Uncommon Sense: What's in a Number?
Decades ago management reported very few numbers to the workforce, except what they were supposed to produce today and maybe how well they did yesterday. In today's manufacturing environment, numbers are everywhere. There are so many numbers that I'm overwhelmed. Can the individual worker make any sense of this? Who reads this stuff and what do they do about it?
Two things about all these numbers drive me crazy. First, by now, everyone should realize that to improve the performance of any operation, we need to measure how we're doing before and after making the alleged improvement. Without solid numbers, we can't show the true impact of our work. Yet, it's often difficult for people to understand that you can't improve what you don't measure.
For example, a company felt no need to measure the impact of change, so when the corporate president asked to see the impact, there was no answer. He wanted to know the break-even point and contribution margin, but never asked anyone to measure the impact of change. He expected everyone to know that this was the important measure, but he didn't communicate that and it isn't always obvious which measures are the most important.
The second thing that drives me crazy is whether anyone really understands the meaning of the numbers. For example, a company measured and reported average production at each of its plants in terms of pounds produced per employee. That might be appropriate for a group of process plants, but these plants were producing discrete items.
The plants produced up to 100 different items each week, with weights ranging from less than 20 pounds to more than 1,000 pounds. Yet, each of the company's plants reported the same measure-pounds per employee-and corporate used that measure to compare productivity. While the processes were generally similar, because the products were similar, the amount of labor required per product varied dramatically, and not in proportion to weight.
When developing a measurement system the focus should be on selecting a limited number of measures that give an accurate picture of the business, the plant and the work groups. These are called key performance measures and a specific set of these measures is called a KPI.
It is critically important that a specific KPI be owned by a small group of workers, normally less than 10, doing similar work, which we refer to as an intact work group. Each plant might have several, possibly hundreds, of intact work groups, which should include the entire work force. Each intact work group designs its own KPI, and collects, reports and analyzes the results with the focus on continuously improving its KPI. Each KPI should be recorded on a chart posted in the work group's area. A rolling 12-month chart with a trend line works well. Each KPI should have a goal, and as that goal is met a new goal should be established.
Keep in mind that the KPI will influence work group behavior. If a KPI based on product sales is used, and the focus is entirely on increasing sales to keep the trend line going in the positive direction, sales will increase, but possibly at the expense of other important measures-like profit!
When designing a KPI system, each work group's measures should roll up to plant, division and corporate level. Every KPI should be tied to the company's key strategies. This sounds like a lot of work, but the benefits are increased communication and measures that add value to your organization.