- Selecting the best variables to measure requires a ‘funnel’ approach. The team starts with several possible metrics and selects the best set based upon
- ease of collecting data
- ability to reflect performance and
- organizational capacity to report and use
- The benefits of having a measurement must outweigh the costs of gathering, collecting, displaying and understanding the information.
- A Key Performance Indicator (KPI) is a measurable value that reveals how effectively a company is performing on high priority business objectives. Short-term KPIs help front line teams focus on their contribution to performance, similarly to how a dashboard indicates MPG performance to the driver of a car. Long-term KPI's help assess performance over time and drive continuous improvement.
- KPI's provide a powerful communication tool. They should abide by the same rules and best-practices of communication; short, sweet and relevant information is much more likely to be understood and acted upon immediately if it answers, ”Did we win today?”
- Scorecards are a visual representation of a specific set of KPI’s which demonstrate the team’s performance over time.
- What is the value add of this operation?
- Which measurements are the best at conveying whether we provided value today?
- Is it easy to collect data? How quickly and easily can we gather this data?
Does what is being measured have a good operational definition that is agreed upon by everyone working & evaluating the measure?
- Are the measurements continuous (numeric) or discrete (category or yes/no) data?
- Is there a performance standard or goal for each metric?
- Do we give teams the capability to ask for help when we are not achieving the goal?
Problem: A direct to consumer manufacturer was struggling with OEE (Overall Equipment Effectiveness) which had an adverse impact on profitability. OEE is a combination of availability (process uptime), performance (meeting the designed cycle time rate) and quality (percentage of defects). OEE = availability x performance x quality.
The performance OEE rate was 41% (availability 70%, performance 65%, quality 90%), far from the world class standard of 85%. Annually, labor as a percent of revenue was 11.1% (with a wide range as the poorest performing month was 14.1%). The manufacturer had to cover the poor OEE performance with extra shifts and overtime in order to maintain customer delivery expectations. These actions had a negative impact on the overall gross profit of the company.
Action: The OEE measure was a Key Performance Indicator (KPI) at the plant level. The question that needed to be answered was how to take it one level down to the operators. The management team created that level of KPI’s for the operators. The team of operators then used these easily managed KPI’s that were related to their everyday work processes and tracked on an hour by hour basis.
- Lack of Availability (measured in minutes of downtime) was tracked by operators for any instance longer than 7 minutes, allowing the team to pareto issues and address root causes.
- Performance was measured against the 90 second cycle time requirement. The team used a digital tracker for each cycle which lead to operators to find creative ways to improve.
- Time to start-up was reduced and process steps were modified via operator improvement ideas to meet the 90 second requirement.
- Quality was affected by limiting the number of rework items in WIP and addressing root causes as they occurred.
- Rework became almost nonexistent due to the expedient inline process to address root cause.
- Results: OEE improved from 41% to 69%!
- Availability increase - 70% to 76%
- Performance improvement - 65% to 92%
- Quality defect reduction - 90% to 98%
- The company also saw a nice improvement in profitability. Labor as a percent of revenue reduced from 11.3% to 10.1%! Overall gross profit improved 7.8 percentage points. Operator engagement became a strength of the department. Operator level KPI’s played a significant role in helping the organization understand and act on the high-level plant KPI of OEE.