Digital Transformation • May 1, 2015

Are Your Manufacturing Operations Ready for Transparency?

iBase-t Experts

What does transparency mean in the context of manufacturing operations? Literally, it means we can see through the manufacturing organization into its internal workings. Practically it means full availability and access to information required for collaboration and collective management decision making. It means full disclosure of detailed historical records for root-cause investigation purposes to uncover areas for continuous improvement. It means being open to sharing our best practices along with our past mistakes so they serve as learning experiences.

Transparency is an essential condition for a free and open exchange and evaluation of priorities for process improvements. It is essential to creating a culture of trust and teamwork in the organization.

Transparency through manufacturing metrics

The deployment of a performance measurement system with standardized manufacturing metrics is a key ingredient to providing unbiased visibility and transparency within the organization.

In addition to providing a mechanism for transparency, carefully selected metrics can help an organization achieve its strategic goals. Work groups can become more motivated and engaged when their performance is measured according to well selected numeric metrics. Personnel must understand the relation of their metrics to the corporate goals and feel that the targets are achievable. Work group level metrics are considered a better practice than individual employee goals to promote teamwork in the organization. Wouldn’t it be great if all employees understood the corporate goals and how they could make a difference?

Personnel must trust the accuracy of the data and the calculation of the metrics. Manually calculated metrics in spreadsheets can lead to the introduction of bias, manipulation of the data, and general distrust of the reported numbers. Having a manufacturing system that automatically collects data and rolls it up into metrics avoids these types of concerns and greatly improves accuracy.

Manufacturing Metrics and KPI selection

The selection of good metrics and the involvement of key stakeholders can greatly help with the trust and adoption of the standardized measurement system.

Generally we should be able to relate the metric to (a) strategic corporate goals, and (b) to desired outcomes for the customer. If the relation between the metric and a corporate goal or key performance indicator (KPI) is indirect, we should explain and publish this relation so it is very clear to all stakeholders.

It should be fairly straightforward to understand how the metric is derived. This will make it easier for everyone to visualize, trust and relate to the metric.

The consequences of bad performance of the metric should be easy to see on the shop floor. For example, for longer than planned cycle times we should start seeing work orders and planned inventory queuing up somewhere in the work cell. For an increase in cost of poor quality, we should see an increase of rework orders at the shop floor.

The metric should be actionable. It should be easy to derive the types of actions that could be taken to improve performance in relation to the metric. For example, a metric should not combine too many measures into one number because the possible corrective action becomes very unclear.

Metrics should be consistent and independent of subjective bias. A good metric is consistent in what it measures. The source of data, the equations used, and the weighting criteria applied should be consistent but might also evolve over time. When it does change, it should be communicated to all stakeholders. It is good practice to avoid measures where a subjective evaluation is introduced in the calculation. Different people might apply the subjective criteria differently leading to inconsistent results for that metric in the organization.

Accountability and fairness

The organization can set goals to achieve specific target levels on key metrics within a certain timeframe to promote motivation, create urgency, and establish commitments for the team. Accountability in the organization is driven by how performance to the goals is tied to a performance reward system and the actions taken by the management team about poor performance.

For accountability to work, personnel must understand and trust the metrics, perceive the targets to be achievable, and feel that they are empowered to improve performance on the metrics selected for goals. For example, manufacturing throughput rates are constrained by the number of purchase orders brought in from Sales. Increasing the number of purchase orders is out of the control of Operations so it would be better to set performance goals for Operations on something they have more control on like improving cycle times.

In order to successfully set goals and reward systems based on metrics, they must be fair across the organization. But some types of work are harder and more prone to error than others. To be fair with metrics used to compare and benchmark across the organization, it is important to have a method to weigh the difference in difficulty for achieving similar results across the different types of work centers. An example of a weighted metric is the Six Sigma metric, Defects Per Million Opportunities (DPMO). Since DPMO weighs defects by the number of opportunities for defects in each manufacturing operation, we can use the metric to compare performance across different work centers.

Constructive scrutiny

Are you ready for peers looking over your shoulder? Questioning your numbers? Are you used to constructive feedback? The executive management team must be open to bad news and reward the messenger of bad news. Instead of punishing the manager that comes forward, the organization should provide additional budget to that department to help fix the problems. Other managers will get the idea and embrace honest reporting as part of the organization’s continuous improvement processes.

I heard Allan Mulally a few years ago (CEO at Ford at the time) talking about establishing a culture of teamwork and rewarding bad news in management meetings.  Alan celebrated finding improvement opportunities. When he started at Ford, he would ask “How can all the lights in the dashboards be all green when we just announced big losses?” He applauded the manager that brought that first issue up in a meeting. Instead of frustration, he showed enthusiasm and asked, “How can we help you solve that problem?” The following week, he was presented with a rainbow of colors in the charts.

The anxiety can be high in management meetings when there is so much visibility and transparency. It is important to keep the meetings positive with a spirit to collectively address problems and improve the overall organization.

Team buy in

Often it is easier to select a set of metrics than to get employees to buy into the performance measurement system. We listed some important considerations above to improve stakeholder acceptance and trust. Personnel that is not used to being evaluated based on metrics will offer a natural resistance to this new process. The executive management team must express a compelling case for how this new system is linked to the organization achieving its strategic goals.

A few key departments can be selected to pilot the new system. Change champions should be enlisted in these departments and early success in those departments with the new system should have a high visibility celebration.

Evolution over time

Just as a company’s goals and objectives evolve over time so should the set of performance metrics be revisited periodically and changed over time.

For example, for the last two years the strategic goals might have been to reduce cost by 10% and metrics were selected to reduce cost of poor quality and improve labor efficiency. This year the corporation might have a growth strategy and it wants to focus on reducing cycle time and time to introduce engineering changes into production.

Deploying a standard performance measurement system is no simple task but it is a tool to help your organization move up to a new level of business process maturity. It can become a differentiator for your business, and lead to major improvements to the bottom line.