Formula To Calculate Time Difference Between Two Dates In Excel Establishing Lean Metrics – Using the Four Panel Approach as a Foundation for a Lean Scorecard

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Establishing Lean Metrics – Using the Four Panel Approach as a Foundation for a Lean Scorecard

As you begin your journey to becoming a lean thinker, it won’t be long before the need to develop a data-driven reporting system becomes apparent. The concepts and practices collectively known as Lean Manufacturing are not complicated. In fact, they are often deceptively simple. However, given the demands of running a business, maintaining momentum over the long term can be difficult. If your data reporting system supports lean concepts, it will be easier for you to follow lean principles. A four-panel approach helps develop this reporting system.

In their white paper, “Balanced Scorecard – Measures that Drive Performance,” Robert S. Kaplan and David P. Horton emphasize the need for a data-driven reporting system to manage a company’s critical success factors. “No single perspective provides a complete picture of the health of a business. You need an approach that balances multiple perspectives and provides measures that allow you to track performance.” 1

The management reporting system asks you to think about your company’s mission and strategy from four main perspectives:

  1. How do customers see us?
  2. What internal processes do we need to excel at?
  3. How can we continue to develop and create value?
  4. How do we appear to shareholders? 2

1. Define measurement categories

We need to organize our thinking into a framework that allows managers and employees to easily identify critical success factors for the organization. Creating this framework makes it easier to identify which metrics we need to use. Many organizations have so many metrics that managing information becomes cumbersome. If you have dozens or even hundreds of metrics, you need to step back and revisit your measurement plan, making sure the critical success factors are clearly defined.

Five categories are commonly used in manufacturing operations. If you’re just getting started with your data-driven reporting system, you should start by using these five categories. They are field tested and effective and include all four perspectives identified by Kaplan and Horton.

  1. Safety – Maintaining a safe workplace
  2. People – developing and retaining the people who have the skills to deliver to the customer
  3. Quality – meeting customer, government and internal requirements
  4. Responsiveness – Are we responsive to the customer’s needs?
  5. Financial Results – Are we making money?

2. Develop a vision statement

To make sure your metrics are critical success factors for your business, you need to take the time to think about exactly what needs to be achieved. If you don’t know what success looks like, you probably won’t know it when you see it.

It is important that each of the five categories has a vision. To develop them, come up with phrases that briefly define your position in this category. Use these phrases to create a statement that clearly communicates the vision to your customers, managers, employees, and shareholders. The statement does not have to be a complete sentence; it is used to develop objectives, measures and strategy for this category. The vision statement should be established by management or the company’s functional group and should be consistent across all production operations of the company or department.

3. Set goals

Pull operations management together and discuss the key processes that support or drive the vision statement, focusing on the few vital things that really make a difference. Set goals by identifying how processes need to be changed or improved to align with the pre-agreed vision. Provide the output of each of these critical processes and determine the level you want to achieve.

If your company has multiple facilities, it is important to include the manager of each facility on the team to set goals. Without buy-in from local management, it will be difficult to implement your proposed system.

Process examples

  1. Safety

    • OHSA reporting
    • Hazard identification
    • Ergonomic control
    • Near Miss Identification System
  2. People

    • Training
    • Assessment of skills
    • Turnover management
    • Employee Satisfaction System
  3. Quality

    • Defects per unit (millions)
    • Supplier quality
    • Customer complaints system
    • Rework / Repair management
  4. Responsiveness

    • Timely shipment
    • Customer request management system
    • Inventory management
    • Field service system
  5. Financial

    • Productivity
    • Warranty cost management
    • Investment management
    • Inventory management

4. Define metrics

Determine how process performance will be measured for each objective statement. But think about how you collect and manipulate data – a good measure that’s easy to chart is better than a perfect measure that requires a lot of work. The methods used to obtain, measure, and calculate data must be clearly defined, as small differences can make a significant difference to published results.

Metrics must be numerical targets. Absolute numerical targets, ratios or percentages can be used. Goals can be constant across the year, across months or cumulative. For example, we can set an institution training goal of 10 hours per employee per year. However, the training plan does not prescribe the same number of training hours each month. If goals are not set with this in mind, actions will be out of control, even if we perform exactly as planned.

Examples of lean metrics

  1. Safety
    • Notifiable incidents
    • Days worked without a lost accident
    • Ergonomic control
  2. People
    • Targeted training sessions
    • Voluntary turnover
    • Relationship between production and skilled trades
  3. Quality
    • Delivered quality
    • Cost of rework / repair
    • Customer complaints
  4. Responsiveness
    • Timely shipment
    • Production lead time
    • Stock turns
  5. Financial
    • Margin $
    • Used production space
    • Conversion Cost ($Labor/Unit)

Metrics fall into two categories: outcomes and drivers. Managerial metrics can have a big impact on how a business works because they provide immediate feedback on how the process is going. They facilitate immediate improvement and provide a tool that allows managers to change problematic behavior immediately. For example, a scrap metric provides the operations team with data on which product lines produce the most scrap, enabling direct intervention to drive improvements. On the other hand, financial metrics are generally results because they are presented after the fact and are difficult to determine causes.

Keep this in mind when designing metrics. Small changes to the definition of metrics can transform them from outcomes to drivers. While data-driven reporting systems have both outcome and driver metrics, the most effective systems have a driver-to-outcome ratio of 4:1.

5. Plan your strategy

For each objective, prepare at least one strategy statement that describes key process changes and improvement activities. Add urgency to strategies by setting deadlines or target dates for implementation.

A data-driven reporting system will not improve your results. It’s just a tool that can make the difficult task of running a business a little easier. The strategies used to drive the necessary improvements are how the real benefits are achieved. Without a sound strategy to make the necessary changes, it is unlikely that truly significant gains will be achieved or sustained over the long term.

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