Key Performance Indicators (KPIs), if chosen correctly, help conveniently reflect the accurate picture of a firm’s health. They communicate the status of actual vs. target at the plant level, business level, and even workstation level. These KPIs also help prioritise improvement activity by driving them with facts.
However, does that mean, everything measurable is a KPI? Is every statistic generated on the floor a KPI?
To resolve the conundrum, consider the following situation. An easily collected metric for a shirt production line is the hourly line output. However, that does not provide the most useful process management information – number of shirts that meet specifications. The true KPI is the throughput of acceptable garments which can be derived by ascertaining hourly output and DHU. When combined they give the critical information, the rate of producing defect-free shirts – a metrics which drives greater value through the system than the two original metrics individually.
Thus, the Management must identify and assemble operational data and the causal relationships that link operational metrics to business goals. Typically, a KPI is a metric that canbe used to gauge manufacturing business performance and judge success or failure.
- KPIs can basically be used to ascertain the performance of variables such as Quality Performance, Cost Performance, Delivery Performance, and People Performance.
Creating and Managing KPIs
Developing KPIs is a continuous improvement cycle and thus follows a Plan-Do- Check-Act cycle pattern. However, before any process is commenced, the customers and suppliers for every process in the value chain should be determined. Under the Plan part, the first and most crucial step is determining performance drivers. This involves understanding if the lines are fully manned, if overtime is under control, or if the target minutes to complete operations are being met or not. Thereafter Local Performance Indicators (department-wise) should be formulated and teams to look after them are formed.
Subsequently the ‘Do’ phase kicks in and these locally identified KPIs are scored and prioritized. This is the part where owners and users of a particular set of data for the aforementioned KPIs are identified. This is also the time to usher in a review of the process. As per the findings of the review, the users of the data must be re-trained to meet the objectives to run the process and collect data. Once collected, this information collected will help translate KPIs into manufacturing analytics.
This gives way to the Act phase and an improvement plan must be created as per the findings and gaps between the actual vs. target. This could require realigning the processes to meet the targets through work study, 5S, industrial engineering or other such tools. This could also mean resetting the frontiers for the target. Improvement teams must monitor take Corrective Action accordingly.
The improvement continues in this cycle…
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