Best practice report: Lean Thinking

May 26, 2014 by BPIR.com Limited

Measure and Evaluate

The following provide some simple ideas on how the effectiveness of lean initiatives may be measured and evaluated. These—and many other measures—can be found on the BPIR.com website.

Manufacturing

Lead Time, i.e. the time from order to delivery, or the time from the introduction of raw material to the finished product, or delivery lead time (i.e. packaging time plus storage time plus transport time).

Cycle Time – Manufacturing, i.e. the time taken to manufacture a product through to completion. This measures the length of time from the start of production for a product to the completion of all manufacturing, assembly, and testing.

Takt Time, i.e. the working time available divided by production   demand capacity.   This   German term refers to a measure of the pace of production, or the planned time between completions of units in a production system. Many organisations with just- in-time or continuous-flow manufacturing systems use this measure in process planning analyses.

Inventory

Inventory – Work-in-Progress (WIP) Turns, i.e. the annual cost of goods sold divided by average on-hand WIP. This is a measure of the speed at which WIP moves through a plant.

Material and Parts Availability, Stock Outs, Inventory Service Level, i.e.  the percentage of occasions purchased materials or parts are available when required, or the percentage of occasions manufactured materials or parts are available when required, or the average number of stock outs per period, or the average elapsed time between stock outs, or the percentage of occasions that the demand for materials, parts, finished products etc. can be supplied from available inventory. These are measures of the availability of materials, parts and components used to produce finished products.

Inventory – Total Turn Rate, i.e.  the number  of inventory turns per year. This measure provides an indication of how many times the total volume or value of stock normally carried at any one time is used over a 12-month period. For example, if an organisation holds $10,000 worth of stock, and over a year uses $40,000 of stock, this would indicate a turn rate of 4.0.

Inventory Turnover – Cost, i.e. the cost of goods sold as a percentage of the total inventory value. This measure provides an indication of the total value of stock used over a period. This could be used, for instance, when considering expansion, the introduction of new product lines, or new types of supplier relationships.

Inventory – Level Variance, i.e. the difference between the highest and lowest level of stock retained over a set period. Taken regularly this measurement provides an indication of stock variation and usage.

Total Productivity Maintenance

Overall Equipment Effectiveness (OEE) = Availability x Performance x Quality. OEE is a measure of output that takes (1) process availability, (2) process performance and (3) process quality into account. OEE is a more rounded measure of equipment effectiveness compared to each individual measure taken on its own.

An example of an OEE calculation:

  • Availability, 100% minus the following:
    • all losses of stoppages, measured in time, due to equipment failures
    • losses in time due to start-ups after shifts, breaks, lunch, and weekends
    • losses in time due to process set-ups and adjustments
  • Performance, 100% minus the following:
    • losses in time due to minor stoppages
    • losses in time due to speed (actual vs. design speed)
  • Quality, 100% minus the following:
    • losses due to defects and rework.

Thus, if availability = 95%, performance = 97% and quality = 98% then OEE = .95 x .97 x .98 = 90.3%.

Customer Service

Customer Involvement, i.e. the degree of customer involvement in product development. (Scales could include the number of times customers are asked for feedback or the average number of hours of customer contact in this process). This measure indicates the extent to which customer needs are integrated into the product development process.

Cycle Time – Service (Request), i.e. the time taken from a customer call or request for service repairs to the system or product being back up and running. This is a measure of customer down time, a key indicator of service quality.

Cycle Time – Order Processing, i.e. the time taken from receiving an order to the order being referred for scheduling or to suppliers. This measure provides an input to the analysis of efficiencies in the related department.

Cycle Time – Order Assembly, i.e. the time taken to assemble finished products in a satisfactory condition in readiness for delivery. This measure provides an input to the analysis of efficiencies in the related department.

Cycle Time – Warranty Repair, i.e. the time taken for warranty repair work to be completed. (This measure could, if appropriate, include re-delivery of goods once repaired.) Measurement of time against quoted warranty repair times tracks the efficiency of the repair process and customer satisfaction.

