Tuesday, June 12, 2012

Checking Your Lean Progress Discussion on Metrics

After the webinar Jeff Hajek and I gave we posted the video and slides from our talk on "Checking Your Lean Progress". This started a conversation on metrics that I wanted to share with you and get your thoughts on.

Don Fitchett from Business Industrial Network asks:

Do you think if the metrics you mention in your powerpoint focused a little on dollars, success would be more likely? Like instead of or in addition to % of/ # of kaizen per year, the metric indicate $s saved per year with Kaizens? True Downtime Cost, etc. Money is the bottom line, Lean initiatives need more upfront ties to money (bottom line)
To which I respond:
Well, I am not sure everything good needs to be tracked financially. I have seen many a company try to do so but many improvements might not easily be found on the P&L. In the beginning large events might be but the goal is many many tiny activities daily. Those are likely harder to track. It has been my experience that those who truly understand the benefits of lean are not concerned with tracking the finance like that because they know it will come as a result of the improvements. That is typically why they apply this thinking. Those that want to tack cost savings are generally only looking at the result and not the process to achieve it. These executives are typically not aware of the power of lean thinking and have to substantiate it with cost savings. Again I say not everything good or worth doing is found on the P&L.
Don replies:
I hear you Tim, but think you missed my point. While there are people like you and me who have blind faith, or understand the logic behind Lean and/or seen the profitability in past Lean initiatives, my point is it is easier to keep the masses (all employees, exp and new, operator and excutive) on board if you have KPIs proving to those non-believers or those who would otherwise start to lose faith, the success of their Lean efforts. the same reasons we use OEE/TEEP, but dollars and cents will be a more universal and easier understood KPI for the layman or new to Lean program/facility. that is my point. I am not advocating assigning dollar value to every little aspect of plant wide/corporate wide Lean initiatives, just those areas where it is easily (even automatically) applied. (like with Kaizens savings, raw material usage savings, etc.) Hope this clarifies.
Some Thoughts from Jeff Hajek: 
Dollars and cents is a great metric, if it is accurate and indisputable. It is a horrible metric if it is fluffy or if it is debatable. If a kaizen takes $27,308 in average inventory off a shelf, it saved money that can be directly traced (easily) to a working capital change. But if the same kaizen also freed up a person who joins a resource team, how much was actually saved? We know intuitively that it is a good thing, but unless something else happens, there is no savings. And that ‘something else’ likely also has a person wanting to track the financial impact. So, where does the money show up on the KPI? There is also the complication of the cumulative effect of many different factors on dollars, as well as the delay between activity and actual impact. And then you get into the debate about cost avoidance vs. hard saving. How do you address the dollar savings of floorspace when you own a building? Do you credit it with the cost of rent avoided, or just the cost of overhead, which in itself is an average/estimate? Finally, I once had a VP tell an audience that if all the cost changes he heard in kaizen report-outs were true, that it would be a billion dollar company with a 80% profit margin and 4 employees. He was a Lean zealot, but also understood the issue with reporting savings. But not all people are like him. If a metric is confusing or debatable, it is worse than having no metric at all. That is why I prefer something like # of kaizens vs trying to create a $ number that people won’t trust anyway.
Don concludes:
Wow Tim, a great discussion we are having here. (And I thank you for that.:>) You last reply is a perfect example of the mentality that has kept TDC (True Downtime Cost) from catching on in our industry all these years. Reminds me of the challenges Lean had catching on in our US industry. I am one of the few who believe our computing power and monitoring technology have reached a point we can accurately calc and monitor TDC (IE: more cost metrics) The same you said about tracking cost savings/avoidance can be said about calculating and tracking OEE. But at the end of the day, both are just a benchmarks that's usefulness is only as good as its consistency in calculating and who's trustworthiness is only as good as the company's leadership/culture. The trust of metrics/KPI/benchmarks vary from facility to facility based on those two factors.

What are your thoughts on Lean metrics especially those financial measures?

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  1. I personally agree that getting the little victories daily is where we need to be. What we're talking about is moving culture and creating habits. Related to your visual management post a few weeks ago- we're trying out a 'formula' in my business unit in attempt to speak to both the team and the executives and incorporate it into our weekly stand-up meetings. We maintain/ produce operating procedures- and there's a perception that there are too many changes. So we're developing an indicator to roll up to my director, his peers and his boss- that's forecasted vs. actual changes (limits set based on several years of history). For the detail behind the indicator, the formula for the team is broken out by drivers of change (annual reviews) + (new/changes to equipment) + (new/ changes to software) + (external customer changes) + (rework). My team has the ability to control the throttle on annual reviews and rework, the rest is driven upline or externally which we can't control.

    1. I don't like the idea of limiting change. I agree that we solve everything at once. There neeeds to be a mechanism in the beginning to prioritize. As you do more improvements I think you will find they are not as large in scale. They will be more frequent and more confined. This will help with execution.

      It is good that you are tracking changes and communicating them but be careful not to limit ideas.

  2. Robbie B WestmorelandJune 12, 2012 at 9:35 AM

    I think there must be a way to tie Lean, A3 strategy development, the focus on RoI that my Six Sigma Black Belt class had and Kaplan and Norton's Balance Scorecard strategy alignment together. An organization has overall financial goals that set the tone for the strategy, whether those goals are central or secondary (depending on profit/non-profit status), but those can trace back to specific targets for improvements to standard work, which can be tied to kaizen. The nice thing about the Balanced Scorecard is that it makes explicit the role of HR/training/learning in the achievement of strategic goals.
    Toyota Way/Lean principles can still be guiding forces - the best organizations have alignment to values and goals top to bottom, and Toyota is just as much an archetype of that as is the Mayo Clinic or 3M.

    1. I think all metrics are a balance or optimization with the goal of increasing profit from adding value. The nice thing the balanced score card does highlight is the so called softer metrics of respect for people with measures like training and learning. I think too many think it is all about revenue or for that matter cost. That is too narrow. You also need to develop people and your knowledge of problem solving to be able to add value for the business.