Download - 1 © The Delos Partnership 2003 Performance Measurement Changing Behaviours by changing measures
1 © The Delos Partnership 2003
Performance MeasurementPerformance Measurement
Changing Behaviours by changing measures
2 © The Delos Partnership 2003
Performance MeasuresPerformance Measures
Introduction
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Behaviour IssueBehaviour Issue
•If you measure me irrationally I will behave irrationally
•If you change the way you measure me,I will change the way I behave
•If you change the way you measure me, and don’t explain what that means, no-one will know how I will behave - not even me !
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TraditionalTraditional Measures Measures
• Inventory level• Volume• Machine utilisation• Labour productivity• Actual vs. Budget• Overhead recovery• Purchase price variance• Overtime vs. Budget
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Problem With Problem With TraditionalTraditional MeasuresMeasures• Accountancy based• Backward looking• Focus on Efficiency• Encourage Functional behaviour• Inventory treated as an asset• Purchase Price Variance hurts manufacturing• Measures people causing fear and blame and
disintegrated behaviour
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Performance Measurement is Performance Measurement is about understanding processes about understanding processes and thereby improving them and thereby improving them by examination and analysisby examination and analysis
Performance Measurement is Performance Measurement is about understanding processes about understanding processes and thereby improving them and thereby improving them by examination and analysisby examination and analysis
Measurement is ……Measurement is ……
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ProcessProcessProcessProcess
Performance MeasurementPerformance Measurement
MeasureMeasureMeasureMeasure
ResultResultResultResult
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Delos Business ModelDelos Business Model
DemandDemandDemandDemand SupplySupplySupplySupply
VisionVisionVisionVision
PrioritisationPrioritisationPrioritisationPrioritisation
SupportSupportSupportSupport
InnovationInnovationInnovationInnovation
StrategyStrategyStrategyStrategy
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Changing BehavioursChanging Behaviours
CULTURE/BEHAVIOUR
TECHNO
LOG
YWAYS O
F
WO
RKING
Use theseTo Measurethese
To Change this
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Performance measurementPerformance measurement
Principles
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Measurement - BasicsMeasurement - Basics
VISION AND STRATEGY
OBJECTIVESOBJECTIVES
TARGETSTARGETS
MILESTONESMILESTONES
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BenchmarkingBenchmarking
• Benchmarking is a process to evaluate company’s performance against– Sites within same company– Companies within the same industry– Companies within different industries– Companies in different businesses
• Collect the best practices of the best to make you the best
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World Class Performance – World Class Performance – Engineering industryEngineering industry
Measure Average Top 10 % YOU ?
Delivery Reliability % 94 99.9
New Products in last 5 years %of revenue
4 63
Scrap Rates - % 3.9 0.8
Total Stock-turns (per annum) (1)
13 30
Training Days per Employee
7 20
(1) Sales Value/Total Stock : assuming average Variable Cost Ratio = 60 % then
Figures would be 8 18Source : Cranfield University
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Establishing New Establishing New MeasuresMeasures• Define simple vision – meaningful• Establish perspectives that need to be
measured and hence objectives• Establish Targets for each measure• Benchmark against best of the best to
establish targets• Agree milestones to provide progress
charts
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Performance MeasuresPerformance Measures
Link to company objective – improving profitability
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Business Excellence and Business Excellence and PerformancePerformance Do Business
Excellence Performance measures help the company?
What is the link to the benefit of the company?
What’s the cash value of non-financial performance measures?