Cycle Time – Delivery, i.e. the time taken to deliver the order from an assembly or distribution area to the customer. This measure is a component of total time from order to delivery (see “lead time”). For the measure to have meaning on its own, it may need to be applied to a set of repeat customers over a standard route or method of delivery.

Waste

Supplier/Contractor Waste Recycling Rate, i.e. the percentage of raw materials supplied with recycled content per year or the amount and type of waste generated by suppliers during the previous period or the number of waste minimisation initiatives implemented by—or in cooperation with—suppliers per year during the previous period. This measure tracks the progress of suppliers or supplier-related initiatives in reducing waste or supplying more environmentally friendly products, materials or services.

Waste Reduction, i.e. the percentage of total waste (in tonnes) reduction per unit of production during the previous period, or the level of waste stream reductions in production processes per quarter or year during the previous period.

Waste Streams, i.e. the number of waste streams. This measure is useful in the analysis of organisational waste. Before a policy to reduce overall waste can be effective, all waste streams need to be identified.

Quality

Product Quality – First Pass Ratio, i.e. the percentage of the product passing all quality requirements without rework. With a high first pass ratio, costly rework is reduced; this allows production staff to focus on generating the product, not fixing it or finding the cause of imperfections. Organisations with a high first pass ratio often have relatively lower overheads, since they can generate more products out of the same equipment before shifting to a new manufacturing set up.

Cost of Quality – Internal Labour Costs, i.e. the percentage of direct labour spent on internal failure issues, or the percentage of quality staff direct labour spent on internal failure issues, or the percentage of non-quality staff direct labour spent on internal failure issues. This is a measure that provides a quantitative indication of the impact of internal quality failures on direct labour.

Product Quality – Perceived, i.e.  the quantification of survey results. This is a measure of customer perception of the quality of the product or service.

Product/Service Quality, i.e. the number of orders not meeting agreed product or service specification as a percentage of the total number of orders. This measure indicates the effectiveness of the quality system.

Safety

Safety Incidents, i.e. the number of safety incidents and accidents in a given period or employee days lost due to safety incidents in a given period or the number of fatalities in a given period.

Number of Logged Occupational Health and Safety Incidents, i.e. injuries requiring prescription drugs, stitches, light duty or lost time per period.

Incident Rate, the number of logged occupational health and safety incidents divided by the number of hours worked.

Lost Day Rate, i.e. the number of lost workdays divided by the number of hours worked.

Compensation Cost per Employee, i.e. the annual cost of compensation premiums divided by the number of employees or the number of units.

Employee Experience, i.e. the average employee time on the job by role.

People Productivity

Sales  per  Employee,  i.e.  cash value  of  sales (annualised) per employee.

Asset Productivity, i.e. units produced versus the net book value of property, plant and equipment plus inventory.

Turnover Rate, i.e. the number of terminations divided by the average employment during the period.

Unplanned Absenteeism Rate, i.e. the number of employees absent that were not pre-approved divided by the total number of employees.

Employee Satisfaction, i.e. qualitative or quantitative results from staff surveys.

Lean Deployment Metrics

Lean Events Conducted, i.e. the number of lean events conducted   (e.g. value   stream   mapping events or Kaizen events). Some organisations only count implementation-oriented events (e.g., Kaizen events).

Lean Event Participation, i.e. the number of employees who have participated in lean events.

Lean Training, i.e. the number of employees who have undergone formal lean and/or Six Sigma training.

Time Metrics

Lead Time  or Elapsed Time,  i.e.  the total time (from start to finish, from the customer’s perspective, including waiting time) to develop a product or deliver a service to a customer.

Processing Time, i.e. the time taken to complete a process or process step, excluding wait time. (Lead time > total processing time > value-added time.)

Value-Added Time, i.e. processing time that adds value from a customer’s perspective, e.g. information and materials are transformed into the products or services a customer needs.

Percentage On-Time Delivery, i.e. the percentage of times the product/service is delivered on time, from the customer’s perspective.

Activity Ratio (or Process Efficiency), i.e. processing time divided by lead time, expressed as a percentage.

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