Measuring the High Performance Enterprise

Transcription

1 Measuring the High Performance Enterprise Arizona Quality Alliance Southern Arizona Conference on Performance Excellence April 17, 2003 Phillip Blackerby Tel Fax

2 Phillip Blackerby, M.P.Aff. Tel Fax Phillip Blackerby helps organizations transform into high-performance enterprises. He coaches executives to set big picture goals and take action to achieve them. He helps CEOs see a more successful future and develop strategies to accomplish it. He helps the organization plan its transformation, and then organizes resources to make it happen. Mr. Blackerby was lead project manager in Arizona, and managed the Lean Enterprise and Professional Business Advisor product lines at the Manufacturing Extension Partnership, National Institute of Standards and Technology. His team won the coveted Uriano Award for writing manufacturing enterprise transformation standards. He developed the FastTrac Manufacturing business planning training program, published four volumes of manufacturing transformation and improvement case studies and evaluated enterprise assessment systems and advanced technology grant applications. Mr. Blackerby co-owned a management consultancy specializing in assessment and strategic planning. He trained hundreds of managers in strategic planning and related topics, facilitated dozens of strategic planning processes and published several articles. His wide-ranging experiences include negotiating banking relationships, managing an e-business, legislative lobbying, analyzing financial markets, improving cost-accounting and managing a $96 million budget. Mr. Blackerby was Associate Deputy Treasurer of Texas, budget director for the Texas Comptroller and management auditor for the U.S. General Accounting Office. He is a certified executive coach and trainer (CCUI) and FastTrac business plan instructor. Mr. Blackerby earned a master s degree from The University of Texas at Austin, and a bachelor s degree (honors) from Brown University, Providence. He has three daughters and dotes on his two grandchildren.

3 Why Measure? Set goals Benchmark competitors Track transformation progress ISO 9001: Measurement, analysis and improvement (p. 11): Demonstrate conformity of product Ensure conformity of quality management system Continually improve effectiveness of quality management system 1

4 Principles You become what you measure Measure what you want to change Measure what you can affect Take actions to change measures 2

5 Become What You Measure Would you tell me, please, which way I ought to go from here? That depends a good deal on where you want to get to, said the Cat. I don't much care where-- said Alice. Then it doesn't matter which way you go, said the Cat. --so long as I get SOMEWHERE, Alice added as an explanation. Oh, you're sure to do that, said the Cat, if you only walk long enough. (Lewis Carroll) 3

6 Strategic Plan Drives Metrics You become what you measure Make sure what you become is what you want to be If you don t know where you re going, any road will take you there. If you don't know where you're going, you'll end up somewhere else. (Mark Twain) If you don't know where you're going, you're never lost. If we don't change our course, we'll get where we're going (Chinese adage) 4

7 4 Key Outcome Measures Measure what you want to change: A high-performance enterprise is Profitable (Π) Growing (Γ) Productive (VA/FTE) Improving ( VA/FTE) 5

8 Profitable (Π) + Gross sales - returns & refunds = Net Sales Cost of goods sold materials Cost of goods sold labor = Gross profit NS COGS Π = % Selling & marketing expenses General expenses Administrative expenses EBITDA = Operating earnings (EBITDA) Πο = % NS Depreciation & amortization Interest & taxes = Net profit γ NS 6

9 Growing (Γ) Average annual percentage increase in Net Sales from (Y-2) to (Y0) NS Γ = (Anyone can have one bad year) Should be positive ( Y 0) ( Y 2) NS NS ( Y 2)

10 Productive (VA/FTE) Value-added per employee VA FTE NS COGS FTE VA = Value added = Sales - Purchases COGS PURCH = Cost of Goods Sold, purchased labor and materials portions FTE = Full-time-equivalent employees: Total employee hours / 2080 High performance enterprises: VA/FTE $90,000 = PURCH 8

11 VA/FTE Skewed: Top 10% > 2 X Median Median Top 10% Source: Michigan Manufacturing Technology Center, Performance Benchmarking Service 9

12 Why Use VA/FTE? Measures everything company does: factory floor, management, back office, marketing, etc. Comparable among different firms; abstracts from different strategies: Make vs. buy Lease vs. purchase Fabrication vs. assembly Comparable among different industries 10

13 Improving Average annual percentage growth in productivity VA FTE VA = FTE VA VA ( Y 0) ( Y 2) FTE ( Y 2) FTE (Anyone can have one bad year) Should be positive; potential is 27% per year ( 2% per month, compounded) 11

