Published on March 11, 2014
Company LOGO Lean PerformanceLean Performance Indicators:Indicators: Relevant Metrics that Sell Results andRelevant Metrics that Sell Results and Drive Ongoing ImprovementDrive Ongoing Improvement IIE Annual Conference Vancouver, BC May 20, 2008
2© 2008 Mike Osterling and Karen Martin Learning Objectives Three key performance indicators that must be included in process measurements. How to calculate staffing requirements. How to translate lean improvements into numbers with bottom-line impact. The difference between lagging and leading indicators, and the need for both operational and financial metrics. How to speak the language of executives and decision makers.
3© 2008 Mike Osterling and Karen Martin Metrics vs. Measurement Measurement – the act of collecting data for metrics Metric – a system of related measures that facilitates the quantification of some particular characteristic
4© 2008 Mike Osterling and Karen Martin What is the Purpose of Metrics? To establish a baseline from which to measure improvement To monitor process performance Assess progress Determine negative trends so proactive, corrective action can be taken To shape behavior To drive decisions / action To sell improvement across the organization
5© 2008 Mike Osterling and Karen Martin Process Design Mantra Because measurement is NVA and resource-intensive: Minimum effort to achieve optimal outcomes. Efficient – time and resources Effective – quality
6© 2008 Mike Osterling and Karen Martin Attributes of Effective Metrics Relevant Balanced Easy to collect / dynamic Timely Visible Designed to drive action / change behavior
7© 2008 Mike Osterling and Karen Martin Attributes of Effective Metrics Relevance
Do your metrics provide clear direction?
9© 2008 Mike Osterling and Karen Martin Relevance: Key Considerations What are our key business issues? What specific problems are we trying to solve/prevent? How will the data be used? What behavior change do we want to see?
10© 2008 Mike Osterling and Karen Martin The Organization Becomes What it Measures If your organization measures / rewards: Managers and workforce pay more attention to a, b, & c
11© 2008 Mike Osterling and Karen Martin Relevant Metrics for Office/Service/Technical Processes Quality First Pass Yield = % Complete and Accurate (%C&A) Cost Process Time (PT) - touch time / productivity Delivery / Service Lead Time (LT ) – throughput / turnaround time
12© 2008 Mike Osterling and Karen Martin Key Metrics: Quality %Complete and Accurate (%C&A) % of the time the downstream customer(s) can perform their work without having to “CAC”: Correct information or material that was supplied Add missing information that should have been supplied Clarify information provided that should have been clear
13© 2008 Mike Osterling and Karen Martin Key Metrics: Time Process time (PT) The time it takes to actually perform the work, if one could work on it uninterrupted Includes “think” time if process is analytical in nature aka “touch time,” work time, cycle time Lead time (LT) The elapsed time from the time work is made available until it’s completed and made available to the next person or department in the chain aka throughput time, turnaround time, elapsed time
14© 2008 Mike Osterling and Karen Martin Time-Related Metrics: Value Stream or Activity Level Lead Time Order / Request Delivery / Receipt Process Time LT = PT + Waiting Available to work on Available to next process
15 Current State VSM - Order Fulfillment Loop Customer Enter Order Order Entry PT = 5 mins. %C&A = 90% 5 Pick and ship order Warehouse PT = 15 mins. %C&A = 99% 5 2 hrs. 15 mins. 4 hrs. 5 mins. 2 hrs. 20 mins. 2 hrs. 15 mins. 10 hrs. Total LT = 20.9 hrs. Total PT = 55 mins. AR = 4.38% Run Credit Check Finance PT = 20 mins. %C&A = 99% 1 PO On-time delivery = 55% 10 hrs.2 hrs.2 hrs.4 hrs. SAP System 2 hrs. Review & approve PO Sales PT = 15 mins. %C&A = 90% 25 PT = Process Time LT = Lead Time C&A = % Complete & Accurate AR = Activity Ratio (PT/LT x 100) RFPY = Rolled First Pass Yield Value Stream Loop: Domestic Order Fulfillment Current State Value Stream Map Customer Demand: 150 orders / day RFPY = 55.6% Excel Account data Sales Order ShipperApproval 2 x weekly %C&A = 70%
16© 2008 Mike Osterling and Karen Martin Summary Metrics: Time Total PT Factor in determining labor requirements Total LT Indicates speed of delivery to customer & cash flow Activity Ratio (AR) The percentage of time work is being done to the patient/item/data passing through the process AR = (∑PT ÷ ∑LT) × 100 100 – AR = Idle time
17© 2008 Mike Osterling and Karen Martin Summary Metrics: Quality Rolled First Pass Yield (RFPY) = %C&A × %C&A × %C&A × … Out of 100 occurrences, the number of times the data/material/people pass through the entire process with no rework required (expressed as a percentage).
