I question I frequently hear from clients is this:
What metrics should I use for managing manufacturing?
The answer depends on the nature of your business. Whatever you do, though, your metrics should meet these paramount requirements:
- Your metrics should convey an honest sense of how the business is doing at a level that can be influenced by those who see the metric.
- Your metrics should be posted where the performance is being measured.
- The meaning of your metrics should be clear (simple is better).
- Your metrics should be prepared by the folks doing the work.
What I usually see in client facilities are artfully-crafted Excel or PowerPoint plots that purport to show company performance. It’s always at the company level, and the chartsmanship is always impressive. Not the contents or the information contained in the charts, mind you, but the charts are beautiful There must be an army of folks out there earning good livings churning out charts using everything MSOffice has to offer. No kidding…the charts are awesome. There are usually lots of charts in a central location (it seems like there are always more than a dozen, sometimes many more than that). Like I said, they’re beautiful…a true testament to the capabilities of Excel and PowerPoint.
Usually, I’m the only one examining the MSOffice artistry…I never see anyone else examining them. If you’re smiling while visualizing this image and my comments, consider this: I often stop the next person who walks by (it doesn’t matter if it’s the CEO or a machine operator) and I ask this question: What do the charts mean? If it’s a productivity chart, I ask how it’s calculated. If it’s on time delivery performance, I’ll ask how they measure it. I can pick any chart on the wall, and after an embarrassed silence, the response is always the same: I’m not sure.
I’m going to suggest just three metrics that I know will make a difference in your organization’s profitability and on time delivery performance:
- Shipments Against Plan
- Percent of Work Orders Completed On Time
- MRB Aging
Let’s consider each of these.Shipments Against Plan
The first one, shipments against plan, is a monthly x-y plot that shows a cumulative shipping plan (in dollars) for the month, with another line showing actual shipments (again, in dollars). Here’s what it looks like:
The beauty of the above metric lies in several areas:
- If the product area manager prepares it (and I’ve always made that be the case in any manufacturing organization I’ve ever managed), they know every day where the shipments are with respect to the contact due date. They don’t have to wait until the end of the month to find out where they are.
- If you base the dollars on the product values and their contract due dates, you get a true plan of what the shipments (both planned and actual) should look like. I often hear manufacturers claim they have to plan by revenue rather that the product due dates, but that’s a mistake from several perspectives (and it will the subject of a future blog entry). A bit of a prelude on that one: If you start pulling in anything you can to make the monthly sales figure (i.e., ship product earlier because it’s closer to being ready to ship than what is actually due), you’re doing serious damage to next month’s shipping schedule. Like I said, more on this topic later.
- If you put this metric in the factory in the final assembly area (and especially if the product manufacturing manager is located in this area), everyone sees exactly where the company is.
- It avoids the typical “hockey stick” shipping profile, where little goes out of the factory during the first three weeks of the month, and there’s a mad dash to ship everything during the last week of the month.
Percent Of Work Orders Completed On Time
This is another simple chart, and it’s one that should be prepared for and prominently displayed in every work center in your factory. It looks like this:
The premise here is that something or someone assigns work orders to each work center, and that the assignment includes a required completion date. In companies with an MRP or ERP system, it’s usually called the “dispatch report” or the “to do” list. It almost goes without saying, but I’ll say it anyway: If the company is to deliver its products on time, each work center must strive to complete its dispatch-report-assigned work orders on time.
The metric here is simple: It just shows the percent of work orders the work center completes on schedule each day. The work center supervisor should prepare it at the end of the day, and post it in a prominent location so the folks assigned to each work center know how they’re doing. It used to take me no more than 5 minutes to do this. It was the essence of what I was being paid to do (manage the work center).
The beauty of this metric is that it is simple (everyone in the work center will understand it), it only takes a few minutes each day to prepare, and it naturally encourages the work center to improve performance. Hitting that 100% on time in the work center is manageable and achievable.
Sometimes I hear folks tell me this: We can’t do this because everything in the work center is late, so there’s no way we can hit 100%. If that’s the case in any of your work centers, you need to replan the work. That’s important for several reasons, the most significant of which is that the master production schedule should define who needs to do what and by when. If your master production schedule doesn’t assign the work order completion dates and everything (or nearly everything) in the work center is late, the folks in the work center will decide which jobs they work. That’s not a formula for success.
The exhortations about 6 Sigma and other management fads du jour notwithstanding, anyone who’s ever worked in a manufacturing company knows that nonconformances occur. Yes, we want robust processes and we’d like to have zero defects, but I’ve never been a factory that doesn’t experience rejections (and I’ve been in a lot of factories). What governs our success is how we respond to them.
When items are rejected, they enter a material review process that determines nonconformance disposition: Should the nonconforming item be scrapped, reworked, repaired, or used as is?
The above is interesting and you could write a book about the nuances associated with managing nonconforming material (I know because I actually did write a book that addresses this topic). In my experience, strong root cause corrective action is essential for the obvious reasons (please see our Root Cause Failure Analysis training program), and so is rapid nonconformance disposition for a less obvious reason I’ll get to in a second. Root cause failure analysis means finding out why the nonconformance occurred and taking steps to preclude recurrence.
Nonconformance disposition means what we do with the nonconforming item, and whatever we do, it’s important that we do it quickly. Very quickly, in fact. From a delivery performance perspective here’s a little known fact with a huge impact: Stuff in MRB is invisible to MRP. The MRP system thinks the rejected items in MRB are still available. What that means to us is this: When rejected items languish in MRB, they interfere with on time deliveries. Items in MRB need to be rejected rapidly. In the plants I’ve managed, I’ve put that limit at 1 day. I’ve scrapped stuff that was hanging around too long even it could be reworked. My reasoning was that I was in a better position letting MRP know the material was gone so we could get on with fabricating replacement material. It drove the Materials folks nuts, but I only had to do it a couple of times before they became world-class proponents of dispositioning rejected material in less than a day.
This brings us to the third metric, and that’s a simple list of what’s in MRB, with a requirement that anything in there for more than 24 hours was highlighted in red. You can set up an Excel spreadsheet with conditional formatting to check the time something entered MRB to the current time, and highlight it automatically if it goes over 1 day. I posted that list outside the MRB bond area so that anyone walking by the area (which always included me at least once daily) could immediately see if things were growing whiskers in there. It worked well.
If your company is not delivering on schedule, the above metrics will have a rapid impact on highlighting where it hurts and where the improvement opportunities lie. It’s a great start at putting control of the factory in the hands of the folks who can make a difference in how your plant performs. There’s much more to getting on schedule and staying there, of course, but the above is a good start.
If you have any questions or suggestions, please give us a call at 909 204 9984; we’d love to hear from you.