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Assume that Profitability is the Goal Assume that Profitability is the Goal
ROCEROCE
ProfitProfit CapitalCapital
SalesSales CostsCosts
MaterialMaterial LabourLabour OverheadOverhead
FixedFixed CurrentCurrent
StocksStocks CreditorsCreditors DebtorsDebtors
The Core Measures and Financial EffectThe Core Measures and Financial Effect
18 © The Delos Partnership 2003Demand Accuracy
ROCEROCE
ProfitProfit CapitalCapital
SalesSales CostsCosts
MaterialMaterial LabourLabour OverheadOverhead
FixedFixed CurrentCurrent
StocksStocks CreditorsCreditors DebtorsDebtors
Demand Accuracy Demand Accuracy
19 © The Delos Partnership 2003Perfect Customer Orders
ROCEROCE
ProfitProfit CapitalCapital
SalesSales CostsCosts
MaterialMaterial LabourLabour OverheadOverhead
FixedFixed CurrentCurrent
StocksStocks CreditorsCreditors DebtorsDebtors
Perfect Customer OrdersPerfect Customer Orders
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Link Measures to the GoalLink Measures to the Goal
ROCEROCE
ProfitProfit CapitalCapital
SalesSales CostsCosts
MaterialMaterial LabourLabour OverheadOverhead
FixedFixed CurrentCurrent
StocksStocks CreditorsCreditors DebtorsDebtors
Business Excellence Performance Measures are the Foundation;
Profitability is a result
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The Core Measures and Financial EffectThe Core Measures and Financial Effect
Relationships to RoCE components– All influence cash flow
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Performance MeasuresPerformance Measures
Detailed Measures
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Define the MeasuresDefine the Measures
Each measure needs– Definition– Purpose– Horizon– Source of Information– Reports– Accountability
• For Measure• For Reporting
– Objectives/Targets/Milestones– What to do with the measure
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Forecast AccuracyForecast Accuracy
Definition
Purpose
Horizon
Source of Information
Percent of items within a tolerance
Assess the degree of flexibility required by the supply side and to improve the process
Cumulative lead time (= purchasing plus manufacturing LT)
Forecasting module Sales module
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Forecast AccuracyForecast Accuracy
Forecast Accuracy by Family
0%
10%
20%
30%
40%
50%
60%
Family A Family B Family C Family D Family E Family F
Family
% accuracyTarget
Above Target
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Performance TargetsPerformance Targets
Objective
Target
Milestone
What would your target be ?
Forecast Accuracy
0
20
40
60
80
100
120
-9 -8 -7 -6 -5 -4 -3 -2 -1
Months
% of Items
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Customer Service –The Perfect OrderCustomer Service –The Perfect Order
Define a standard for each
– Quality: as agreed or otherwise defined
– Time: on the agreed day (and specific time)
– Quantity: the exact quantity within agreed tolerances
– Place: to specified location
– Form: in agreed physical form including packaging
– Paperwork: with all agreed paperwork required by customer Manufacturing records
Batch record
Dispatch and delivery notes
Sales invoice with correct pricing and terms
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Customer ServiceCustomer Service
Definition
Purpose
Horizon
Source of Information
Each element of the Perfect Order
Flexibility required to meet customer needs
MTS - none
MTO - product lead time
Sales order entry
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Root Cause AnalysisRoot Cause Analysis
Imperfect Orders
Imperfect Orders
PeopleProcesses
Unrealistic Promises
Lack ofTraining
Systems Data
Order Entry
Pricing
No Customer RequiredDate
AvailabilityInaccurate Order Due Dates
Wrong Product Codes
DeliveryLack ofTraining
Functionality
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Customer Service
0
20
40
60
80
100
120
-4 -3 -2 -1 0 1 2 3 4
Months
% of Items
Performance TargetsPerformance Targets
Objective
Target
Milestone
What would your target be ?
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Schedule AchievementSchedule Achievement
• Schedule = Agreed sequence of activity• Across business/value chain• Others are dependent on schedule completion
• Measurement = # Activities completed on time x 100%• # Activities scheduled for
period
• Not just production Schedules• Purchasing• Product Launch• Maintenance• Cash Collection
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Schedule Achievement - Schedule Achievement - ProductionProduction
Definition
Purpose
Horizon
Source of Information
Number of works orders completed to required date into stock or next operation
Improve manufacturing process
Product Lead Time
Shop Floor control module
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Performance TargetsPerformance Targets
0
10
20
30
40
50
60
70
80
90
100
J F M A M J J A S
Schedule Achievement
% of Orders
Objective
Target
Milestone
What would your target be ?
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Supplier PerformanceSupplier Performance
Definition
Purpose
Horizon
Source of Information
Number of deliveries received into stock on or before due date/time
Improve supplier delivery process
Purchasing Lead Time or Time Fence
Vendor Schedule or Purchase Order`
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Performance TargetsPerformance Targets
0
10
20
30
40
50
60
70
80
90
100
Jan Mar May Jul Sep
Supplier Achievement
% of Orders
Objective
Target
Milestone
What would your target be ?
