Measurements that add up to ‘LEAN’ @ Hanes Erie, Inc.
Link measurements to LEAN
A recent article by The Aberdeen Group, a Boston consulting firm, highlighted the differences among firms that have achieved benefits from “LEAN” programs, those LEAN adopters termed “average” and finally those called “laggards.” Several factors divided the three groups but measurement stood out. Firms achieving the greatest benefit measured (and published) their progress toward stated goals.
The Aberdeen data reflects the truism that, “what gets measured gets done”. There is no other way to determine whether time, effort and money are being well spent in reaching the firm’s goals. The “trick” of measurement – the art of it, if you will – is in knowing, what to measure and why to achieve those goals.
A few examples of our goals are:
- Reducing throughput times and oftentimes coincidentally lowering production costs.
- Becoming more responsive to changing customer needs, and more agile and flexible.
- Providing more customized products more rapidly.
- Stepping up to stricter quality demands.
Carefully chosen measurements, help ensure that strategies are implemented efficiently. Note that the goals suggested above sound like the current buzzword “Lean” it’s because they are. Lean is not a goal in itself. Becoming lean helps achieve the goals of the firm.
Measure what really counts
We are not talking here about measurement for its own sake. That may be okay in data-gathering exercises about customers, competitors or suppliers. In those cases, almost all data is relevant and what you do not know can hurt you. It is not the same in manufacturing or, more broadly, in operations where too much data will obscure rather than illuminate what is going on.
Because measurement is integral to success, deciding what to measure is every bit as strategic as implementing LEAN or launching a new business model. We believe it is best to start with the business’s strategic goals in its marketplace(s). That comes down to what will make the firm more profitable and give it a bigger market share.
These profit making things might include:
- An endless stream of new products as seen in consumer goods, and cellular telephones in particular.
- Lots of product-line extensions instead. They are less costly, but risk being too little too late.
- Rapid design/redesign of offerings for customization, delivery and installation as seen in big-ticket consumer or industrial markets-kitchen cabinets, for example, or machinery.
- High-profile, bet-the-farm innovations such as the Boeing 787 Dreamliner, with its potential to radically improve airliner fuel economy and passenger comfort.
There are dozens of potential strategies that a particular firm might choose. Each strategy can have different costs and different metrics. Each strategy requires different approaches to measurement.
The most useful measurements
The core of Hanes Erie, Inc.’s., practice always has been (and always will be) operations and all its related functions. So from here on we will speak in those terms. At a minimum, we believe companies should measure:
First-pass quality, i.e. “good” product at the end of the production line, not after rework. Our favorite class room example is a manufacturer of steel kitchen sinks who struggled with too many dings incurred in the manufacturing process. A “hidden factory” existed within the plant to pound out the dings. By the firm’s chosen measure, “out-the-door quality”, they looked very good. However, that quality was too costly because of the cost of the “hidden factory”. The firm was missing an opportunity. That opportunity was not highlighted until someone persuaded them to chance what they measured to first pass quality. The dings were caused by needlessly convoluted workflows in the factory. After the production process was remodeled and handling was cut from 47 steps to 14 steps, almost all the dings disappeared. Throughput rose and costs fell. Defects truly are the flip side of first-pass quality.
And as the flip side of first pass quality, it is important to understand what is going wrong in the process and fix it at the source. It is always much easier to fix the process than to repair the finished good after it is made. Firms should track scrap – a dimension that should trend downward over time. Firms should also track rework – in effect paying twice to have the same end accomplished.
Throughput times by product family. Throughput time is a very useful proxy for product cost, whatever “cost” is. In a multi-product environment, knowing unit costs to the dollar (or penny) is a fallacy. Why? Because so much cost goes into overhead, where it may be arbitrarily allocated by the accounting group. Precise individual product Cost in the multi-product environment borders on the unknowable.
On-time delivery. Only three things really matter to customers: keeping commitments, price (which is largely Outside the factory’s control – costs however, are not), and conforming to specifications. Smart customers watch these.
Some other useful measurements
In addition to the Big Four above, which should be universal, dozens of other things can be measured beneficially. But these things vary from company to company as each firm’s opportunities and challenges vary.
Depending on the situation, it is helpful and sometimes very enlightening, to measure the following:
- Inventories (raw stock, work in process or WIP, purchased stock, and finished or semi-finished goods).
- The manufacturing cycle’s share of overall dwell time in the plant. If, for example, it takes one week to make a product but two weeks to enter the order, there are other factors that need addressed.
- The speed and effectiveness with which engineering change notices are handled.
None of these is a secret. Everyone involved in any LEAN program - and that should be everyone in the enterprise – must understand how these measurements bear on achieving the firm’s goals.
Some not-so-useful measurements
Old habits of measurement die hard. A few that linger go back to manufacturing’s Dark Ages when direct labor and processing costs were the biggest costs of manufacturing – a far cry from today. Fixating on direct labor costs leads to speedups, which rarely work, and reductions in force that shortchange flexibility, future growth and even productivity.
Likewise, most machine-utilization data is also useless. Fixating on utilization can lead to bloated inventories, especially WIP.
These old, not-so-useful, measurements can be worse than misleading. They can deflect attention away from what’s needed to get to the real goals. They also encourage gaming the system, which will undermine the credibility of all measurements.
View the numbers objectively
How the measurements are viewed is of critical importance. Trends are much more important than the individual numbers. Trends are inherently dynamic and show progress toward goals as rates of change. Specific numbers and data points are too static to reveal very much. Remember the journey toward Lean (or increased effectiveness or whatever title you want to put on your goal) is, in fact, a never-ending journey. The definition of “excellence” in your customer’s eyes will constantly change.
How an outside view can help
Measurement plays a role in every Hanes Erie, Inc. engagement we have ever undertaken. Typically, we are tasked with four fundamentals:
- Honesty. This comes down to making sure the chosen measurements are relevant to operations and, second, verifying the data is not being incorrectly manipulated in the collection process. Measurements are useless if they cannot be trusted.
- Methodology. This means insisting on correct statistical data gathering and analysis techniques. Which sets of data are being compared, and why? What assumptions underlie key data and the correlations that have been established?
- Analysis. Beware of normalization and curve smoothing. When applied to insufficient data sets these valuable techniques may hide more than they reveal. Don’t let analysts hide behind the data.
- Linkage. Tie measurements tightly to your real business strategies, and to LEAN (or whatever you call your program). If the measurements are not linked to your program, how will you know if you are making progress?
Closing the loop on LEAN
We’ve come full circle. Basing measurements on real business strategies generates three over-riding benefits:
- The Big Picture emerges quickly and clearly: gathering data is not an end in itself.
- A tilt toward innovation, as incremental gains inspire people to build on success rather than dwell on problems.
- A clear distinction between insights and understanding on one hand and reams of data and statistics on the other.
For further information contact:
Peter C. Berry, PH.D.
Director of Quality and Sales
Hanes Erie, Inc.
Peter Berry
(814) 474-1999