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Transcript of Lean Mesurement Book
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L E A N
E N T E R P R I S E
Participant WorkbookL E 2 0 8
Performance Measurementfor the Lean Enterprise
v1.0
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L E A N
E N T E R P R I S E
Participant WorkbookL E 2 0 8
Performance Measurementfor the Lean Enterprise
v1.0
This copyrighted course was developed by BMA Inc. in collaboration with
NIST/MEP and is the preferred Performance Measurement training for all
360vu clients and is offered exclusively through certified 360vu providers.
360vu is a registered service mark carried by certified providers of 360vu
services.
To contact a certified provider of 360vu services, dial 866.GO.360vu or visitour website at 360vu.com.
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How this workshop fits into the big picture.
This workshop is one piece of an integrated suite of 360vu toolsand services created exclusively for small manufacturers by360vu.
The concepts and practices taught in this 360vu workshop arepowerful and proven. They've helped companies like yourssignificantly improve their operations from shop floor to frontoffice.
However, 360vu is more than the ideas presented in thisworkshop. It is a strategic approach to business that helps smalland mid-sized manufacturers really start looking at their wholecompany-where they want to be and how they can get there.
At the core of 360vu is the professional business advisor. Thismanufacturing and business expert will guide you through aseries of steps, the 360vu Business Approach, developed tohelp you systematically tackle the right projects, in the rightorder, at the right time.
All 360vu resources-people, tools and workshops like this one-are pulled into this process as needed to help you focus onimproving and integrating the systems that drive your business,all within the context of where you want to go.
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Contents
Welcome and Introductions.... page 3
The Purpose of Performance Measurement page 5
Performance Measurement and Lean Manufacturing page 7
The Starter Set... page 31Corporate/Strategic page 36Value Stream.. page 46Cell Measures. page 65
Developing Performance Linkages page 84
Implementation.. page 103
Summary and Evaluation. page 124
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L E A N
E N T E R P R I S E
Participant WorkbookL E 2 0 8
Performance Measurementfor the Lean Enterprise
v1.0
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L E A N
E N T E R P R I S E
Performance Measurement for theLean Enterprise
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Not everything that can be countedcounts, and not everything thatcounts can be counted
Albert Einstein
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Course Agenda
Welcome and Introductions
The Purpose of Performance MeasurementPerformance Measurement and Lean Manufacturing
The Starter Set
Corporate / Strategic
Value Stream
Cell Measures
Developing Performance Linkages
Implementation
Summary and Evaluation
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What You Should Be Able To DoAfter This Class Understand and explain how traditional performance
measurements conflict with lean performance
Understand barriers to adopting performance measurements andhow to begin to overcome them.
Understand and implement the starter setof performancemeasurements at the Corporate level, the Value Stream level, andin Production Cell to motivate lean behaviors.
Develop a clear linkage from your companys business strategy to
performance measurements used in the value stream and inproduction cells.
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Course Agenda
Welcome and Introductions
The Purpose of Performance MeasurementPerformance Measurement and Lean Manufacturing
The Starter Set
Corporate / Strategic
Value Stream
Cell
Developing Performance Linkages
Implementation
Summary and Evaluation
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Why Are the Right PerformanceMeasurements Important?
What you measure is what you get.
Measurements drive peoples behavior. People need rapid and relevant feedback.
Measurements indicate progress towards planned goals.
When you can measure what you are speaking about, and express it innumbers, you know something about it. But when you can not measure it,when you can not express it in numbers, your knowledge is of a meagerand unsatisfactory kind...
Lord Kelvin (1824-1907)
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Course Agenda
Welcome and Introductions
The Purpose of Performance MeasurementPerformance Measurement and Lean Manufacturing
The Starter Set
Corporate / Strategic
Value Stream
Cell
Developing Performance Linkages
Implementation
Summary and Evaluation
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Defining Lean
A systematic approach to identifying and eliminating waste (non-
value-added activities) through continuous improvement by
flowing the product at the pull of the customer in pursuit of
perfection.
The MEP Lean Network
Lean is:
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Definition Of Value-Added
Value-Added
Any activity that increases the market form or function of theproduct or service. (These are things the customer is willing topay for.)
Non-Value-Added
Any activity that does not add market form or function or is notnecessary. (These activities should be eliminated, simplified,
reduced, or integrated.)
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Lean = Eliminating Waste
Non-Value-Added
Defects Overproduction Waiting Not Utilizing Employees knowledge,
skills and abilities
Transportation Inventory Motion Excess Processing
Typically 95% of all lead time is non-value-added.
Value-Added
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Lean Building Blocks
ValueStreamMapping
Continuous Improvement
Performance Measurement
Performance Management
Quick Changeover
Standardized Work Batch Reduction Teams
Quality at Source
5S System Visual Plant Layout
POUS
Cellular/FlowPull/Kanban TPM
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Shadows of the Neanderthal
Read or listen to the story Shadows of theNeanderthal:
- What are the main points of the story?
