March 15, 2014 / benchmarking, Cost Management, human capital, KPIs, lean manufacturing, overall equipment effectiveness, productivity
Most companies that have adopted lean manufacturing strategies know the importance of measurement. When a metal-cutting operation can quantitatively assess their performance, it can start to make significant improvements and set realistic goals to stay competitive. It also allows them to benchmark themselves against other industrial metal-cutting organizations. However, metrics are only meaningful if they are tied to strategy. That’s where key performance indicators (KPIs) come into play.
KPIs are the measurements selected by a company to give an overall indication of the health of the business. KPIs are typically dominated by historical, financial measurements, but most experts agree that they are more valuable if they also include operational measurements. Unfortunately, this isn’t as easy as it sounds and takes careful consideration.
Case in point: Over the last several years, it has been popular for manufacturers to us overall equipment effectiveness (OEE) as a KPI. However, this blog post argues that OEE is not a KPI that should be measured at a company or plant level. In the blog, the author states five reasons why OEE is not a good KPI, including the fact that it is not comparable between different pieces of equipment and/or different locations. Instead, he suggests OEE should be used as a way to help identify and eliminate waste in front of a process, line, or equipment.
Although the “right” KPI will vary by organization, there are a few simple guidelines managers should follow to determine the most effective performance measurements for their metal-cutting operation. Below are a few strategies to consider:
- Plant-level KPIs should align with business objectives. According to this article from Control magazine, managers should begin by making sure plant-level KPIs line up with corporate goals. Is your company focused on growth, or is the goal to maintain existing customers? How does your KPI tie into those goals? As the manager quoted in the Control article states, a good KPI should consider the manufacturing side and business side of an operation.
- Keep the list short. If every KPI should help drive strategic intent, the list should be intentional and concise. As stated in this column from IndustryWeek, managers that measure too many things aren’t really measuring anything. While it is okay to add to your list of KPIs, as the IW author states, be sure to go back and edit the list to make sure each KPI works toward the overall company strategy. This helps maintain focus.
- Make it a team effort. KPIs must mean something to everyone in order to be effective. This means communication is critical. Key personnel and supervisors should understand what the KPIs are, why they are important, and how they are measured. Without explanation, team members can get frustrated, especially if goals aren’t being met. Managers can also take it one step further by defining employee goals in terms of organizational KPIs. According to this article from Mind Tools, this is the critical link between employee performance and organizational success. For more information on how to link KPIs with employee goals, you can read the full Mind Tools article here.