Larry Fast
December 01, 2016

ARTICLE: How to Choose Metrics to Drive Continuous Improvement

QUESTION: I am trying to develop a list of metrics to drive our continuous improvement efforts. What questions should I be asking myself to develop this list? And how many do you think I should focus on?

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ANSWER: It isn't clear what leadership role this person is playing so I'll address this from a plant manager's (or higher) perspective. I'll share my thinking behind metrics in general and later get down to very specific, critical metrics that all factories should be using to drive continuous improvements. We won't get to that level of detail just yet. It's important that we start by elevating our thinking on the topic of metrics in general before diving into the specifics.

First, most manufacturing plants are cost centers, i.e., they do not have their own sales, marketing, finance, legal, etc., on site and some don't have their own design engineering. If a factory had all of these functions at the site, it would likely be a very small company and the site manager would be reporting to the CEO. Those are the types of organizations where the plant is a profit center.

A cost center is typically led by a plant manager who, depending on plant size, leads a support staff comprised of managers for quality, materials & production control, manufacturing/value streams, lean/process engineering, maintenance/plant engineering, HR and a plant controller/cost accountant who normally reports dotted line to the plant manager and a hard line to division or corporate finance.

Recognizing your plant as a cost center is a good hint that those things that drive cost and cash consumption are critically important. These are the things that must be effectively managed every day and relentlessly improved. Why? Because low-cost factories can generate a competitive advantage for the company to grow sales and margins while also improving job security for all employees. High-cost plants don't get new investment dollars. High-cost plants eventually get closed.

So, what drives cost and consumes cash? Where are the largest waste streams that best leverage the allocation of resources to reduce costs and improve quality performance and delivery performance? These are the typical, potentially high impact waste streams I almost always find:

  • Quality issues, i.e., very poor first-pass yields, scrap, rework, remakes, customer complaints/returns/allowances/adjustments
  • Loss of throughput on constrained work centers due to interruptions to the process flow
  • Poor maintenance practices/excessive run-to-failure downtime
  • Unfavorable material usage
  • Cash trapped in all forms of inventory/long cycle times
  • High worker's compensation costs
  • Poor supplier performance

Between now and my next article, spend some time thinking about and making notes about which of these problems you have the soft infrastructure in place to measure the negative effect on your operation. Are you measuring the correct things and receiving actionable reports from those responsible?

Decades ago, in the days of Oliver Wight and the first MRP systems, mountains of inventory usually were the preferred way to service customers. These three questions were typically used to schedule production:

            1. What do we need?

            2. What do we have?

            3. What do we need to go get?

Use these same questions as you think about: What data do I need? What data do I have that gets to the root cause of the largest opportunities for improvement? And what data do I need to go get?

Engage the staff in some fresh thinking on the topic of metrics. Begin to understand which ones are really useful and powerful and which ones get a quick scan with no action taken. Decide which ones are "information only" versus those you need to drive improvements.

Historical metrics are one of the most powerful paradigms I see in many of the plants I've visited. I often see incredible defensiveness when particular metrics are challenged for good reason. If you have similar issues in your plant, ask questions such as: "What value does that metric provide in managing your responsibilities and improving the business?" Or, "What metric would be more useful for you in understanding the major opportunities you have to drive CI?"

Challenge everything that is not having the desired impact and is instead wasting staff resources/time generating reports that you aren't using. We'll need those hours to generate the impactful measurements in their place.

 As the leader, this is the beginning of creating the mindset for which you are accountable. Start by challenging all current metrics for evaluation of their effectiveness. Eliminate all the excuses team members may be offering because they don't have the data, or it's not in the right format, or it's not the right timing, etc.

Here's my modified and expanded version of the above three questions:

1. What do you need?

2. What do you have?

3. What do you have to go get?

4. When will you have the new metric in place to drive CI?

5. Are you certain this metric will tell you the truth about what's going on?

Please consider these challenges to traditional thinking about metrics and to eliminating the "I am a victim of poor metrics" mindset. I hope this "homework" will begin to generate new discussions around the staff table in the coming weeks. In the meantime, I'll tee up the next level of understanding as well as my recommendations about "must have" metrics in upcoming articles.

“The truth will set you free, but first it will piss you off.” -- Joe Klaas, Twelve Steps to Happiness

“What's measured improves.” -- Peter F. Drucker

"If the right things are being measured the right way, the results will be significantly improved." ---Larry E. Fast

Read more: Leading Culture Change through Lean Leadership & Continuous Improvement

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