- What are examples of the two towerproblem fromcurrent events, or from family life?
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Two Views of the Same Reality
Your world view depends upon where you are looking from your perception.
Two groups can have a quite different perception of the samesituation according to their viewpoints and their assumptions.
These perceptions can become deeply held beliefs.
Our beliefs constitute mental models about how the worldworks.
People work to preserve their mental models even when theyacknowledge their inadequacy.
These mental models often lead to conflict between twogroups even when they have similar ultimate objectives.
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Lean Represents a New Mental Model forPerformance Measurement
SHIFT
Traditional Lean
Focus onLowestProduct
Cost
Focus onMaximizing
Value StreamProfitability
The Dimensions and Implications of this Shift are Presentedin the Following Slides
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Compare the Differences
ASSUMPTION: Profit comes from full utilization of resources
Traditional Measurements
MEASUREMENT: Labor efficiency & machine utilization
BEHAVIOR: Make more product
WHAT IS IMPORTANT: Full utilization of resources
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Compare the Differences
ASSUMPTION: Profit comes from maximizing flow based oncustomer pull.
Lean Thinking
MEASUREMENT: Throughput
BEHAVIOR: Eliminate barriers to flow
WHAT IS IMPORTANT: Flow according to customer pull
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Comparing Assumptions
Profit comes from fullutilization of resources
Direct labor is the mostimportant conversion cost
Control the business thrudetailed tracking
All excess capacity is bad
Traditional Assumptions
Profit comes from maximizingflow on pull from customers.
Waste = resources impeding theflow
Control thru continuous attentionto flow & waste
Excess capacity providesflexibility
Lean Assumptions
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Increased Sales Revenue
Value to the customer
Value streams
Flow & pull from the customers
Team structure and individualempowerment, accountability
System quality
Pursuit of perfection
Full utilization of resources
Cost per Part
Overhead absorption
Batch and Queue
Inventory valuation
Departmental structure andindividual efficiency
Product quality Pursuit of budget
Comparing What Is Important
Traditional Thinking Lean Thinking
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Labor efficiency &machine utilization
Cost variances vs.standard
Budget adherence
Direct labor as % ofsales
Cycle time
Throughput
First time quality
Inventory Turns
Delivery to customer
Value stream focus
Comparing Measurements
Traditional Measurements Lean Measurements
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Make more product
Utilize resources to themax
Optimize dept.efficiencies
Track direct labor indetail
Allocate other costs
Eliminate barriers to flow
Focus on value streamsrather than departments
Continuous improvementand team-work
Eliminate waste,inventory, and over-production
Comparing Behaviors
Traditional Behaviors Lean Behaviors
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Dynamics of Lean Implementation
Improvement Results:
Short cycle times
Lower inventories
Higher quality
On-time delivery
Less machine downtime
Simpler planning &scheduling
ImprovedResults
ImprovementEfforts
Commitment
to Lean
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Dynamics of Standard Cost Accounting
Unfavorable Variances:
Volume variances
Labor utilizationvariances
Machine utilizationvariances
Overhead absorptionvariances
ExcessCapacity
Less PartsProduced
Less DirectLabor Hours
UnfavorableVariances
Pressure toProduce
More Parts
LeanImprovement
Results
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The Two Views Work Against Each Other
Excess
Capacity
Less PartsProduced
Less DirectLabor Hours
UnfavorableVariances
Pressure toProduce
More Parts
ImprovedResults
ImprovementEfforts
Commitmentto Lean
Initially.
Overheadburdens per unitgo up
Variances gounfavorable
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Lean Has Produced Very PositiveResults
Lead times reduced from 20 days to 5 days
Inventory turns increased from 10 turns to 50
Cash flow has doubled
On-time delivery increased from 80% to 99%
These Results Should Lead to ImprovedProfitability
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But The Costing System Has MaskedThe Profit Improvement
Significant inventory reduction has a short-termnegative impact on profitability.
Acme Stamping Income StatementCurrent State
before Lean
Lean Future
State
Lean
Improvement
Revenue 216,200$ 216,200$ -$
Production Costs 121,043$ 119,000$ (2,043)$
Material Costs 71,944$ 71,944$ -$
One-Time Inventory
Reduction -$ 12,243$
Overhead Cost 20,000$ 20,000$ -$
Total Cost 212,987$ 223,187$ 10,200$
Gross Profit 3,213$ (6,987)$ (10,200)$
12,243
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Discussion
How do you propose to reconcile theseconflicting views?
What are some fundamental things that mustchange?
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The Solution
Develop a set of measurements throughout the organization
that thoroughly reflect the companys lean strategies andgoals.
Replace the traditional measurements with lean performancemeasurements that are designed to motivate and monitor leanbehavior.
Engage people to work to improve measurement results, sothat they will be actively contributing to company goals.
