September 1997, Volume 3, No. 9 Unraveling the Mystery Behind Performance Measurements

By David Blanchard, Editor How do the world's leading manufacturers measure and improve their performance? The deceptively easy answer is: metrics, which are specially configured measurement systems. Metrics, however, has a ring of the arcane about it — that you need to be versed in some mystical lost art to understand them. That aura of mystery is a powerful one indeed, powerful enough that an entire conference (sponsored in part by Intelligent Manufacturing) was held last month in Chicago, focused on the topic of Measuring and Improving Performance in Manufacturing. While the conference didn't produce any philosophers' stones for the attendees to wield, it produced solid, real-world guidelines for ensuring manufacturers understand what it takes to succeed in their businesses. Why Measure Performance? Probably the first question manufacturing people ask — even before they ask how to measure performance — is why should they measure performance? According to Jeff Miller, senior manager, manufacturing, retailing and distribution with KPMG Peat Marwick (New York, N.Y.), the answer is as simple as 1-2-3: If you can measure it, you can understand it. If you can understand it, you can control it. If you can control it, you can improve it. Miller described a structured approach for building performance measurements: Diagnose current operations. Identify instabilities and opportunities for improvement. Develop metrics, measures and systems in support. Test systems and conclusions for value and impact. Integrate with business operations and reward/recognition systems. Focus on the Customer "The real value of metrics is its ability to focus all business activities on customer requirements," explained Bill Baker, benchmarking and best practice champion for Raytheon TI Systems (Plano, Tex.). According to Baker, metrics are meant to change behavior, and every employee in an organization is a change agent. Since change happens through people, it is therefore essential that each person sees the need to change. Baker listed a number of conclusions he has arrived at, based on his experiences at Raytheon : Measures must link operations to strategic goals. Departments and functions should know how they are contributing separately and together in meeting their strategic mission. The metric system has to integrate financial and non-financial information so that actionable decisions can be made by operating managers. There must be a clear, concise definition of the metric communicated to all levels to assure consistency and understanding. The four metric categories that make up a balanced scorecard are: financial, customer, internal business, and innovation & learning. Selection of primary metrics from each category will drive a balanced approach. Once strategic goals are set for the enterprise, performance goals must be negotiated at each level through the organization to identify barriers and gain alignment and buy-in. Set Goals and Stick to Them We've looked at the "how" and the "why" — another question is: What should manufacturers measure? The answer, according to Wayne Mackey, strategic products material program manager for GM Hughes Electronics (Los Angeles, Calif.), is goals. For instance, Mackey suggests, "Don't measure cycle time; measure the goals that have an effect on improving cycle time." Mackey described in detail a program he refers to as "Four Steps to Predictive Process Metrics" (see chart below). Jim Hunt, an instructional specialist with Lockheed Martin Tactical Aircraft Systems (Fort Worth, Tex.), agreed that establishing intermediate goals, and reviewing them, is a key to continuous improvement. He urged, though, the importance of not trying to measure everything. "Measure to improve, not to punish," he said, adding that any performance metrics plan will take three to six months to implement. "When the pace of change outside an organization is greater than the pace of change within, the end is near," Hunt said. People don't change just because they've been presented a lot of facts indicating that change is a good idea. It takes a cultural shift, which can only be accomplished by setting realistic, attainable goals, and then monitoring the progress toward those goals. Strategies for Mass Customization "Change and discovery are proceeding at an accelerating rate in the three technological underpinnings of manufacturing: materials, manufacturing processes and information technology," reported James Harms, managing partner of AT&T Solutions (Washington, D.C.). The emergence of mass customization, global competition, electronic commerce and response times measured in minutes, not days, are among the current trends in manufacturing that threaten to force the slow-to-change right out of business. "This changing business environment coupled with the emergence of electronic commerce is forcing companies to reevaluate their strategies," Harms said. He cited a Gartner Group study that indicated some manufacturers have experienced substantial benefits by integrating electronic commerce into their supply chain. For instance, demand forecast errors have been reduced by up to 60%, inventory turns have increased six-fold, customer service satisfaction has improved by up to 25%, order processing cycle time has been reduced by 30%-70%, and profit has increased from 150%-250%. To achieve supply chain management, Harms explained, requires the following: An enterprise-wide scorecard, which provides an integrated view of the senior management's corporate strategy while illuminating the contribution of supply chain management. A strategy that derives maximum value from a concentrated focus on the customer and their needs. An electronic commerce technology foundation and the telecommunications infrastructure, networking the autonomous linkages and operations into an enterprise business process. And, a movement toward real-time planning and analysis. Obviously, the transition from mass production to mass customization — delivering a customer-configured product directly to the consumer — represents a paradigm shift the likes of which only the most agile of manufacturers can quickly adjust to. Nevertheless, if industry trends follow their current course, all manufacturers will be affected to a growing extent in the coming years. 21st century manufacturing will look very different from the assembly line plants so characteristic of our century. Summing up, then, the metrics with the best chance of working within an organization are aligned with rewards and recognition, as well as strategy; that are focused on the customer; that are indexed for simplicity; and finally, that involve all members of a company at a high participatory level. Four Steps to Predictive Process Metrics 1) Define the improvement goal &endash; Is it what you want at the end? Is it specific? Is it quantitative? Is it realistic? Is it customer driven? 2) Define actions that are causal to the goal Is it likely to cause the goal to happen? Is it not the same as a failed past approach? Is it not the goal, observed at an interim stage? Is the list of causal actions prioritized to three to five actions? Are the causal actions correct and adequate? 3) Tier the causal actions to the appropriate level Are names or organizations who will do the action assigned? Do they control the process? Are responsibilities horizontal and framed? Do lower tier goals feed directly to upper tier actions? Are sufficient tiers established to manage the project? 4) Test causal actions for time Does it occur early relative to the goal? Does it occur often relative to the goal? Is it objective, even early in the project? Is it not a level of effort in disguise? Will it not cause inappropriate behavior? checklist © 1997 GM Hughes Electronic Corp.

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