1. Manufacturing Metrics
Balanced Scorecard
MESA Empirical Study

2. Metrics Matter You can’t improve what you can’t measure.
You can’t measure what you can’t see.
- Dr. W. Edwards Deming

3. 4/13/2017
Metric
A metric is a verifiable measure stated in either quantitative or qualitative terms.
“97 percent inventory accuracy”
“According to our customer evaluations, we are providing above-average service”

4. Metric A metric is a verifiable measure that
4/13/2017
Metric
A metric is a verifiable measure that
captures performance in terms of how something is being done relative to a standard,
allows and encourages comparison,
supports business strategy.

5. Customer quality measures
4/13/2017
Customer quality measures
Customers typically relate quality to:
Feature based measures; “have” or “have not” - determined by design
Performance measures - “range of values” - conformance to design or ideal value

6. True vs. Substitute performance measures
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True vs. Substitute performance measures
Customers - use “true” performance measures.
example: a true measure of a car door may be “easy to close”.
true performance measures typically vary by each individual customer.
Unfortunately, producers cannot measure performance as each individual customer does.
Producers - use “substitute” performance measures
these measures are quantifiable (measurable units).
Substitute measure for a car door: door closing effort (foot-pounds).
Other example: light bulb
true performance measure -- brightens the room
substitute performance measure – wattage or lumens

7. 4/13/2017
Educating Consumers
Sometimes, producers educate consumers on their substitute performance measures.
What are substitute performance measures for the following customer desires:
Good Gas Mileage
Powerful Computer
What is the effect of educating consumers on performance measures?

8. 4/13/2017
What is a “metric”?
Another term for a substitute performance measure is a metric.
Metric is a standard of measurement.
In quality management, we use metrics to translate customer needs into producer performance measures.
Internal quality metrics
scrap and rework
process capability (Cp or Cpk)
first time through quality (FTTQ)

9. Identifying effective metrics
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Identifying effective metrics
Effective metrics satisfy the following conditions:
performance is clearly defined in a measurable entity (quantifiable).
a capable system exists to measure the entity (e.g., a gage).
Effective metrics allow for actionable responses if the performance is unacceptable.
There is little value in a metric which identifies nonperformance if nothing can or will be done to remedy it.
Example: Is net sales a good metric to measure the performance of a manufacturing department?

10. Use of quality metrics Quality metric data may be used to:
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Use of quality metrics
Quality metric data may be used to:
spot trends in performance.
compare alternatives.
predict performance.
However, organizations should consider the costs and benefits of collecting information for a particular quality metric.
collecting data will not necessarily result in higher performance levels.
higher quality companies often use fewer metrics than their competitors.

11. 4/13/2017
Acceptable ranges
In practice, identifying effective metrics is often difficult.
Main reason: non-performance of a metric does not always lead to customer dissatisfaction.
Consider the car door example again, if door closing effort is the metric, will a customer be dissatisfied if the actual effort is 50 foot-pounds versus 55 foot-pounds.
Producers typically identify ranges of acceptable performance for a metric.
(a) For services, ranges often referred to as break points.
(b) In manufacturing, these ranges are known as targets, tolerances, or specifications.

12. 4/13/2017
Break points
Break points are levels where improved performance will likely change customer behavior.
Example: waiting in line
Suppose the average customer will only wait for 5 minutes
Wait longer than 5 minutes -- customer is dissatisfied.
1-5 minutes -- customer is satisfied.
less than 1 minute -- customer is extremely satisfied
Should a company try to reduce average wait time from 4 to 2 minutes.?

13. Targets, tolerances and specifications
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Targets, tolerances and specifications
Target (nominal) - desired value of a characteristic.
A tolerance specifies an allowable deviation from a target value where a characteristic is still acceptable.
Lower specification
limit (LSL)
Upper specification
limit (USL)
TARGET -1 +1

14. Balanced ScoreCard A Balanced ScoreCard is both a Tool and a Process:
The Tool: Your ScoreCard reports all key drivers of your strategic success. It lets you know if performance in each critical area is at the level you expect, and shows you trends for each major business driver.
The Process: For the Executive Team, the ScoreCard is the centerpiece of your month-end review process. It is also used with your extended management team, employees, and Board to educate them on key performance issues.

15. BayMed (fictitious) Balanced ScoreCard
Financial
Market/Customers
Operational Excellence
People & Culture
Source: Michael Selby: ScoreCard Partners

16. BayMed Balanced ScoreCard
Financial
Market/Customers
The Dashboard divides into 4 quadrants, or “perspectives”. The Financial perspective reports Revenues, Gross Margins, EBITDA, Operating Expense, Net Operating Income, Free Cash Flow, and any other Financial Data you choose.
Operational Excellence
People & Culture

19. BayMed Balanced ScoreCard
Financial
Market/Customers
The “Market/Customers” perspective reports repeat business with existing customers, new customers, new business partners, how recent releases are performing, customer complaints and customer satisfaction.
Operational Excellence
People & Culture

24. BayMed Balanced ScoreCard
Financial
Market/Customers
Operational Excellence
“Operational Excellence” reports the core competencies which you have to execute well to win customer loyalty. Core Competencies vary by company and industry. “BayMed” tracks sales execution, marketing effectiveness, product development speed, manufacturing and customer support excellence.
People & Culture

27. In Engineering, it’s all about meeting our milestones on major products in development. This chart shows recent and upcoming milestones, where we stand now vs. 1 mo. ago, and days early/late for each milestone.

