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October 25, 2009

Lean Performance Measures

One vitally important part of your lean transformation is getting the right measures for your Value Streams. Often the temptation is to stick with measures you already “know”, but these may not be “lean” measures, possibly encouraging non-lean behaviours, or being difficult to collect frequently.

 

First we need to understand the purpose of lean metrics. For me performance measures have three roles in a lean process:

  1. aligning the Value Stream with strategy
  2. guiding the behaviour of the people in the Value Stream
  3. focussing attention, and improvement activity, on the key issues

 

George Koenigsaecker has decades of experience in leading successful lean implementations. In his book “Leading the Lean Enterprise Transformation”, he offers some invaluable advice on lean performance measures. Here is a precise of some of his thoughts:

  • Value Stream Measures should focus on four key elements of lean – quality, delivery, productivity and people.
  • Good quality measures include, first time through and scrap/ rework.
  • Measures of delivery include on-time delivery (%) and total inventory days (or other measures of total flow time).
  • For productivity, he suggests units/ person, though he seems to prefer units/ hour worked to factor in part-time employees and support staff.
  • His preferred measure of people involvement is % of people with two or more improvement events. Number of days per person on improvement activity is also suggested.(but it must be real improvement activity !)

 

Cost is a measure that frequently finds itself on the list of lean performance measures. We should be clear that the other measures of quality, flow, delivery, inventory and so on, are what drive the cost measure. Thus the cost measure is a lagging rather than leading indicator. Cost per unit of output is usually the preferred measure.

 

Mr Koenigsaecker does not mention measures of Customer Value (although quality and delivery are aspects of this) and I would suggest that organisations do try to identify a measure of value that is understandable and easy to collect, but which reflects the unique value the Value Stream provides. This is not an easy call. In an aerospace company, cost per flying hour has been introduced as a measure of customer value – the aim being to reduce the cost per flying hour to the customer (airlines) either by reducing cost per unit of output, or by innovation to extend the life of the product (technical innovations may raise the Value Stream cost per unit of the product, but increase customer value by reducing the overall cost per flying hour).