Simply put, performance measures are quantified measurements of how well an organization, value stream, or process performs. But not all performance measures are created equal. For lean manufacturers, lean success requires lean performance measures developed to drive high performance.

Why Change Performance Measures?

The need for lean performance measures is sometimes quickly evident as an organization applies lean principles. However, many manufacturers, early in their lean journey, wonder why it’s necessary to change performance measures, especially when the company’s products or services have remained the same. On that note, it’s useful to recognize 3 good reasons why a lean organization should consider specifically adopting lean performance measures:

  1. The goals have changed.
    As a manufacturer becomes lean, its goals change. Non-lean manufacturers tend to focus on short-term financial goals such as minimum cost per unit and maximum equipment utilization, which encourage behaviors such as batch production. By contrast, lean manufacturers focus on providing customer value in terms of 100% quality products on time, which encourages practices such as one-piece flow.
    As such, traditional performance measures such as cost variance, equipment utilization, labor efficiency, and budget adherence are replaced by lean measures such as first-time quality, inventory turns, cycle time, throughput, and on-time delivery. That is, lean organizations adopt measures that focus on the overall performance of the value stream.
  2. The structure has changed.
    Truly lean companies organize around value streams. Thus, financial and accounting data must be oriented around value streams rather than around arbitrary departments or functions. This is because departments and functions tend to independently pursue their own goals with little consideration of how their behaviors support or undermine other areas.
  3. The timing needs have changed.
    The last major reason why lean organizations adopt lean performance measures relates to the need for faster information. In lean organizations, monthly reports arrive too late to be effectively used for problem-solving and process improvement. Furthermore, traditional reporting’s focus on variance control tends to produce data of limited or little use to lean teams focused on continuous improvement of value streams.
    To further enhance and monitor procedures in a lean environment, the people who are directly involved in the value-add to the customer require real time, easily understood visual information, their empowered to apply.

Regardless of these three powerful and relevant reasons for adopting lean performance measures, many manufacturers strongly resist the change at first. There are a few common rationales for this resistance to lean measures.

  1. Comparisons to legacy data.
    Many companies resist adopting new measures that are not easily and directly comparable to old measures. As the saying goes: you can’t improve what you can’t measure. The assumption is that measurement gives us control, but inconsistent measurement undermines that control by confusing and disorienting operations.
    Unfortunately, while this rationale makes some logical sense it ignores the usefulness of the current measures. After all, if the old information doesn’t meaningfully aid lean decision-making, then only gives us the illusion of control. That is, our non-lean reporting provides lean organizations little value beyond the psychological comfort of comparing bad-apples to bad-apples.
  2. It’s this way for a reason.
    Another common reason that manufacturing teams are reluctant to change is that it’s the only way most of the team are familiar with doing things. After all, the old way has “worked” for as long as it has, and the people who developed the old way must have had a compelling reason for doing so. However, just as technology changes over time for the better, so should your processes. Likewise, as your processes change, so should your measures.
  3. Change is costly.
    Finally, many companies resist changing performance measures simply because of the perceived cost associated with doing so. This is true. Yes, while it certainly costs time and money to adopt lean performance measures, the return on investment is huge. Think of lean performance measures as the seeds of lean transformation. Fertile soil and seeds are future growth. Take away the seeds and all you have is dirt.

Selecting Lean Performance Measures

There are few points to keep in mind when selecting lean measures. First, they should always support the organizational strategy. Secondly, they should be universally easy to understand That is, your measures should not be complex, multi-faceted indexes and should primarily not be financial in nature.

It may seem obvious, but performance measures should always influence performance. Thus, they should encourage the right behavior. That said, it’s vital to understand that good lean performance measures don’t measure people. Instead, they measure processes.

Another point that may seem obvious, is that good performance measures should compare goals to results. Good measures should also facilitate visual management, and clearly illustrate trends over time. Measures should also be calculated and distributed on a timely basis such as hourly, daily, or weekly. Finally, you should not have too many performance measures. You don’t want your team overwhelmed or distracted by a mountain of metrics.

In determining performance measures keep top of mind, how your organization will actually use, analyze, and apply the measures on a day-to-day basis. You should also consider the process related to gathering data, calculating, and reporting measurements, and who will be responsible for these different activities.

Technical, Behavioral and Cultural Attributes

A good way to gauge if you have suitable measures at both the value stream and cell level is to consider the technical, behavioral, and cultural attributes of your performance measures.

A measures’ technical attributes evaluate a process and aid in decision making aimed at improving the process.

Behavioral attributes are measurement attributes that encourage employees to behave a
specific way.

Lastly, cultural attributes reflect and encourage an organization’s mindset and values.

Key Lean Performance Measure Questions

Determining which performance measures to use can seem daunting and overwhelming, which is another common reason why many organizations delay adopting them. Unfortunately, performance measures aren’t one-size-fits-all. That said, the table below summarizes a few key points to keep top of mind when selecting your own organization’s lean performance measures.
Decision
  • What is the specific decision?
  • Who in the organization is involved in or affected by the decision?
  • What data is needed to make the decision?
Measurement
  • Where is the data for the measurement located?
  • How will the measure be calculated?
  • Who will calculate and report the measure?
  • How often will the measure be reported?
Review
  • How timely must the measure be?
  • In what format will the measure be reported? (e.g. group meeting, KPI board, etc.)
  • How will countermeasures be tracked and reported?

In conclusion, don’t make the fatal mistake of neglecting the impact that adopting the right lean performance measures has on lean manufacturing success. Remember that not all performance measures are created equal. That said, don’t allow your team to simply not adopt better measures for your lean journey simply because change is uncomfortable. Review this guide and start small with an eye on continuous improvement.