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Right First TimeRight First Time
Measurement = Defects per sample/batch x100% Sample/Batch Size
Quality applies to more than just Products• Process execution & information quality • Purchase Orders• Sales Order Capture• Warehouse Picking• Accounts payable schedules
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Right First Time - Production QualityRight First Time - Production Quality
Definition
Purpose
Horizon
Source of Information
Number of works orders completed to required specification first time
Improve manufacturing process and material acquisition process
Product Lead Time
Quality checks via in line SPC process
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Performance TargetsPerformance Targets
0
10
20
30
40
50
60
70
80
90
100
J F M A M J J A S
Right First Time
% of Items
Objective
Target
Milestone
What would your target be ?
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New Product Development PerformanceNew Product Development Performance
Definition
Purpose
Horizon
Source of information
Number of new products developed on time
Improve NPD process
New product development time
Activity schedule in planning system or project plans
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Performance TargetsPerformance Targets
0
10
20
30
40
50
60
70
80
90
100
J F M A M J J A S
NPD Achievement
% of Projects
Objective
Target
Milestone
What would your target be ?
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Additional MeasuresAdditional Measures
• BOM Accuracy
• Inventory Accuracy
• Routing Accuracy
• Work Centre Accuracy
• Planning Data Accuracy
Without Data accuracy there is no
reliable information
Without Data accuracy there is no
reliable information
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Performance MeasuresPerformance Measures
Link to Appraisal
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Intent of New Performance Intent of New Performance MeasuresMeasures
Designed to:– Create value from strategy– Motivate, energise and align efforts– Enable
Focused on:– The future - “How can we improve?”– Behaviours, actions, decisions– Customers, Stakeholders & Shareholders– Opportunities– Causes or drivers of success
Feels:– Active– Supportive– Positive– Warm
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Appraisal ProcessAppraisal Process
• Continual through the S & OP process• Should involve 180˚ appraisal and appraisal
of peers through honest feedback• Requires enhanced people and team skills• Give and receive constructive review• Requires removal of blame culture• Reduced need for the cult of the hero
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Link the Appraisal Process Link the Appraisal Process to the Strategyto the Strategy
StrategyStrategy Grow BusinessGrow Business Increase Market ShareIncrease Market Share
MeasuresMeasures
StrategyStrategy Grow BusinessGrow Business Increase Market ShareIncrease Market Share
MeasuresMeasures
SalesSales/Mktg/Mktg Manager Manager … ….. … ….... … …......
SalesSales/Mktg/Mktg Manager Manager … ….. … ….... … …......
Supply ChainSupply Chain Manager Manager … ….. … ….... … …......
Supply ChainSupply Chain Manager Manager … ….. … ….... … …......
R & D ManagerR & D Manager … ….. … ….... … …`̀......
R & D ManagerR & D Manager … ….. … ….... … …`̀......
New Product DirectorNew Product Director … ….. … ….... … …......
New Product DirectorNew Product Director … ….. … ….... … …......
Customer DirectorCustomer Director … ….. … ….... … …......
Customer DirectorCustomer Director … ….. … ….... … …......
SupplySupply DirectorDirector … ….. … ….... … …......
SupplySupply DirectorDirector … ….. … ….... … …......
Finance, IT DirectorFinance, IT Director … ….. … ….... … …......
Finance, IT DirectorFinance, IT Director … ….. … ….... … …......
FinanceFinance Manager Manager … ….. … ….... … …`̀......
FinanceFinance Manager Manager … ….. … ….... … …`̀......
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Goal DeploymentGoal Deployment
EmployeesOwner
Supply ChainOwner
InnovationOwner
CommunityOwner
CustomerOwner
ShareholderOwner
TARGETSSenior Management
Business Support
Supply Management
Demand Management
New Activity Management
PERSPECTIVE
Process Owners
GOALS
Objectives
PROCESS
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Performance MeasurementPerformance Measurement
• Measures Processes to bring about improvement
• Processes improve profitability
• Detailed Measures should be owned by by Directors or Process owners
• Measures should be incorporated into appraisal process