tend to be financially biased and based in historic data (hence the larger circle) and offer little to support day-by- day continuous improvement. On the other hand a balanced set of measures will be both forward and backward looking in equal regard and should provide insight to the current and future performance.
The Four Key Steps of Performance Measurement
There are four key steps in a performance measurement framework.
The strategic objectives of the organisation are converted into desired standards of performance, metrics are developed to compare the target performance with what is actually achieved, gaps are identified, and improvement actions initiated.
It is vital that these steps are continuously implemented and reviewed.
Initially, focus on a few key goals that are critical to the success of the organisation and ensure they are SMART:
Specific – Measurable – Achievable – Relevant - Timely
Balanced Scorecards recognise the limitations of purely financial measurement of the organisation and can be useful in the development of key goals.
Once the goals have been defined, the next step in developing the performance measurement framework is to define the output metrics, in other words “what has to be measure in order to determine that the business goals are being achieved?” If it is difficult to define the output metrics for any specific goal then it tends to suggest that the goal is not SMART or critical to the success of the business.
For each of the output metrics ask “what measurable factors influence the output?”, these are the drivers affecting output and should be ordered in terms of greatest impact. The most important drivers should have their own driver metrics and must be put in place first. For instance, if a business goal is to “improve customer satisfaction” then one output metric may be “on-time delivery”, if delivery performance is driven, amongst other things, by production then it will be necessary to identify the production drivers and implement metrics in production first, since it will only be possible to initiate the improvements necessary if the performance of the driving metrics that affect “on-time delivery” are measured and understood.
To ensure that set of metrics implemented trigger the continuous improvement cycle, they must be defined in three main areas:
- Quality – this is about measuring process output, in production terms it is really about good product versus waste product, but in other areas it may be about measuring the “effectiveness” of processes, for example quotes turned into sales, invoices processed without query, etc.
- Availability – this is about measuring resources, in production terms it concerns the time that manufacturing resources are planned to be available for production versus the actual time they were available, but in other areas it may concern measuring resources allocable to specific business processes, for example, are orders processed quickly, complaints handled promptly, etc.
- Productivity – this is the measurement of actual output versus expected output, in production terms a process may be expected to produce at a planned rate, if the planned rate is not achieved then production will not be delivering the required output with consequent effect on customer satisfaction. In other areas the same applies, if the planned rate of work is not achieved then additional resources will be required simply to keep up.
Overall Equipment Effectiveness
At production asset level measurements of Quality, Availability and Productivity can be combined to give an overall performance measure commonly referred to Overall Equipment Effectiveness or OEE.
Shoplogix Plantnode and Plantnode Enterprise provide the tools for collecting, aggregating, analysing and presenting performance information at asset, line, plant and enterprise level automatically and in real-time.
As part of balanced performance measurement system Plantnode provide management, supervision and operatives with a real-time insight of current performance production performance so that immediate action can be taken, as well as providing the means for the aggregation and analysis of performance data to support continuous improvement.