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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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