18© 2008 Mike Osterling and Karen Martin Common Office Findings Low AR (PT/LT x 100) 1-5% Low RFPY (%C&A x %C&A…) 0-20%
19 Future State VSM - Order Fulfillment Loop Customer Review & enter order Sales PT = 20 mins. %C&A = 99% 25 Pick and ship order Warehouse PT = 15 mins. %C&A = 99% 5 4 hrs. 20 mins. 2 hrs. 15 mins. 2 hrs. Total LT = 8.58 hrs. Total PT = 35 mins. AR = 6.8% PO On-time Delivery >90% 2 hrs. 2 hrs. SAP System 4 hrs. PT = Process Time LT = Lead Time C&A = % Complete & Accurate AR = Activity Ratio (PT/LT x 100) RFPY = Rolled First Pass Yield Value Stream Loop: Domestic Order Fulfillment Future State Value Stream Map Customer Demand: 150 orders / day RFPY= 78.4% Sales Order Shipper Daily SAP access for sales Cross train sales on OE Streamline OE process Rationalize freight carriers Daily shipments Standard work @ OE New customer OE format 1 2 3 %C&A = 80% Auto credit check Redefine credit check criteria
20© 2008 Mike Osterling and Karen Martin If the numbers don’t change in the desired direction, you’ve implemented a change, not an improvement.
21© 2008 Mike Osterling and Karen Martin 50%12# IT Systems 50%24# Steps 41.0%78.4%55.6%RFPY 55.3%6.80%4.38%AR (PT/LT x 100) 36.4%35 mins55 minsPT 59.0%8.58 hrs20.9 hrsLT Projected % Improvement Projected Future State Current StateMetric Projected freed capacity = 12,500 hrs = 6.01 FTEs Value Stream Performance Targets
22© 2008 Mike Osterling and Karen Martin Translating the reduction of non-value-adding activity into bottom-line numbers
Spaghetti Diagram- ECN Visualize travel of: People Product (“the thing”) ECN Process = 12.5 miles
Spaghetti Diagram Emergency Services Waiting Area Benefits Verification Patient History Vitals Physician Office Imaging Exam Room Laboratory Check-out / Billing ORDER CASH
Desk Table Desk Desk Desk Desk Table Desk Table Desk Desk Table Table Staging Area 6,7,8,96,7,8,9 Desk 6,7,8,96,7,8,9 6,7,8,96,7,8,9 DeskDesk Table Table Start Table Table 1 12 4c 4a 3 2 11 10 cart 4b Spaghetti Diagram – Mail Room (Shows people or product travel)
SNAP Main Tech DEPT HEAD C.O. SK DAAS BO1 ITEM MGR ISEA SUPV CRANE SUPPLY PEO IWS2 CRANE DEPOT STOCK POINT Main Tech C.O. ISEA SUPV PEO IWS2 STOCK POINT SNAP DEPT HEAD SK DAAS BO1 CRANE SUPPLY DOCKSIDE Current State FutureFuture State Circle Diagram Current vs. Future State Handoffs= 47 Lead Time = 486 hrs (60.7 days) Process Time = 108 hrs (13.5 days) Handoffs= 10 (78% improvement) Lead Time = 90 hrs (11.3 days) Process Time = 58 hrs (7.3 days)
27© 2008 Mike Osterling and Karen Martin The Cost of Unnecessary Motion Distance traveled to printer Work Group A = 92 ft. per occurrence Work Group B = 696 ft. per occurrence 120 occurrences / day = 4,656 miles/year Walk pace = 1 mile per hour = 582 days/year of unproductive, non-value-adding time = 2.2 FTEs
28© 2008 Mike Osterling and Karen Martin The Cost of Searching 1,500-employee healthcare organization Each employee spends 10 minutes per day looking for “stuff” Average pay = $22 per hour 41.7 hours wasted time per year per employee! = 30 FTEs = $1.4 million in non-value-adding expense
29© 2008 Mike Osterling and Karen Martin Calculating Freed Capacity Total PT (in hrs) X # occurrences/year# FTEs Required Available work hrs/year = Freed Capacity = CS FTEs - FS FTEs FTE = Full-time Equivalent 2 half-time employees = 1 FTE
30© 2008 Mike Osterling and Karen Martin Freed capacity: “Hard” Benefits Absorb additional work without increasing staff Reduce overtime / temp expenses Reduce payroll through natural attrition Time to innovate Conduct ongoing continuous improvement activities / perform root cause analysis Generate additional revenue
31© 2008 Mike Osterling and Karen Martin PT reduction of 6 mins/CT scan 6 mins/scan x 250 CT scans/yr = 1,500 mins (25 hrs) in freed tech capacity /year 1,500 / 12 mins tech time per scan = 125 additional scans possible per year 125 additional scans = $437,500 ($3,500/scan) in additional revenue potential without adding additional staff Freed Capacity to Increase Revenue
32© 2008 Mike Osterling and Karen Martin Better quality; better safety Work fewer nights and weekends; more quality time for self, family, friends and communities Get/stay caught up Talk and work with your customers and suppliers Mentor staff to create career growth opportunities Provide additional job-specific training Cross-train Freed capacity: “Collateral” Benefits
33© 2008 Mike Osterling and Karen Martin Assessing Customer or Workforce Satisfaction A five question 5-point Likert scale questionnaire is better than nothing. Anecdotal feedback is valuable. BUT statistically sound sample of a validated survey is ideal. Make sure surveys ask the right questions!
