WORLD-CLASS VALUES

World-class organizations are finding it necessary to change baseline values to determine appropriate, meaningful measurements. Examples of a few of these changes follow.

Quality

Quality measurements, coupled with a drive toward a decrease in the cost of quality, focus on a goal of continuous improvement. Monitor­ing quality improvement costs in conjunction with quality performance data gives a truer picture of the quality progress. Quality measures are also reflecting goals of perfection and customer delight, rather than status quo and just getting by.

Productivity

Today's trends reflect measuring total productivity, rather than draw­ing traditional lines between direct and indirect, salary and hourly. Measurements focus on getting the most output from current levels of input.

Inventory

Inventory makes up a large part of working capital, many times amount­ing to half to two-thirds of the total investment base. Measurements such as inventory turns are some of the best short-term measurements of utilization, as no credit is given for what is produced, only what is sold.

Time

Reduction of time elements, such as customer response time, manu­facturing cycle time, process control feedback time, supplier reorder
lead time, and transport time, enables an organization to be better able to respond to dynamic demands.

Innovation

Measures in innovation indicate the ability to achieve and maintain a competitive advantage by introducing more new products, faster, at lower cost and more reliably than competitors. Cheaper, better, faster is becoming the motto for the next century.

Customer Satisfaction

Customer satisfaction has emerged as a strategic goal for many organi­zations today. Indicators such as customer retention rates, referral rates, repurchase rates, market share trends, complaint rates, and satisfaction survey trends are being used to gauge satisfaction levels.

CONVERTING FROM THE OLD TO THE NEW

Most performance measurements in the past were based on financial and costing information. These types of measurements usually repre­sent outcomes of processes, but do not always provide the best infor­mation about what actually occurs behind the scenes. Today's perfor­mance measurements must reflect and encourage the new culture of people empowerment, the value of time, emphasis on continuous im­provement, a quality mindset, and total people productivity. How we behave is dictated by how we are measured, and we cannot expect people to behave under the new culture if we continue to measure them under old standards.

Eliminating all of the old measurements, such as efficiency and utilization, may be too much change for some organizations and indi­viduals. One alternative would be to change efficiency to labor effec­tiveness, by dividing standard hours earned by the total hours worked by both direct and indirect employees. Utilization can be changed to machine performance by simply dividing the run hours for scheduled production by the standard hours for scheduled production. This en­sures that there is no incentive for producing more than the scheduled or needed quantity. The ideal number is one. When the ratio is less than one, it is an indicator of unplanned downtime. When it becomes greater than one, it took more hours than planned to accomplish the schedule.

Cultural changes may be necessary before an effective measure­ment system can be put into place. Fear of negative consequences to being measured may result in distortion of data and a reluctance to participate and take ownership of the measurement process. If there is a distrust of management to use measurements in order to find fault or punish, many problems will be omitted from the reporting.

Accountability is another cultural change for many organizations. People should only be held accountable for performance if they can control the outcome and have the authority to change the process. For example, an inventory control manager should not be held accountable for excess inventory created as a result of a poor forecast. In order to establish accountability for performance, each performance measure should have a sole owner who is responsible for the process and the measurement of that process.

To Be Continued