Measuring Lean Success
As questions about lean go, how to measure the success of a lean program or 'how lean' is an organisation seems to be getting an increasing amount of air time in meetings, in part, it's about how do we know where we are in the journey, but it's also around return on investment. The board, for example, wants to know what they are actually getting for the money they are investing in any program. If there are external grants involved, they want to be able to prove that there has been a demonstrable improvement made by the lean program, so how do you measure that!
A Multitude of Measures
There are as many metrics around as there are hot dinners to be fair, and these also vary depending on what your organisation does and of course if you are a service organisation vs a manufacturing organisation. Some companies have embraced balanced score cards as part of their processes and measure a bunch of things, award points and track that, others do surveys, some measure cash flow or profitability. All of these things are of course valid to one level of another, there are some that are perhaps no valid though.
Sales volume for example or increase in sales I'd argue shouldn't be used, ever. My rational for that is that you can increase sales (depending on your market) at any point in time, just drop your sale price and it'll increase, add a bunch of money to the marketing budget and it'll increase (if your marketing is good). There is even the fact that in some financial systems the system it claims a sale when the product is moved to finished goods inventory, that's not a sale, it's only a sale if someone picks it off the shelf and goes home with it parting with their hard earned cash, putting it into your finished goods inventory is just increasing your liability and reducing your cashflow plus it's not that lean to build stuff you can't sell.
There is of course employee engagement measurements, these are important, but you can get really high engagement numbers and still b really inefficient so be careful with this measure and consider it as part of a group of measures.
My Favorite Indicator Measures
In addition to quality, I have two favourite measures, they come out of the same data, so they are easy to get. One is the Throughput Measure and the other is a Value Add Ratio. What I like about these measures is that its organisationally agnostic. You can apply it to a service organisation just as well as a manufacturing organisation and the way you calculate them is the same. By trending these measures over time, you can see the direct improvement of your lean program in real time. The best bit about these measures is that you are already gathering the data in your systems so at most you'll just need a couple of more reports created that you can use.
The Throughput Measure (Velocity)
When we are talking about throughput what we are really talking about is velocity, the speed that anything moves through your system. The leaner the organisation the faster something should move through the system. Think about it, you have spent time working on your changeovers to make them faster, you have reduced your batch sizes, fixed your quality defects, in fact you have worked through all the waste in your system resulting in things moving faster, you have increased the flow, it's got faster, that's velocity.
Again, there is a whole range of ways to measure throughput but I like to keep it simple, really really simple!
You can measure it in hours or minutes or even seconds depending on the speed things move at. Now the debate is often had of what the start date and time is and what the end date is. End date is easy, it's the date it leaves your manufacturing operation, or the service is finished, so for the time being doing count time it sits on your shelf in finished goods, we'll tackle that another way. The start date and time however is a great debate and one that you absolutely need to have internally.
For some the start is when the order is received from the customer, for others its when it's released to the product floor or the service dept picks it up to start work. Both are valid and I would measure both, you see by making sure you capture each of these stat dates you can get the velocity in each dept and the organisation as a whole. You can see where the bottlenecks are, there is no benefit optimising the manufacturing organisation to be able to product the part in 2hrs if it takes 3 weeks to get out of the planning process.
The Value Add Ratio
The other part of this magnificent combo is the Value-Add Ratio. This is the amount of time you actually spend transforming the into something that your customer would eb willing to pay for, so shouldn't include any rework or waiting time in it since this is non value add. Again, this is normally a pretty easy thing to calculate, in manufacturing companies you will be capturing machine or people time since you will probably be using this to come compare planned Vs Actual time in your production (if you aren't measuring this get started!). You need to use your actual times, the times that the product really took to make. Here's an example
|||Initial Process||Improved Process|
|Start||1/06/2019 08:52||1/07/2019 09:17|
|Finish||14/06/2019 14:32||3/07/2019 11:12|
|Value Adding Time (hrs)||3.24||3.24|
|Value Adding Ratio||1.0%||6.5%|
Charting these measures over time will give you something like these charts below which really tell a great story.
A word of caution, however, ignore the quality measure at your peril. You can easily improve your velocity by automation alone and have zero impact on quality, changes to your value adding time also can mask poor quality so again you need that 3rd measure of quality at all times.
Measuring your lean activity and the improvements it yields is really important and there are countless ways you can do it that would make sense for your organisation. Using the trifecta of quality, velocity and Value Add Ratio gives you a pretty good picture of how the waste elimination activities are going in an easy to measure and report set up that you can talk with your teams about and quickly see the outputs.
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