Lean Measurement: measurement and target setting is simple

 

Lean Nation,

Today’s blog is about metrics, lean metrics to be specific. Anytime we improve, we cannot validate we have improved unless we can measure a difference. But where can we expect a measurable change and how much of a change is considered good when studying processes? Having worked with organizations over the last 30 years, answering these two questions can be quite challenging, but it doesn't need to be.  When we struggle for a solution to these two questions, my advice is to always go back to the basics.

In lean improvement, we are trying to get better performance from two activities, seeing (discerning) and eliminating wasted time and activity. If we eliminate wasted time and activity, what can we expect to find? Lean organizations understand that when waste is removed from a process three things will simultaneously happen:

1)      With less time being spent on wasteful activities, we should expect that the time to complete work should take less.

2)      When wasteful activity is eliminated, there are fewer opportunities to make mistakes. With fewer errors, we expect the quality of the process to improve.

3)      When wasted time and activity is eliminated, the people power requirements are less. This should imply a process with an overall lower cost due to improved productivity.

Lean organizations use the terms quality, delivery, and cost to define these three improvement dimensions. Since nothing happens without people, a fourth dimension is to measure the people component of the improvement work. It is common to measure a form of human capital that derives from the improvement effort.

A fifth dimension of improvement often found in lean organizations is growth. When we eliminate wasted time and activity from processes, we free up valuable resources, and asset capacity that be used to generate more growth (often at the same cost structure?). Using the first letter of the each of the five dimensions, we get the following:

M – Morale (Human Capital)

Q- Quality

D – Delivery (Lead-time)

C – Cost through productivity

G – Growth in products or services

These five dimensions of improvement might be foreign to you. Afterall, there are operational measures that, for years, appear on various scorecards, operational reviews, and benchmark studies. Let us review the more common measures and what dimension they fall under. While not comprehensive, we can use this as a starting point for establishing measures of improvement.

Measure	Dimension
Lead-time - the time it takes for a product or service to move through the entire process, from order placement to delivery.	Delivery
Defect Rate - this metric tracks the percentage of defective products or services	Quality
Labor Productivity – the output achieved per unit of labor input typically output per hour or per employee	Cost
Overall Equipment Effectiveness – assesses how efficiently equipment is utilized	This has a component of quality (yield) and cost (availability and performance)
Supplier Defect Rate – measures the quality of materials sent form suppliers	Quality
Cycle time – Time it takes to complete one unit of work	Delivery
Changeover Time – time to change from one type of product or service to another	Delivery and Cost
Inventory Turnover – calculates how quickly inventory is used or sold	Cost
Work in Progress – evaluates the amount of work in the system at any given time	Cost
Customer Satisfaction – measure of customer perceived quality or experience of the process	Quality
Revenue – measures of growth in sales dollars	Growth
First pass yield- the percentage of getting a product or service done properly the first time	Quality
Employee Safety – measures of safe worked hours per unit of time	Morale
Staff / Employee Satisfaction - measure of staffs' perceived quality or experience of the process	Morale

 

Now that we have a general idea of what to measure, let us now review how much to improve. Most teams choose to look at reams of historical data and then negotiate with leadership on the targets for improvement. This is not a bad practice, but there are easier and better ways to get to targets.

Lean organizations benchmark against both perfection and world-class rates of improvement. World -class rates of improvement have "standard" rates improvement.

 

Dimension	Rate of Improvement
Morale – Human Capital	Expect to improve this measure by double digits (10% plus) each year
Quality	Expect to improve this measure by 50-75% each year
Delivery	Expect to improve this measure by 50% each improvement pass
Cost	Expect to improve this measure by 25% each improvement pass
Growth	Expect to improve this measure by double digits (10% plus) each year
Inventory Turns	Expect to improve this measure by 50% each improvement pass

When I work with organizations, I encourage them to start with these rates of improvement. If we cannot achieve them, we will still be better off than using a negotiated metric with leaders and managers. These targets represent what is possible when an organization uses both incremental and breakthrough improvement methods to improve organizational performance. And as many of you have heard me say; " a 40% improvement on a 50% target is better than a 17% improvement off a 15% target."

Hopefully, you have learned a couple of important things from this blog:

1)  Measurement is simple. Use the measures of success that come from eliminating wasted time and activity. Notably the measures of Morale, Quality, Delivery, Cost and Growth.

2)   Use the world-class rates of improvement when setting targets. I have listed those above, but at a minimum always reflect at least double-digit improvement (10% plus) in any measure of success in your lean project.

I encourage you to now waste a month measuring things to determine the best outcome measures and their corresponding targets. Use the best practices from lean organizations and get on with your improvement.  "A 50% solution today is better than 80% solution six months from now!"

 

Lean Blessings,

Ron

Ron Bercaw, President and Sensei

Breakthrough Horizons

www.breakthroughhorizons.com   

LinkedIn: https://www.linkedin.com/in/ron-bercaw-882a0a8/