Meaningful Metrics: The Backbone of Continuous Improvement. Track 6 Session 3

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1 Meaningful Metrics: The Backbone of Continuous Improvement Track 6 Session 3

2 Therese Costich - Title: Managing Partner - Company: The TCM Group - tcostich@t-c-m-group.com - Phone: Website: 2

3 Abstract Developing relevant and impactful metrics that affect all the nerves in your operation is paramount to escalating performance. Great companies consider this process to be an ongoing obligation in their lifecycle, not a onetime activity. In this tutorial, we will discuss the right way to identify the measurables that matter, benchmark your organization against the field with them, issue the KPIs that support them, and finally, measure progress with a smart balanced scorecard for all involved. This is an easy process to do wrong...so don't! 3

In this tutorial, we will discuss the right way to identify the measurables that matter, benchmark your organization against the field

4 Agenda Metric Identification - Why Track Them? - How to Determine What to Track? Key Performance Indicators - Rewarding the Right Activity Balanced Scorecard - What is it? Recommendations 4

5 Meaningful Metrics - Why Most Employees in a Department:* - Don t Know What is Important - Don t Fully Know Business Objectives - Don t Know Strategy for Improving Profitability Most Employees Don t Understand Departmental Key Performance Indicators (KPI) Employees Can t Strive For Continuous Improvement If They Do Not Know What Needs Improving Make What s Important, Important!! *Source: Business Assessment Survey Developed by The National Institute of Standards and Technology (NIST) 5

Indicators (KPI) Employees Can t Strive For Continuous Improvement If They Do Not Know What Needs Improving Make What s

6 Meaningful Metrics - Why Meaningful Metrics Can Be Used For: - Process Improvement - Recognition - Goal Setting - Reward - Decision Making Meaningful Metrics Lets Employees Know What s Important Meaningful Metrics Keeps Employees Focused 6

Reward - Decision Making Meaningful Metrics Lets Employees

7 Meaningful Metrics - Quotes if you can t measure it, you can t manage it, Peter Drucker if we re not keeping score, we re only practicing Vince Lombardi 7

8 Meaningful Metrics How and What Model #1 Goal (What you want to be) Meaningful Metrics Objective (What you want to accomplish) Strategy (How are you going to accomplish it) Tactics (Day to day activities to accomplish it) Metrics KPIs 8

accomplish) Strategy (How are you going to accomplish it)

9 Meaningful Metrics- Example Goal - To be #1 in Customer Satisfaction Objective - To Achieve 100% On-Time Delivery Strategy - Better Forecast Accuracy - No Overnight Deliveries - No Backorders - Buffer Stock Balanced Scorecard Goal (What you want to be) Objective (What you want to accomplish) Strategy (How are you going to accomplish it) Tactics (Day to day activities to accomplish it) Metrics KPIs 9 11

Buffer Stock Balanced Scorecard Goal (What you want to be) Objective (What you want to accomplish)

10 Meaningful Metrics- Example Tactics - Daily Planning Meetings - Customer Calls and Visits - Supply Chain Analytics - Planning Operations Monthly Meetings Balanced Scorecard Goal (What you want to be) Objective (What you want to accomplish) Strategy (How are you going to accomplish it) Tactics (Day to day activities to accomplish it) Metrics KPIs 11 10

Scorecard Goal (What you want to be) Objective (What you want to accomplish) Strategy

January February March April May June July August September October November December January February March April Meaningful Metrics- Example Metric On-time Deliveries 100.00% 98.00% 96.00% 94.

11 January February March April May June July August September October November December January February March April Meaningful Metrics- Example Metric On-time Deliveries % 98.00% 96.00% 94.00% 92.00% 90.00% 88.00% 86.00% 84.00% 82.00% 80.00% KPI - Forecast Accuracy Forecasted Shipped KPI - Overnight Deliveries Overnight Deliveries March January November September July May KPI - Buffer Stock Buffer Stock March January

12 Meaningful Metrics How and What Model #2 Strategic Initiative Operating Objective Operating Objective Operating Objective KPI KPI KPI KPI KPI KPI KPI KPI KPI KPI KPI KPI 12

13 Meaningful Metrics How and What Model #2 Strategic Initiative Developed During Strategic Plan Operating Objective Operating Objective Operating Objective KPI KPI KPI KPI KPI KPI KPI KPI KPI KPI KPI KPI Developed During Operating Plan 13

14 Meaningful Metrics How and What Strategic Initiative Operating Objective Operating Objective Operating Objective KPI KPI KPI KPI KPI KPI KPI KPI KPI KPI KPI KPI Meaningful Metrics 14

