Key Performance Indicators (KPIs), in all of the various forms they take, are roundly considered one of the ‘must haves’ of modern corporate guidance. It is likely you’ll witness their existence, or hear them talked about, in almost any manufacturing operation across the developed world and beyond. Yet many could just be wasting their time. Mark Young finds out why.
KPIs. They are the roadmap to the holy grail of continuous improvement – the fundamental cornerstone within the Divine Mantra of The Efficiency Gods (or Toyota, as this is known in some circles).
Loosely, a company or department sets the level that it wants to achieve and then measures its performance to see where it currently stands. It then devises actions that bring the second level up to the first before doing it all over again, bumping the target level up a bit.
But like so many ‘must haves’ for modern business, real reporting is given a disproportionately low level of attention to what it actually needs, often rendering a KPI a useless paper pushing exercise.
Most businesses do set the levels of what they’d like to achieve and almost as many will take some kind of measurement of their progress. But knowing what you want to achieve and knowing what you have achieved is useless if you yourself are not able to make the changes that can bring today’s performance levels up to desired levels.
Simon Law, a senior management consultant at TBM Consulting, stresses the importance of clear communication and transparency when implementing and managing KPIs in the business.
“The biggest problem we see in non-lean manufacturing companies is no understanding of the KPIs by the people that they actually relate to,” he says, describing cases where senior management implement the KPIs but don’t pass any understanding of them down to the shop floor or even middle management. “This means there is no ownership. Sometimes the shop floor workers don’t even know what their targets are. So when it comes to annual reviews, senior management begin talking about these KPIs, that the business has underperformed according to the measurements, but by then it is too late to do anything about it so it’s a complete waste of time.” Law advises introducing ‘Managing Daily Improvement’ and giving each department its own physical and visual KPI board. This provides immediate transparency. It allows employees to see what their targets are, know where they currently stand and understand the gap, i.e. the potential for improvement.
“The days of whipping from above are long gone,” says Law. “It is fundamentally important that businesses have KPIs but even more important that people understand those KPIs so that they can respond to any gaps. This is how you reach the core of continuous improvement.”
Driven by business needs
Many factories set the ultimate approval line to the standards expected by their final customers, and so set KPIs which aim to meet those expectations.
But Law says if you meet the needs of the ‘internal customer’, you’ll automatically meet the needs of the external one. The internal customer needs satisfaction in four areas: safety, quality, delivery and cost. It is another principle devised by Toyota who imaginatively called it SQDC.
He is currently working with a north of England manufacturer who has problems with lead times and on-time delivery. His focus began with the shop floor as it seemed nobody at the company could identify exactly why customers were not getting their product delivered on time. This confusion became more apparent when Law and his team began looking into the old measures and found that they bore no relationship to the actual needs of both internal and external customers.
“In manufacturing we mostly focus on the end user as the customer and forget that if we meet internal customers’ needs on quality, cost and delivery the end user will always have what they want, when they want it and at the specified cost,” says Law. “At Manufacturer X we firstly had to rewrite the KPIs and introduce shop floor measures, hour-by-hour, so that the relevant departments could understand what targets and goals needed setting and what they were currently achieving. This instantly gave them an improvement opportunity that could be affected by the people in the actual process.”
The results were almost instant with lead time reducing through inventory reduction, which in turn led to quality and productivity improving. The company has now introduced measures that have visualized KPIs and management now meets daily in the production environment with the people who really can make changes to meet the end users’ needs.
“Strong communication is key to business success,” says Law. “Ask your employees to carry out a SWAT analysis and you may well find that everyone has raised communication as a weakness or opportunity to improve, therefore we should try to realise that if expectations are not understood it is probably because they have failed to be effectively communicated.”
“The corporate KPIs rarely get to the factory floor as objectives or targets. But they could easily be implemented through the SQDC process of measurement and Managing Daily Improvements as measured results.”
