In a previous blog post titled Production Systems 101, I described three key characteristics that could effectively serve as a “litmus test” as to whether your organization has truly implemented a production system vs. having one in name only.
1. The organization has identified and documented the best operating and maintaining practices for their business (i.e., the practices that help them to grow/maintain market share)
2. These practices have been implemented successfully across the manufacturing fleet. Signs of a successful implementation include:
Ownership and accountability for these practices exists within the line organization (no credit is given if ownership and accountability reside with the CI group)
The implementation of these practices can be independently verified (e.g., direct observation, interviews with employees, evidentiary documentation)
There is clear line of sight between the implementation of these practices and improved performance (this isn’t an academic exercise or social experiment…the production system implementation has to generate business results)
3. These practices have been sustained and improved upon over time. If the production system has survived and thrived through multiple business cycles and/or leadership changes, then the likelihood is high that the approach is embedded into the organization and isn’t merely window dressing.
These characteristics are useful to the extent that someone who really knows continuous improvement now understands what to look for as evidence that the production system approach has become infused into the organization’s DNA. But what that article didn’t address was whether there are certain metrics that can be brought to bear as evidence that the production system approach is healthy and thriving. A metrics-based look at your production system is important because it enables a broader cross-section of the organization (i.e., business leadership) to get involved in governing your production system implementation. In other words, leaders who don’t necessarily have a strong background in CI can get engaged by reviewing the production system health metrics, analyzing the gaps, setting expectations, and making resources available where appropriate.
Activity-based metrics give the organization a sense as to whether the manufacturing sites are taking the appropriate action at the proper pace to implement their strategy, execute discrete improvement projects, and put in place the standard work practices and business processes defined as part of the production system journey. Examples of these metrics include:
Status (i.e., serious risk, moderate risk, on track) of site strategic objectives across all categories (e.g., productivity, cost, quality, safety, environment, etc.).
Volume and status (i.e., serious risk, moderate risk, on track) of all site improvement projects.
Number of discrete improvement projects successfully completed in last 30/60/90/180/365 days.
Volume and status (i.e., serious risk, moderate risk, on track) of all site improvement tasks.
Number of standard work practices/business processes successfully implemented in last 30/60/90/180/365 days.
Just a quick note about one of the metrics above, volume and status of all site improvement tasks…this is a level of detail that few organizations can successfully track and report because tools like Excel or Project don’t lend themselves to a roll up of task data in a meaningful way. You really need a platform specifically designed to support a broad-based production system journey to make this happen.
Outcome-based metrics help the organization to understand whether the production system approach is having the necessary impact on the business. Certainly one should expect the impact to be seen in the core operational metrics (as referenced in the “litmus test” description above), but the challenge often comes in deciphering how much of the operational improvement can be tied specifically to the production system. From my perspective, this debate is somewhat academic but my experience working with clients indicates otherwise because business leaders are resource constrained when it comes to investing in performance improvement, and quantifying improvements from the production system journey can be a challenge. For example, it’s relatively easy for a business leader to calculate and verify the ROI on a capital expenditure to install a new piece of equipment that will increase throughput 25%. It’s more challenging to make an explicit link to ROI from investments in building employee capability (e.g., problem solving, working in teams, leader standard work, etc.) or implementing a new business process.
In reality, the example above represents an oversimplification of the issue because that capital expenditure won’t be successful if the organization doesn’t execute a well-defined capital management process, which requires defining roles, documenting the process, training employees on it, and holding them accountable for executing it properly. So what percentage of that 25% increase in throughput do you associate with the new equipment vs. the capital management process? Long story made short, it’s a challenge to single out the production system as the driver for operational performance improvement, but for the reason stated above it’s important that the organization is able to make an explicit link to select business outcomes so leaders don’t start to question the value of the approach. Here are some metrics to help in that regard:
Year over year change in the site operational “gap to perfect” (i.e., potential vs. actual production, yield loss, cost of poor quality, etc.)
Total value capture (i.e., hard savings, soft savings, cost avoidance) from discrete improvement projects completed in the past 12 months
Total estimated value capture (i.e., hard savings, soft savings, cost avoidance) from “in-progress” improvement projects
Year over year change in site operational maturity (the organization can use this data to correlate the relationship between operational maturity and performance, which is extremely useful for proving value)
Measure the health of your production system with EON
At EON, we’ve partnered with leading companies to drive a structured and disciplined approach to their production system journey to ensure business impact and sustainability. We help companies that are committed to a systemic approach to continuous improvement to set and manage strategy, execute improvement projects, implement best practices, and calculate their operational gap to perfect. Our leading indicators scorecard provides unparalleled business intelligence in the form of activity- and outcome-based metrics to help our clients to better manage their production system implementation.
Please contact us to learn more about EON, the world’s first comprehensive continuous improvement management platform.