Speedometers and Compasses
You've defined your mission and set your goal. Time to blast off and get to work. Or is it? Too often, organizations launch their Lean roll-outs without clearly defining how to measure their progress. Measuring the wrong things is as bad as not measuring at all. Maybe you're measuring miles per hour as you travel down the highway and smiling as the speedometer continues to increase as you depress the accelerator. Speed is certainly one performance indicator; however, if you're not also monitoring direction, you won't reach your destination. As the old saying goes, "I'm not sure where we are, but we're making good time." When you fail, you blame the car.

Many organizations blame the Lean approach when they fail to achieve their goals. However, the failure is often driven by measuring the wrong things – like measuring speed instead of measuring direction – watching only the speedometer and not the compass. Clearly defined goals that answer the question "What do we want out of our efforts?" lead to better metrics. When you know exactly what you want to achieve your key performance indicators (KPIs) become obvious.

Having too many KPIs also leads to failure. Staff gets too caught up in measuring, and the effort collapses under its own administrative weight. Your production line spends so much time measuring throughput that they don't have time to actually produce. Failing to establish an accurate baseline will also derail your efforts. If your starting point isn't accurate, your progress measurements will never be right. Again, spending time at the outset to really drill down to define your goals and how to measure your progress is the key to success.

Adding value is at the very heart of Lean manufacturing and offers a good starting point as a KPI. Evaluate and measure your all of your organization's activities. How much value do they add? Figure out how to quantify it, eliminate the steps that don't add value, and you're already making real progress. Calculating your start-to-finish lead time to produce is another excellent overall KPI. Anything you can do to shorten that measurement positively impacts your bottom line.

Overall equipment effectiveness (OEE) is another solid KPI that many companies overlook. It has three components – availability, performance and quality. Availability is the percent of time the equipment is available to run (either by reliability or utilization). Performance rate is the percentage of parts produced compared to the OEM specifications. Finally, quality is the percentage of saleable parts out of all parts produced. Multiply these three percentages to calculate the OEE of any piece of equipment. Whatever steps you can take to continually increase this number will have a positive effect.

Accurate calculations regarding the cost per unit of measure for labor and the cost per minute for down time should also be considered. Both of these KPIs have the potential to really affect your operation and overall profitability. Also, measuring the mean time between failure (MTBF) on equipment (or a process) is another useful metric to consider. This statistic is the sum of the operational periods divided by the number of observed failures. Increasing your MTBF means improving reliability. Improving reliability ultimately means improving profitability.

So what's the best KPI to use? The best one is the one that accurately tracks the progress to your particular goal. Keep in mind that you will probably need a combination of KPIs to get the full picture. A road trip with only a speedometer or a compass will not be as successful as one that uses both.