1. The supplies I need are available at all times. 2. If an item is out of stock, I receive it within the necessary timeframe. 3. The supplies I use are located close to where I need them. 4. Overall, I’m pleased with supplies availability, location, and organization. 5. How often do you obtain supplies from your dept’s “official” stock locations? 6. How often is an item you need out of stock? 7. What improvements would you like to see related to the supplies/materials you use? Strongly Strongly Agree Agree Disagree Disagree Supplies Management Survey – Staff Name (optional):___________________________________ Date: _____________________ Title/Role (optional): _______________________________ Area/Dept: _________________ __________ times per day __________ times per week
35© 2008 Mike Osterling and Karen Martin Other Performance Metrics On-time deliveries (customer service) Back orders Lead time / WIP Queue Longest time in queue % time service standards are met Complaints or phone calls per “order” Customer retention Workforce satisfaction / turnover Inventory turns, days on hand
36© 2008 Mike Osterling and Karen Martin Other Performance Metrics (continued) Process yield Setup / changeover time Units produced per total hours worked Accounts Receivable (days) Cost of Product Sold (COPS) Expenses (materials, shipping, overtime) Process time at bottleneck step OEE (Overall Equipment Effectiveness)
Balanced, but Relevant?
38© 2008 Mike Osterling and Karen Martin Break 10:20-10:30
39© 2008 Mike Osterling and Karen Martin Group Activity Pair up Using the worksheets provided, calculate: Activity Ratio for the current and future states Rolled First Pass Yield for the current and future states The projected Freed Capacity for the future state due to: Motion reduction Reduction in handoffs Efficiency gains due to technology 10 minutes to work; 5 minutes to discuss
40© 2008 Mike Osterling and Karen Martin Attributes of Effective Metrics Balanced
41© 2008 Mike Osterling and Karen Martin Metric Attributes: Balance Time and Quality (efficiency & effectiveness) Operational and Financial Individual and Team Departmental and Value Stream Internal and External Leading and Lagging
42© 2008 Mike Osterling and Karen Martin Metrics - Leading vs. Lagging Leading indicators Predicts future performance / likely outcomes Provides opportunity to take corrective action that alters the eventual outcome Lagging indicators Reflect things that have already happened “Historical record” – what happened in the past No ability to alter the outcome
43© 2008 Mike Osterling and Karen Martin Leading vs. Lagging Indicators X X X X X X X Lagging Indicator Leading Indicator Outcome
44© 2008 Mike Osterling and Karen Martin Leading Indicators Building permits (in relationship to economy) Hours of safety training (in relationship to accident rate) Hourly output (in relationship to hitting daily goal, or customer service level) Weekly progress on two-month project Time, budget, etc. Internal quality level (customer complaints)
45© 2008 Mike Osterling and Karen Martin Lagging Indicators Missed time incident rate Customer service levels (e.g. on- time delivery) Quarterly sales (communicated at the beginning of the next quarter) Machine downtime Customer complaints A metric can be both leading and lagging
46© 2008 Mike Osterling and Karen Martin Attributes of Effective Metrics Easy to Collect / Dynamic
47© 2008 Mike Osterling and Karen Martin Metric attributes: Ease We seek pleasure and avoid pain Consider short term measurement Only until sufficient data is obtained Metrics should be dynamic based on need, not a static program Consider who measures, what they measure, how often they measure and modify as needed
Easy and Accurate Metrics
49© 2008 Mike Osterling and Karen Martin Collecting Metrics: Key Consideration Accuracy vs. Precision?
50© 2008 Mike Osterling and Karen Martin Accuracy vs. Precision What decision are we trying to make and how much information do we need to make it? Do we need to collect precise quality data for three months or is it “accurate enough” to accept what the customer anecdotally tells us is their experience? If work sits for 8 hours before it’s touched, do we need to do a time study to determine the process time when we’re determining where to focus our efforts to reduce lead time?
