"KPIs from a Lean Perspective: Achieve Goals, Reduce Waste"

Ramon Vorne

Plant Engineering

July 2007, pp. 49-52

The author of this article states that Key Performance Indicators (KPIs) "are important for the plant floor because they are highly effective for exposing, quantifying and visualizing muda (the Lean term for waste), and they are also highly effective motivators."

The article provides a list of KPIs suited to various objectives:

• To reduce downtime—KPIs are total downtime; downtime events; changeover time; and OEE (Overall Equipment Effectiveness) availability
• To optimize cycle times—KPIs are average cycle time; slow cycles; small stops; and OEE (Overall Equipment Effectiveness) performance
• To improve quality—KPIs are first pass yield; startup rejects; production rejects; and OEE (Overall Equipment Effectiveness) quality
• To meet customer demand—KPIs are takt time; performance to takt; piece variance; and estimated time to completion
• To improve productivity—KPIs are run rate; pieces per labor hour; total effective equipment productivity (TEEP); and OEE (Overall Equipment Effectiveness)

A list of characteristics of effective plant floor KPIs is also presented:

• The KPI is aligned with top-level strategic goals
• The KPI is actionable (can be influenced) by plant floor personnel
• The KPI is a current or forward-looking metric
• The KPI exposes and quantifies waste
• The KPI provides an early-warning system for anomalous processes
• The KPI is updated frequently (in real-time for current metrics)
• The KPI is ‘owned’ by an individual (accountability is established)

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"Services Supply Management: The Next Frontier for Improved Organizational Performance"

Lisa Ellram, Wendy Tate, and Corey Billington

California Management Review

Summer 2007, pp. 44-66

Service sector business currently accounts for about two-thirds of the U. S. Gross Domestic Product, and about 80 percent of economic growth. A recent CAPS Center for Strategic Supply Research study found that purchased services averaged 39% of total purchasing spending.

However, about 69% of supply chain management professionals surveyed indicate that purchasing services is more difficult than purchasing goods. The authors of this article identify a number of "barriers" that need to be addressed if services purchasing is to be improved:

• Lack of resources focused on services—The CAPS survey above found that the average buyer of direct material is responsible for 36 active suppliers. The average buyer of direct services is responsible for about 105 active suppliers
• Lack of Information Technology support—Buyers often have to use software provided by the service suppliers for making purchases
• Knowing when to outsource—The uncertainty about measures of results and quality contributes to this dilemma
• Cost drivers and structures—There is often limited understanding of the cost drivers and structures that are part of services supplied
• Fragmented spending—Much of the spending on services flows through decentralized structures, and involves non-standard services
• Growing supply base—In the CAPS study, 58% reported an increase in the number of offshore services suppliers, while only 4% reported a decrease. So aside from growing larger, the suppliers are more difficult to reach and manage

Some common outcomes of poor management of purchased services are:

• Financial losses—It is common for over-billing in services alone to cost about one percent of total revenue
• Opportunistic behavior by suppliers that is not in the best interest of the organization
• Process flaws—"summary invoices" do not allow the control that is found in direct materials purchasing

Steps to improve service supply management suggested in the article are:

• Understand the magnitude of the services purchasing spending
• Segment the purchasing spending based on value and risk
• Allocate appropriate resources relative to economic return to the area of services supply management
• Increase the professionalism of the services purchasing area
• Measure effectiveness and ensure proper business controls
• Put the best people in services supply management

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"All-Round Improvements"

Chris Rowlands

Works Management

July 2007, pp. 18-21

This article explores how Total Productive Maintenance (TPM) can make a big difference in employee engagement, as well as machine uptime. A list of "pointers" is provided for a successful TPM implementation:

• Identify the needs—the business case. Make it visible, communicate it to the shop floor
• Obtain senior management sponsorship—it must be discussed at senior management meetings
• Management must display the right behaviors—the senior team must be out there, visible, asking, and being asked, questions
• Sustainability must be designed in from the start
• Measure OEE (Overall Equipment Effectiveness) before launch, to set the baseline early. Data must be collected and owned—and reviewed daily and weekly
• Pilot an area or one machine only. Make it a massive success and the benchmark for future roll-out
• Develop a strategy for plant care: emphasize the inseparable relationship between operations and maintenance

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"A Foundation for Continuous Improvement"

Marty Neese

Circuits Assembly

July 2007, pp. 50-51

The author of this article is an Executive VP for Solectron, which in 2003 "dedicated itself to becoming the Toyota of the EMS industry. Combining Lean manufacturing principles from Toyota with the quality rigors of Six Sigma, we created the trademarked Solectron Production System."

