Sunday, October 27, 2013

THE Best Way to Measure Lean Progress

Congratulations. You are past the "point of no return" with regard to your lean (TPS) strategy. There is no going back. You have convinced enough people that getting better has to be part of everyone's job description. 

You find yourself doing lean things. 5S is everywhere. There isn't a coffee cup in the company without some tape to show everyone where it belongs. There are graphs and charts where people can see them. Your inventory levels have dropped. Your on-time delivery has risen. There seems to be more of a focus on your customers (in-house and the people who do the paying). People in your business have completed over a hundred A3s. Slowly, systematically, you have eliminated some defects, waiting, transport, motion, overproduction, etc. 

This type of business strategy is not easy. There always seems to be an underlying implication that nothing is ever good enough. After improving, we improve again. and again, ad infitum. I have had more than one of my very smart clients ask, "is this sustainable?"  

One dashboard metric that, if made very visible routinely, serves as the punch in the arm people will need sometimes, is PRODUCTIVITY. I think we can all agree that by removing more and more of the 8 wastes, we can accomplish more with the same amount of energy and effort. So how do you measure that? Simple. Measure dollars "shipped" and divide it by hours worked. When you think about it, this is really where the rubber meets the road. Nobody pays you for moving stuff, or for storing stuff, or for doing redundant quality tests or sign-offs, People won't pay extra because you found a defect and did some re-work. What they do pay for is getting exactly what they want exactly when they want it. 

Here are a few observations about this metric:
  1. Most companies can't just press a button to get this number. You probably need to get the "dollars shipped" piece from accounts receivable or from sales, and the hours worked part from payroll. Many of my customers develop this process using A3. (The A3 team includes someone from AR and whomever "owns" payroll). The number may not be easy to get in the beginning, but people will figure out how to do it faster as they continue to do it. 
  2. Don't count vacation or sick time. The denominator is strictly hours actually worked.
  3. Either include indirect labor or don't. Don't have two metrics. In my company, I did include indirect labor because my logic was if we add someone (40 hours to my hours worked), they will improve productivity, not drain it.
  4. Post it at the same time every single week. This means multiple people need to know the process of getting it because some people like vacation once in a while. But never miss.
  5. Advertise the number at your A3 closings and at other company meetings. This is the one metric that many companies put right on their A3 board, along with all of the active projects.  Don't let it blend in with the other metrics. Many companies refer to this metric as how "fast" we are going. 
  6. Include a graph showing the value for every week this year compared to the same week last year. Along with less chaos, people will begin to understand their contribution toward prosperity, the fruit of their labor.
Metrics drive behavior. In the case of this metric, it is important that you communicate that by steadily improving this number, your business is becoming more and more recession-proof. It makes sense, right? If you continue to grow your business without simply throwing bodies at demand or at problems, you may not have to let people go when the economy slows. At my company, a 21% drop in sales during the latest recession in 2008-9 resulted in losing NOBODY! That alone, my friends, makes it all worthwhile.   

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