Manufacturing Breakthrough Blog
Friday December 4, 2015
In my last post the leadership team was able to convert all of the “red” entities into either green or yellow ones by simply implementing their new scheduling method, Drum Buffer Rope. As a refresher, the figure below is this team’s final product.
In today’s post, we will demonstrate how we are able to, using the Goal Tree/IO Map, develop performance metrics to track the organization’s status and progress.
Before we develop our performance metrics, let’s first discuss the purposes of an organization’s performance metrics. In general, we need some type of feedback mechanism that tells us how we’re doing, a way to be able to know that the direction we’re traveling is on course in the event that we need to make any midcourse corrections. These performance metrics should be system related in that they tell us how the system is doing versus how an individual process is functioning. Remember, our focus is on system performance and not individual performance. So what should our performance metrics be? Before we answer that question, let’s talk about their purpose.
Performance measures are intended to serve six important functions or roles:
- First, and foremost, the measures should stimulate the right behaviors.
- The performance measures should reinforce and support the overall goals and objectives of the company.
- The measures should be able to assess, evaluate and provide feedback as to the status of the people, departments, products, and the total company.
- The performance measure must be translatable to everyone within the organization. That is, each operator, manager, engineer, etc. must understand how their actions impact the metric. Performance metrics are intended to inform everyone, not just the managers!
- The performance metrics chosen should also lend themselves to trend and statistical analysis and, as such, they shouldn’t be “yes or no” in terms of compliance.
- The metric should also be challenging, but at the same time be attainable. There should be a stretch involved. If it’s too easy to reach the target, then you probably won’t gain much in the way of profitability. If it’s too difficult, then people will be frustrated and disenchanted.
So with these functions in mind, let’s now look at how we can use our Goal Tree/IO Map to create our series of performance metrics.
Creating Performance Metrics
If we use the Goal Tree/IO Map as our guide, we should start with our goal, Maximize Profitability Now and In the Future, and create our first tracking metric. Some posts back I introduced you to Throughput Accounting which defined Net Profit as Throughput minus Operating Expense or NP = T – OE. The metric of choice for this Goal Tree/IO Map then is NP which we insert into our “goal box.” In addition, I prefer to give most of the metrics a target to attempt to achieve which in this metric we will include, NP >15% (i.e. Net Profit greater than 15%). We then look at each CSF and NC and select appropriate performance metric targets for as many as might be appropriate.
Because the operational status of companies varies from company to company, there is no standard set of metrics and targets to recommend, but for the company in this series of posts, the following set of metrics and targets have been inserted. Your company’s leadership team should be charged with establishing both the performance metrics and targets.
This completes our series of posts on the Goal Tree/IO Map. In my next posting we will begin a new discussion on how to minimize your inventory of sku’s while virtually eliminating sku stock-outs. As always, if you have any questions or comments about any of my posts, leave me a message and I will respond.
Until next time.
 Dettmer, H. William. The Logical Thinking Process: A Systems Approach to Complex Problem Solving. Milwaukee, WI: ASQ Quality Press, 2007