He says communication should be strengthened through daily meetings at KPI boards with the relevant department to ensure daily improvements are being made and sustained. “Don’t ask when it’s too late,” he says, by leaving problems until they have reared their heads. “Instead use your KPIs as a warning and try and put proactive actions in place. If you spend too much time looking back you might miss the things in front,” he adds. “Managing Daily Improvement is what it says it is: improvement every day so that we don’t repeat the problems of yesterday.”
Visual remedy and ‘town meetings’
International medical devices manufacturer Elekta, with its UK site in Crawley, West Sussex, won the World Class Manufacturing award at The Manufacturer of the Year Awards last month. Part of the reason it won were the improvements the company has made to its internal reporting to provide a smooth, holistic information flow throughout the organisation.
Senior manufacturing manager Brian Edwards and his colleagues have introduced a system which allows its staff to see how their personal, team and departmental targets contribute to the overall corporate objectives. As part of a transformation of the business into a lean-driven organisation, Elekta now links its corporate objectives back down into organisational functional responsibility via functional tactical planning. This functional plan is then communicated to all staff in what Edwards describes as a ‘town meeting’ format.
The manufacturing tactic plan is sectioned to each functional department – i.e. planning, test, stores – thus providing separate departmental objectives to all.
These are transferred into personal objectives which form part of the performance appraisal system. “We needed to develop KPIs that were meaningful to the staff directly and related to the function, but that were also understood at the top level,” explains Edwards.
The link with corporate objectives and change action planning has been strengthened by the use of policy deployment. A policy deployment matrix is used to focus action plans and performance measures to deliver breakthrough objectives. Monthly tracking of implementation and delivery of the KPIs is held by the senior management team.
From a workflow perspective, Edwards and his team developed visual boards that link directly back into the tactics plan. These boards measure flow performance, quality and effectiveness of the material pull system.
All staff can walk the flow of both products and information course in a process which Edwards says has quickly become a normal part of daily life.
“The words ‘let’s go and see’ [Genchi Genbutsu in the original Japanese ideology] is fast becoming our slogan,” he says. “The senior management team have a regular Friday walk visiting alternate functions linking process change, visual management boards and conforming alignment with corporate targets. This is important in providing a two-way information flow.” Edwards says value stream mapping (see photo) is fundamentally important because it provides a picture of the journey the company is on and guides the decision-making from top level management down into the teams that are working on the improvement projects.
Picking your battles
Whichever KPIs a company chooses to implement, the key to their success is holistic involvement throughout the organisation, through all processes and for all members of staff.
KPIs should be ingrained throughout the organisation: for the whole company overall and for its separate departments; for individual teams and for the individual employees within them. Toyota even has KPIs for how it measures its KPIs.
“I am a strong believer that what is not measured will not be improved,” says Elekta’s Edwards.
“We are learning organisationally that clear, good, common information for all staff is required to allow effective decision-making. At all levels staff should be empowered to make decisions based on good data, aligning with the overall objectives.
“At all levels we are challenging the efficiency and quality of our processes,” he adds. “There is much greater understanding of our objectives and our vision through Value Stream Mapping and a better awareness of where there is waste in our current processes. This is due, in the main, to good communications provided by our visual management systems and KPIs that are consistent and understood across the business.”
Figures don’t lie but liars figure…
Finally, a word of warning. The objective of using KPIs is to develop a true understanding of the performance of individual areas or the business as a whole, in order to ascertain where improvements are required.
So it is important that KPIs can be distorted to simply prove a measure of success that doesn’t really exist or is offset by other things that aren’t recorded.
The data you achieve must be hard, quantifiable and objective so that a true analysis can be made.
This is why TBM’s Law does not advocate the use of subjective measures — reports that do not provide fact-based, foolproof data. “Data is the king.
Subjective measurements I would not have on a shop floor or any manufacturing environment. I want data to tell me where I’m going. Subjective measures are generally a device for people to measure what they’re good at and sweep everything else under the carpet.” But Law is just as bullish as Edwards on the value of measurement, if you get it right. “A business that has well-managed KPIs right the way through is a business that succeeds,” he claims. KPI means Key Performance Indicator; KPITL means Keeping People in the Loop.