14 Measurement Schemata High-Performance Enterprise Profitable Results Balanced Scorecard* Perspectives Financial Growing Products Customer Productive Processes Internal Improving Know-How Learning * Robert S. Kaplan and David P. Norton, The Balanced Scorecard; Translating Strategy into Action, Harvard Business School Press, Boston,

15 Measurement and Action Outcome $ Time Land Plant Tools Parts Labor Energy Capital Materials Machinery Know-How Information Input Other Value Added Processes & Systems Process A Production System Output I Input Inventory Process B Output Product Change Action Change Action 13

16 Actions and Measurement Objective: Increase sales 10% in 3 months Measure: % Change in sales in 3 mos. Activity: More marketing: trade magazine ads Measure: Number of ¼ page print ads Measure: Number of priority market readers Measure: Change in market awareness Activity Objective Activity Objective 14

17 Measure What You Can Affect Outcome Oth. Proc. & Systems Production System Process X Change Action Outcome Measures: Profit Growth Productivity Improvement Parallel Measures: Customer satisfaction Market awareness Price competitiveness Implied Measures: Lead time σ Defects rate Feet traveled Direct Measures: Cycle time (C/T) Changeover (C/O) Reliability (REL) First Pass Yield (FPY) WIP Inventory 15

18 What is Lean Manufacturing? A systematic approach to identifying and eliminating waste (non-value-added activities) through continuous improvement by flowing the product at the pull of the customer in pursuit of perfection. (NIST Lean Network) The relentless pursuit of the elimination of waste! (Alabama Technology Network) Lean means adding value by eliminating waste, being responsive to change, focusing on quality, and enhancing the effectiveness of the workforce. (Lean Aerospace Initiative) 16

19 Lean = Eliminating Waste Overproduction of work in process Waiting Transportation of parts/materials/tooling Non-Value-Added processing Excess finished inventory Defects Excess people motion Underused people Non-Value- Added 95% Value-Added 5% Typically, 95% of all lead time is non value added 17

20 Measures of 8 Wastes Overproduction: WIP Waiting Transportation: P/M/T NVA processing Excess finished inv. Defects Excess people motion Underused people WIP inv. days, turns Σ(C/T) lead time WIP inv. days, turns Feet traveled VA/FTE Variance to specs FG inv. days, turns σ (defects/mm parts) VA/FTE Feet traveled Turnover Attitudes, perceptions 18

21 9 Measures to Control Wastes WIP inventory, days, turns Process: Lead time ratio: Σ(C/T) lead time Feet traveled VA/FTE Variance to specs FG inventory, days, turns σ (defects/million opportunities) Turnover Employee attitudes, perceptions 19

22 Product Measures Price Quality: meet customer requirements Quantity Delivery Service Meet competition Perceived value: features, benefits Functionality Defects Reliability Meet customer demand Provide selection On-time Meet customer demand Warranty Maintenance Supplies 20

23 Actions to Change Measures ABC Manufacturing, Inc. Process Data Collection Sheet Process name C/T Cycle time C/O Changeover REL Reliability FPY 1 ST Pass Yield Inv. Units Prod A Inv. Units Prod B Value-Added Time Non-Value Added Time Extrude 12 sec. 45 min. 85% 75% 12 sec. I Inventory 1, hrs. Value Stream: Date collected: Collected by: Reviewed by: Saw 4 sec. 8 min 98% 99% 4 sec. LMT-P04-A/B 04/17/2003 B. Smith A.B. Collins I Inventory 1, hrs. 9,750 6, sec days 21

24 Process Measures C/T Cycle time (value-added time) Time to process single part (or standard parts unit) C/O Changeover time (set-up time) Time from the last good part of previous run to first good part of next run REL Reliability (machine uptime) Time available, as percentage of work time FPY First Pass Yield (quality) Percentage of total product that was produced correctly first time, with no rework 22

25 Inventory Measures Three types of inventory: Raw materials Work-in-process (WIP) Finished Goods (FG) Inventory units (Inv) for each product type Inventory value ($Inv) Inventory days Inventory turns Inv Inv d = $ Work NS Inv t = NS $ Inv Days 23

26 Key Messages Set goals; measure what you want to become Measure what you can affect Measure all 4 levels: results, products, processes and know-how Take action to change your measures: work on your business, not just in it 24