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Beyond Lean

Using Strategic Performance Measurements to Drive Lean Implementation, Part 2

By Bruce Baggaley, Senior Partner, BMA, Inc., bbaggaley@maskell.com

In the March Issue of the MAC Action Newsline we provided an overview of the problems within an organization regarding the measure and evaluation of the operations based on their achievement of unit cost targets built into their standard costing systems.

The Starter Set of Lean Performance Measurements
This section briefly describes the "starter set" of measures for the value stream levels of the lean company.

Value Stream measures calibrate how well the value stream is doing in proceeding towards the performance targets designed into the future state map. They are collected and analyzed weekly by the continuous improvement team as "result" measures from the point of view of making lean progress. They serve as a means of calibrating the effectiveness of ongoing continuous improvement measures and of designing future improvement initiatives. The following are the value stream measures.

  • Sales per Person: This measures the productivity and throughput of the value stream during the past week. It is calculated by dividing the sales (or units) shipped from the value stream during the past week by the number of people in the value stream.
  • On Time Delivery: This measures the extent to which the value stream is capable of making to schedule at the rate of customer demand. As such, it is a measure of the ability to deliver customer value. Consequently it is important to use the amounts and terms requested by the customer, not those that they settled for because we couldn’t give them what they really wanted.
  • Dock-to-Dock Time: This measure depicts the material flow through the value stream -- the time it takes for material to flow from the receiving dock (or order entry point) to the shipping dock. It is thus a measure of the ability to deliver on time and is generally a good indicator of the effectiveness of lean initiatives to improve the lean flow. It is a reliable indicator of the extent to which inventories are being reduced and cash flow improved.
  • First Time Through Quality: This measures for the value stream the percentage total parts that are completed the first time without rework or scrap. Computationally, it is the product of the first time through all the cells and answers the question as to how capable the value stream is as a system for making good parts.
  • Average Cost per Unit:  This measures the total cost of all the resources used by the value stream during the week, divided by the number of units shipped. Resources include production labor, engineering and operational support, supplies, outside processing, facilities, machine depreciation, and raw materials at their actual cost. The aim is to have as few allocations as possible, so that true costs are measured. The aim is for this measure to decline as lean improvements improve throughput.
  • Accounts Receivable Days Outstanding: This also measures the cash flow improvement of the value stream. It shows the extent to which account collection improves as sales and throughput increase.

These measures should be displayed in a value stream team area where the improvement team can meet, discuss progress shown toward lean goals, and design improvement initiatives to move lean progress forward.

Suggestions for Implementation
Here is a work plan for a kaizen event to implement these new measures.

  • Pick a value stream and cell to pilot the measures.
  • Decide whether the Starter Set will be used as is or tailored.
  • Teach all people in the company about the new measurements and measurement philosophy.
  • Design the measurements, measurement boards, data collection methods, and improvement methods using the methods.
  • Place the measures and new method in the value stream and cell.
  • Run the value stream and cell for one month using the new methods, discontinuing all other performance measures for those areas.
  • At the end of the month, review results of the test, modify measures, and implement.

This method of implementation allows you to iron out problems in the measures before you try to implement across the factory.

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