15 Meaningful Metrics Employee KPIs Rewarding The Right Activity Employee KPIs Must: - Roll up to Departmental Metrics - Reward the Right Behavior - Be Diversified One Metric May Affect Another - Be Attainable - Be Fair - Fit with Operating Objectives 15

the Right Behavior - Be Diversified One Metric May Affect

16 Meaningful Metrics Making it Visible Balanced Scorecard A way to track metrics that support an organization s strategic plan, goals, and objectives (Godfrey December 1999) 16

17 Meaningful Metrics Making it Visible Balanced Scorecard Balanced Scorecard was popularized in a book in 1996 (Kaplan & Norton) Original concept was around 4 distinct parameters: - Financial - Customer - Internal - Innovation & Learning 17

(Kaplan & Norton) Original concept was around 4 distinct

18 Meaningful Metrics Making it Visible Balanced Scorecard Reflects a balance between: - Long and short term metrics - Financial and non-financial metric - Leading and lagging indicators - Internal and external perspectives 18

metrics - Financial and non-financial metric - Leading

19 Meaningful Metrics Making it Visible Balanced Scorecard General Electric broke the mold - Used the Balanced Scorecard approach to: Track Six Sigma metrics Track performance improvement metrics Track supplier quality - Used the Balanced Scorecard for 5 broad metrics General Electirc Cost of poor quality Customer satisfaction Internal performance Design for manufacturability Supplier quality Balanced Scorecard Financial Customer Internal Innovation and learning (Breyfogle, Cupello & Meadows 2001) 19

Scorecard for 5 broad metrics General Electirc Cost of poor quality Customer satisfaction Internal performance Design for

20 Meaningful Metrics Making it Visible Balanced Scorecard Includes any metrics that the company feels are critical Used widely in Six Sigma deployments to track progress Continues to balance between many different metrics Used enterprise wide or can be departmentalized Used as a quick visual guide Balanced Scorecards Are Key to Continuous Improvement 20

Continues to balance between many different metrics Used enterprise wide or can be

21 Meaningful Metrics Making it Visible Balanced Scorecard 1. Organizations Are Displaying Metrics that Are Not Meaningful or No One Looks At 2. Metrics are Never Updated or Changed 21

22 Balanced Scorecard Model Quality Balanced Scorecard Cost Time 22

23 Meaningful Metrics Recommendations It Takes a Village Involve your Team - Promotes Buy-In - Let s Them Know What is Important - Promotes Ownership Involve Your Customers - Provides Insight Into What s Important to Them - Let s Them Know You are Interested Involve Other Departments - Especially Internal Customers 23

24 Meaningful Metrics Recommendations Make it SMART Specific - The Objective Must be Precise, Detailed, Defined Measurable - Can t Be Warm or Cold Attainable - If It Can Not Be Reached No One Will Try Relevant - Must Be Related to your Business Objectives Time Bound 24

25 Meaningful Metrics Recommendations Benchmark Then Benchmark Again Look Within Your Industry - What is Best Practice Look Outside Your Industry - What is Best Practice Helps Set Objectives that are Attainable Helps Understand Where You Currently Are Allow You To Understand Where Improvement is needed 25

26 Meaningful Metrics Recommendations Make it Dynamic Your Industry is Dynamic.. So Should be Your Metrics If They Don t Change No One Will Pay Attention Update Weekly or Monthly Depending Upon The Metric Appoint a Manager Change The Metric Based on External and Internal Factors Don t Let Your Metrics Die on the Vine 26

27 Meaningful Metrics Recommendations Not a Cast of Thousands The More Metrics You Track The Less Meaningful they Are Track Only Key Metrics - Let s Employees and Customers Know What is Really Important Track Key Objective and Their Key Performance Indicators 27

28 Key Takeaways Tracking Meaningful Metrics Allow Employees and Customers to Know What is Important Track Key Operating Objectives and Key Performance Indicators for those Objectives Employees KPIs Should Mirror the Department s KPIs Goals Lead to Objectives Objectives Lead to Strategies 28

29 Key Takeaways Strategies Lead to Tactics Balanced Scorecards Make Key Metrics Visible Recommendations - Involve Everyone Make them Dynamic - Track Only Key Metrics Benchmark - Make It SMART 29

30 Additional Resources The Balanced Scorecard: translating strategy into action By Robert S. Kaplan and David P. Norton September Key Performance Indicators (KPI): Developing, Implementing, and Using Winning KPIs by David Parmenter (Feb 8, 2010) Developing Performance Metrics A University of California Approach /uc.html 30

31 Additional Resources Managing Through Measurable Metrics By Ron Sicker Presented at the ASQ Conference Feb 2004 Driving Six Sigma By Ron Sicker Published 2002 TCM Books 31

32 Questions? 32

Harvesting Pearls with Supply Chain Analytics. Track 3 Session 2

Harvesting Pearls with Supply Chain Analytics Track 3 Session 2 Therese Costich - Managing Partner - The TCM Group - tcostich@t-c-m-group.com - 585 314 1579 - www.t-c-m-group.com Agenda Abstract Definition