51© 2008 Mike Osterling and Karen Martin Attributes of Effective Metrics Timely
52© 2008 Mike Osterling and Karen Martin Metric attributes: Timely Leading indicators allow us to alter outcomes Real-time feedback More accurate recall Delayed feedback lessens learning Problem solving is most effective while the “trail is still warm”
53© 2008 Mike Osterling and Karen Martin Attributes of Effective Metrics Visual
Operational Metric Real-time tracking – Month-end Close
55© 2008 Mike Osterling and Karen Martin Communication Boards
Visual Management - Strong Use of Color Absenteeism as a leading indicator for…?
Administrative Metrics Engineering Change Releases 36% 31% 51% 48% 37% 30% 45% 58% 76% 77% 61% 0% 20% 40% 60% 80% 100% Feb-06 Mar-06 Apr-06 May-06 Jun-06 Jul-06 Aug-06 Sep-06 Oct-06 Nov-06 Dec-06 On-TimeRelease 48 39 32 39 33 36 29 19 16 11 17 0 10 20 30 40 50 60 Feb-06 Mar-06 Apr-06 May-06 Jun-06 Jul-06 Aug-06 Sep-06 Oct-06 Nov-06 Dec-06 J Avg.DaystoRel.
Administrative Metrics RFQ Defects 0 2 4 6 8 10 12 14 16 18 Information Missing Calculation Error Page Missing Request for Quote Top 3 Quality Issues Total for Month
59© 2008 Mike Osterling and Karen Martin Attributes of Effective Metrics Designed to Drive Action / Change Behavior
60© 2008 Mike Osterling and Karen Martin Metrics must drive action! Before collecting, have a plan in mind re: what you’re going to do with the data. If you’re not going to do anything with or about the data, STOP MEASURING!
61© 2008 Mike Osterling and Karen Martin Driving Action requires Clear Accountability Who owns the process? Who measures? Who analyzes? Who drives improvements? Who monitors results?
62 Balanced, Visual, Clear Ownership Metric Description Owner FY07 Target Apr Total May Total Status Production Output Output in Units VS Mgr 75,000 81500 110300 Batch Deviations % Batches are Right the First time VS Mgr 80.0% 81.8% 80.5% Quoting Leadtime Days from receipt of RFQ until sent to customer Dave 5.4 6.6 6.9 Promise Date Accuracy % On time for Promise Date Dave 96.0% 85.0% 89.0% Engineering Release Time Days from receipt of PO until documentation released Vicky 4.7 5.6 4.7 Problem Resolution Number of calls to resolve customer issues Dave 2.1 2.4 2.3 Quality Quality Release Backlog # of lots waiting for release by quality engineers VS Mgr 80 99 77 ProductionCustomerService
63© 2008 Mike Osterling and Karen Martin Translating improvements into meaningful results Selling your results
64© 2008 Mike Osterling and Karen Martin Benefits of Reduced Lead Time Improved customer satisfaction Improved retention Market share gains Business expansion (new products) Improved quality Fewer handoffs Faster feedback Improved workforce morale Reduced turnover Recruiting advantage (“employer of choice”) Improved cash flow (time value of money)
65© 2008 Mike Osterling and Karen Martin Benefits of Reduced Process Time Reduced lead time Improved quality Reduced expenses Improved workforce morale Freed capacity
66© 2008 Mike Osterling and Karen Martin Benefits of Improved Quality Reduced expenses Labor, material, utilities, etc. Improved customer satisfaction Retention, market share gains Improved workforce morale Motivated, innovative Employer of choice Reduced expenses associated with turnover
67© 2008 Mike Osterling and Karen Martin Selling Your Results: Considerations People focus on their own work. Leaders don’t always understand the importance of metrics Nor the bottom line impact of your improvements Must speak their language Improvement teams must understand the results they’ve achieved and sell them to peers Will generate momentum among the workforce
68© 2008 Mike Osterling and Karen Martin Summary Minimum necessary measurements & metrics Choose your sample size wisely Balanced, timely, visible Avoid analysis paralysis – metrics must drive action! Involve the workforce Leadership sets strategy; workforce determines tactics Have them participate in tracking, posting and communicating results Let them lead corrective action discussions Convert results into dollars Cost reductions, cost avoidance, revenue enhancement
69© 2008 Mike Osterling and Karen Martin Learning Objectives Three key performance indicators that must be included in process measurements. How to calculate staffing requirements. How to translate lean improvements into numbers with bottom-line impact. The difference between lagging and leading indicators, and the need for both operational and financial metrics. How to speak the language of executives and decision makers.
70 Resources by Mike Osterling & Karen Martin Available through Productivity Press October 2007 Summer 2008
Auto-Calculates Process Metrics
72© 2008 Mike Osterling and Karen Martin Karen Martin, Principal 7770 Regents Road #635 San Diego, CA 92122 (858) 677-6799 firstname.lastname@example.org Additional Questions Mike Osterling, President 4320 Woodland Drive La Mesa, CA 91941 (619) 572-3632 email@example.com
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