28. This slide looks at order fulfillment timeliness: do we meet our delivery commitments? We track both Product Orders as well as Service Contract milestones.

29. This slide looks at Inventory Turn rates in each of our three “value-add” levels.

30. This manufacturing slide looks at the cost of poor quality in Total, and by each of 5 key drivers. Note that quality cost is expressed as a % of COGS – we want NOT to exceed 10%. Note the problem areas of Sustaining Engineering and Inventory Accuracy.

31. resolve the customer’s issue on their first call
resolve the customer’s issue on their first call. We also measure answering speed, abandonment rate and average talk times

32. BayMed Balanced ScoreCard
Financial
Market/Customers
Operational Excellence
People & Culture
“People & Culture” looks at the workforce, reporting workforce growth, internal mobility and competency development, strategically vital employees, hiring quality, and employee engagement.

38. BayMed Balanced ScoreCard
Financial
Market/Customers
Operational Excellence
People & Culture

39. Metrics that Matter: Empirical Study
Study Background
Metrics Matter to Performance
Fast, Effective Metrics
Manufacturing Enterprise Solutions Use
Metrics Framework Success

40. Industry Council MESA Guided Project
Scott Daugherty, Plant Manager, Cormetech Inc.
John Plassenthal, Project Manager, Strategic Integration, Enterprise Applications IT, International Truck and Engine
John Moore, Quality Program Manager, KLA Tencor
Neil Crew, Group IT Director, Princes Limited
Brian Leinbach, MES Deployment Team Lead, Wyeth Pharmaceuticals

41. Response Demographics
On-line: 135 different manufacturers
Representing 20 industries
Range of Products Counts & Mix in plants
Nearly evenly divided by size:
over $2B, $500M-$2B, under $500M
Telephone: 16 “Industry Leaders”

42. Every Production Type
Source: MESA Metrics that Matter: Uncovering KPIs that Justify Operational Improvements

43. Three Major Respondent Groups by Role
Source: MESA Metrics that Matter: Uncovering KPIs that Justify Operational Improvements

44. Metrics Justify Improvement
Industry struggles with the financial hurdles
Disconnect between operations, IT and finance
Bridging gap justifies projects

45. Common Business & Financial Metrics
Net Operating Profit (78%)
EBITDA (71%)
Labor cost per unit (68%)
Customer Fill Rate / On-time Delivery (64%)
ROA / RONA (62%)
Economic Value / Economic Profit (60%)
Market Share (54%)
Top Productivity Metrics
Revenue per employee
Revenue per square foot
Cash-to-cash cycle time
Study also asked about productivity by 3 perspectives – revenue & value added per employee and revenue per square foot and also about cash-to-cash cycle time. For 11 metrics total
EBITDA: Earnings before interest, taxes, depreciation, and amortization
Source: MESA Metrics that Matter: Uncovering KPIs that Justify Operational Improvements

46. Business Movers: Operations Improvement to Financial Metrics
This is what the business and finance folks know they want – to be in that Business Movers group and improve against key business and financial metrics.
Source: MESA Metrics that Matter: Uncovering KPIs that Justify Operational Improvements

47. Business Movers Improved Operations Areas Also
It’s doubtful that this is a coincidence.
We did a similar split of those who improved against the 19 operations KPIs and found that over 80% of the Business Movers were also in this group.
Source: MESA Metrics that Matter: Uncovering KPIs that Justify Operational Improvements

48. Some Operations KPIs Are Common Across Segments
the other 8 metrics included in the survey are:
Scrap/rework as % of sales
OEE
CpK – process capability
Warranty costs
Toxic waste reductions
Percentage planned vs. emergency maintenance work
Energy consumption per unit of production
Upside production flexibility – on the primary constraint
Source: MESA Metrics that Matter: Uncovering KPIs that Justify Operational Improvements

49. Business Movers: More Effective Links Between Business & Ops Metrics
Source: MESA Metrics that Matter: Uncovering KPIs that Justify Operational Improvements

50. 24 Hours or Faster Feedback to Operators So They Can Take Action
Source: MESA Metrics that Matter: Uncovering KPIs that Justify Operational Improvements

51. Latency between Business Metrics and Operations that Cause Them
Source: MESA Metrics that Matter: Uncovering KPIs that Justify Operational Improvements

52. Most Common Applications in Investment Plans for Next 12 Months
Source: MESA Metrics that Matter: Uncovering KPIs that Justify Operational Improvements

53. Gaining Benefits from Manufacturing Software
Source: MESA Metrics that Matter: Uncovering KPIs that Justify Operational Improvements

54. Those with MES & Dashboards Perform Better
Teal bars are those who use MES (darker) and dashboards (lighter) while gold are those who do not.
Source: MESA Metrics that Matter: Uncovering KPIs that Justify Operational Improvements

55. MESA Metrics Framework
Source: Metrics that Matter Guidebook & Framework

56. Graphical Representation of Metrics Framework
Corporate Strategy: Increase Brand Margin & Value
Net margin per brand
Financial Metrics
# of Profitable Brand
Extensions
Reduce
Stock-outs
Lower
Production
Costs
Operational
Metrics
Plant
Metrics
Changeover
Speed
NPI Ramp-up Time
Upside
Production
Flexibility
Planned vs. Emergency Maintenance
First Pass Yield
Energy Consumption
Per Unit
OEE
Source: Metrics that Matter Guidebook & Framework

57. References Charlie Gifford, Lean Production, MESA International.
Michael Selby, Scorecard Partners.
Kaplan &Norton: The Balanced Scorecard.