Performance Measures

PART II.

Problems with Today's Performance Measures

• Present performance measures may stress control, not improvement. Present day programs such as TQM and JIT, stress continuous improvement programs. In the past, performance measurement systems have tended to stress control around some measurable norm, rather than improvement to some new undefined level of performance. Standard costs, along with their corresponding variances, have been used for control purposes. Today, more companies are using target costs for setting goals for attainment, leaving standard costs primarily for accounting purposes.

• Many performance measurement systems have no way of distinguishing between the "vital few and the trivial many." (2) Today, companies place more emphasis on doing the right thing, or choosing the activities that will achieve the greatest benefits for the company (strategic effectiveness). This is in contrast to doing the thing right (operational efficiency). Measurement systems tend to be indiscriminate among measures; the persons using them must assign priorities to the activities.

• The basic concept of performance measurement may not be accepted by the persons being measured. While most persons recognize the inevitability, and even desirability, of being measured, they universally want the measures to be fair. Too often, the individual may feel that they have no involvement in the selection of the performance measure or the level of performance deemed acceptable. As a result, there may be lack of congruence on priorities and level of emphasis between supervisor and subordinate.

• Some measures may tend to promote local, or departmental, goals, instead of global or company, goals. When production departments are measured by labor efficiency, they attempt to maximize labor efficiency, and may be less interested in minimizing inventory, although an integrated program of inventory management may be of great benefit to the total company. The blending of cross-functional goals into workable performance measures is an important objective of performance measurement systems.

There are other criticisms of today's performance measures; however, the ones listed above will be the basis for evaluating the use of key indicators as an approach to provide acceptable measures.

What Are Key Indicators?

Imagine a factory with one machine that makes all of the production for the plant. When it works, it makes a loud thump every time it makes a good piece; when it is not working, there is no thump. The plant manager knows almost immediately when there is a problem because the machine stops thumping, and he or she can take action to correct the situation. The moral of the story is that every business operation has one or more thumping machines that indicate how things are going; the trick is to find out what they are and how to measure them. These "thumping machines" are the key indicators of a business.

Key indicators, for the purposes of this presentation, are planning and performance measures that answer most of the criticisms listed above. They have many worthwhile attributes, such as:

• They provide physical measures as well as financial.

• They can be used as both planning and performance measures.

• They can be used at all levels of the organization.

• They can be adapted for use across the organization.

• They are easy to understood and report.

• They are easy to change as measurement needs change.

• Key indicators can focus on improvement, not just control.

• Key indicators can be assigned different priorities.

• The persons being measured can select, or help to select, the measures used to measure them. This helps to gain their acceptance and use.

• Key indicators can be used as common measures for different organization functions to stimulate cross-functional relationships.

Key indicators can alleviate some negatives of today's measures. However, they do not eliminate the need for good performance; they only measure it.

Several examples of key indicators for a variety of functions, such as marketing, quality, production planning, production, human resources, design engineering, manufacturing engineering, industrial engineering and accounting, will be discussed in the presentation; space constraints prevent their inclusion in this paper.

To be continued.

STAY CONNECTED

To stay current on bullet-proofed manufacturing solutions, subscribe to our free ezine, "The Business Basics and Best Practices Bulletin." Simply fill in the below form and click on the subscribe button.

We'll also send you our free Special Report, "Five Change Initiatives for Personal and Company Success."

Your Name:

Your E-Mail:

Your personal information will never
be disclosed to any third party.

Manufacturing leaders have a responsibility to educate and train their team members. Help for developing a self-directed, World Class Manufacturing training program for your people is just a click away:

http://bbasicsllc.com/training-modules.htm

You are welcomed to print and share this bulletin with your manufacturing teams, peers, suppliers and upper management ... better yet, have them signup for their own copy at:

http://bbasicsllc.com/subscribe.htm

With the escalating spam-wars, it's also a good idea to WHITELIST our bulletin mailing domain via your filtering software or control panel:

bizbasics@getresponse.com

This will help guarantee that your bulletin is never deleted unexpectedly.

Manufacturing Knowledge you’ll not find at offsite
seminars nor in the books at Amazon.com

Lean Manufacturing - Balanced Scorecard
ISO 9000:2000 - Strategic Planning - Supply Chain
Management - MRP Vs Lean Exercises - Kaizen Blitz
Lean Six Sigma - Value Stream Mapping

All at one Website: Good Manufacturing Practices

COMPETITIVE KNOWLEDGE MENU
(Click on any subject below):

Your company can reach its full potential in all aspects of the business. All you need is the right knowledge and training. You will find much of it it here, at the Business Basics' Website:

Lean Manufacturing Articles

CKN Article Archives

MB&BP Bulletin Archives

The Kaizen Blitz

"ShowTime!" The MRP vs Lean Mfg. Exercises

At Your-Company" Workshops and Forums