Solectron focused on five areas in their deployment of their production system:

• Establishing a Lean culture—Solectron realizes the importance of Lean manufacturing being embedded in the company culture from senior management to the shop floor. Every day, a kaizen event takes place at one or another of Solectron's sites. A Kaizen Promotion Office has been set up.
• Leveraging the power of the visual factory—Visually seeing problems and taking action has reduced manufacturing rework by 75%. Three key methods used are sequencing boards (to view customer demand and material availability), production andon (electronic displays of real-time performance), and lookout towers (for supervisors to see the production floor to identify abnormalities or inefficiencies.
• The importance of combining Lean and Six Sigma—"Lean identifies inefficiencies and defects in the manufacturing process, addressing speed, flexibility and quality, while Six Sigma's data-driven analysis delivers precision and accuracy."
• Kaizen—improving work processes—Solectron adopted continuous flow U-shaped production lines to reduce material handling, improve quality, have less WIP, and have faster changeovers.
• Leaning out the supply chain—This is an essential step to assure quality and reliability of components.

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"Misunderstanding of the Nature of Company Performance: The Halo Effect and Other Business Delusions"

Phil Rosenzweig

California Management Review

Summer 2007, pp. 6-20

The "halo effect" refers to "the basic human tendency to make specific inferences on the basis of a general impression." An example would be a performance evaluation where a person who performed well on one important dimension would also be rated inaccurately higher on other dimensions.

The author of this article claims that "As long as people are asked to assess companies when they already have an opinion about their performance, their evaluations are likely to be biased—and their resulting findings of questionable value." The popular studies intended to uncover the "secrets" of exceptional companies (Tom Peters and Robert Waterman's "In Search of Excellence"; Jim Collins and Jerry Porras' "Built to Last"; and Jim Collins' "Good to Great") are all perceived to have fallen under the halo effect by relying too much on subjective descriptions (media reports, retrospective descriptions, etc.) of companies that were performing very well at the time of the study. In fact, a large portion of these companies were unable to maintain their high performance after the books were published, and their success may not have been clearly attributable to the "principles" or descriptions provided in the books. Rosenzweig says these studies "have helped promote a fundamental misunderstanding of the nature of company performance. They have diverted our attention from a more accurate understanding of what it takes for companies to achieve success."

Rosenzweig identifies three misconceptions about company performance:

• That there exists a formula, or a blue-print, which can be followed to achieve high performance—"In fact, formulas can never predictably lead to business success with the accuracy of physics for a simple but profound reason: in business, performance is inherently relative, not absolute...companies compete for customers, and...performance of one company is inherently affected by the performance of others."
• If we mistakenly believe that firm performance is absolute, not relative, we may wrongly conclude that it is driven entirely by internal factors, such as the quality of its people, the values they hold, their persistence, and the like.
• Since strategic choices are made under conditions of uncertainty about competitors, customers, and technology, they always involve risk. Even good decisions may turn out badly because of this element of risk.

The author concludes that "The task facing executives is to gather appropriate information, evaluate it thoughtfully, and make choices that provide the best chances for the company to succeed, all the while recognizing the fundamental nature of uncertainty in the business world."

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Micro Thinking: Taking Large Lessons to the Floor

John McNeil, GP
 

Rosenzweig is correct in questioning the power of slogans and generalizations; simplistic steps to success.

Few of us can remember the 8 themes of In Search of Excellence. Even when we do remember them, we are not sure how to ensure that front line workers can translate them into everyday actions. And we aren't sure how first level leaders can, in turn, teach front line workers and monitor their success. To Rosenzweig's point, they are too general, too high level, too abstract.

But the seeds of a successful and replicable strategy are contained in Rosenzweig's very objections and suggestions. We must, as he says, continuously gather information from customers and competitors, evaluate it and make informed choices. It seems unlikely that he would object to the idea of driving this decision making as close to its impact as possible (per In Search's fourth theme), or of doing everything as efficiently as possible.

And so we have the basis for Lean/Six Sigma value-stream management. We should monitor and measure customer needs (relative of course to competition, although customers are often the very best source of information on competitors' strengths and weaknesses), we should determine what elements of our value stream most powerfully effect those needs, the ways in which our activities fail to attain the most appropriate levels or variability in those elements, the waste-free standard work that would better control those levels and variability and the teaching required to ensure those standards.

One way to manage our value streams effectively is by using the tools that Neese suggests: developing and nurturing a culture of measurably-predictable work outputs and continuous improvement; visual and open communications of performance against expectations; simultaneously, continuously and relentlessly reducing variation and eliminating waste; working closely with suppliers and customers in search of global rather than local optimums.

It's true that these activities do not come naturally and require sustained emphasis, continuing course correction and careful risk assessment regarding investments in hard assets and knowledge. But those in search of excellence will find no better way to turn platitudes into plans.

8 Themes of In Search of Excellence:
Bias for action; close to the customer; autonomy and entrepreneurship; treat rank and file as a source of quality; management hands on; stick to the knitting; simple form; lean staff; simultaneous loose-tight.

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