Thursday, May 13, 2010

The Winning Poker Hand of Corporate Metrics

When we say company metrics, many of us quickly think of Cost, Quality, Safety, Delivery and Morale. All are important metrics for any company however we tend to view them differently. Specifically, we focus our time and attention to one or maybe two metrics while virtually ignoring the rest because some are valued higher.

The King of all metrics is Cost.
The Queen is Quality.
The Ace is Safety.
The Jack is Delivery.
And the lowly 10 card is Morale.

Many companies consider these to be the top company metrics. In my experience, the overwhelming majority of companies focus primarily on COST as THE key metric. How do I know?

Just look at your company’s key performance indicators (KPI).

How many ways is cost charted, measured and analyzed? Could it be…
Sales dollar per employee?
Sales dollar per Direct Labor Manhour?
Direct labor cost per department, per shift, per plant, per product, per on and on?
Overtime cost?
Piece part cost?
Purchasing variance?
Overhead cost?
Capital budget?
The list goes on and on.

The metric that the majority of companies focus the least amount of their attention is Delivery. How do I know?

How many ways is delivery charted, measured and analyzed? Could it be…
On-time Delivery?
And that’s about it.

Quality, safety and even morale have more than one KPI.

Similar to delivery, morale does not rank high on anybody’s list of metrics. Many of us may think morale is too vague, not quantifiable and too hard to measure much less have any control in improving it. So we tend to ignore it, unless it is close to contract time for those of us in union shops. Besides, we can still post stellar financial results with low morale.

In any management meeting when the company metrics are reviewed, how much time is spent discussing cost? How much time is spent discussing delivery? And when was the last time morale was even mentioned?

Quality and safety are somewhere in the middle and time spent on these metrics is directly proportional to the number of safety incidents or customer complaint issues of late. No issues, not much discussion. But when an incident occurs, the discussion time goes up.

As a lean thinker, how should our time be spent with regard to our metrics? In my opinion, we should spend the majority of our time on Delivery, Quality, Safety plus Morale and spend less time on Cost. If you think about it, improvements in delivery, quality and safety are process focused while Morale is a good indication of employee engagement (ie employee suggestions). Focusing on these areas will end up improving cost.

As for single delivery KPI of on-time delivery, this is the perhaps the easiest one to achieve in most cases…just increase our inventory level, right? But is this the best course of action? Is on-time delivery the only measurement we should concern ourselves with? What about leadtime?

How many companies focus on leadtime reduction? Now how many of us relentless pursue leadtime reduction with the same passion as we tend to do in cost reduction? In our kaizen, do we focus on eliminating waste to reduce costs or shorten leadtimes? Do we understand the difference?

If we focused the majority of our time and attention on cost, our King card, it would be like holding a handful of kings. The best poker hand we could hope for is a four of a kind. But if we aligned the whole organization to follow suit, holding each our metrics in our hand, we beat a four of a kind every time, royally.

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