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The Measures Must AchieveEffective Control
SYSTEMGap
Input Output
MeasureGap between
Actual andexpected
Control Process
Cause/effectRapid feedback
SystemChanges
Goal
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They Must Measure Causal andPredictive Factors
Historical Predictive
Causal
Derived Traditional
Lean
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Effective Performance MeasurementMakes a Difference
Measure of SuccessPerformance Measurements
Agreement on Strategy 90% 47%
Communication of Strategy 60% 8%
Cooperation and teamwork 85% 38%
Adapted from: Ingle & Scheiman Is Measurement Worth It Management Review,Morgan & Scheiman, Measuring People & Performance Quality Progress
Measure of SuccessOrganization with Good
Performance Measurements
Organizations with Poor
Performance Measurements
Industry Leader over the Last 3Years
74% 44%
Three Year Return-on-Investment 60% 45%
Success in the last major changeeffort
97% 55%
Organizations with LeanPerformance Measurements
Organizations with TraditionalPerformance Measurements
Organizations with LeanPerformance Measurements
Organizations with TraditionalPerformance Measurements
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Course Agenda
Welcome and Introductions
The Purpose of Performance MeasurementPerformance Measurement and Lean Manufacturing
The Starter Set
Corporate / Strategic
Value Stream
Cell
Developing Performance Linkages
Implementation
Summary and Evaluation
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Strategic Goals and Key PerformanceIndicators
Grow Sales
Grow Earnings
Improve Cash Flow
Improve Customer Value
Improve Employee Satisfaction Employee Turnover
On-Time Delivery
Customer Satisfaction
Inventory Turns
EBITDA
Sales per Employee
Sales Growth
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The Starter SetPrimary Measures
Days of Inventory/WIP to SWIP
Overall EquipmentEffectiveness
First Pass Yield
Dock to dock/Order toDock
A/R Days Outstanding
Average Cost per UnitShipped
First pass Yield
Day-by-the-Hour Units per Person
On-Time Delivery
Value Stream Gross ProfitPercentage
CELL/PROCESSMEASURES
VALUE STREAMMEASURES
KEY PERFORMANCEINDICATORS
Sales Growth
Sales per Employee
On-Time Delivery
Customer Satisfaction
EBITDA
Inventory Turns
Employee Turnover
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Course Agenda
Welcome and Introductions
The Purpose of Performance MeasurementPerformance Measurement and Lean Manufacturing
The Starter Set
Corporate / Strategic
Value Stream
Cell
Developing Performance Linkages
Implementation
Summary and Evaluation
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Corporate MeasurementsKeyPerformance Indicators The corporate (strategy-level) measures give senior
management answers to basic questions as to how well thebusiness is achieving its goals with regard to:
- Financial results
- Business Growth/Diversification
- Operational improvement & Productivity
- Customer value
- Organization development
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KPI Starter Set Measure Monthly...
Sales GrowthEBITDA
Inventory TurnsSales per Employee
Customer SatisfactionOn-Time Delivery
Organizational
Capabilities
Employee Turnover
Customer ValuePerspective
Financial
Perspective/Business Growth
OperationsPerspective
OrganizationPerspective
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Sales Growth
Measures how fast the business as a whole is
growing from the previous period and over longerone and five-year periods
How to calculate:
- Level in Dollars
- % Growth/(Decline) from Prior Period
- % 1-Year Growth/(Decline) from previous 12-month period
-Average Annual 5-Year Compound Growth
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Earnings Before Interest, Taxes,Depreciation, & Amortization (EBITDA)
EBITDA measures cash flow from operations.
- Equals net income plus interest, taxes and non cash charges such adepreciation and amortization
Dimensions measured:
- Level in Dollars
- % Growth/(Decline) from Prior Period
- % 1-Year Growth/(Decline) from previous year
-Average Annual 5-Year Compound Growth
How to calculate:
*Any other significant non-cash and/or charges, such as write-off of investments, should be added back to income
Net
Income+
Interest
Expense
Amortization]
Expense
Provisions
For incomeTaxes
Depreciation
Expense++ +[
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Inventory Turns
Measures how effectively material flows through the
production process, the stability of the processes & visualsystems, and the lead time for the business.
Shows the total inventory including raw material (at point ofuse), work-in-process, and any completed items.
How to calculate:
- Inventory Turns =Total Inventory Dollars
Cost of Sales
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Sales per Employee
Measures productivity of the company.
Shows value created by the company.
How to calculate:
- Sales per Employee =
-A full-time equivalent employee equals the total hours worked by
full- and part-time workers (including overtime) divided by thenumber of available straight-time hours per employee during theperiod.
Total Sales - Discounts
Avg. Number of Full-Time EquivalentEmployees
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Key Customer Satisfaction by Product
Measured by an index which encompasses the factors that arevalued by key customers of the product.
Dimensions measured:
- Comparison with previous Period (Quarter)
- Comparison with previous year
How to calculate:
- Calculate the weighted average of the indices for the factorsdeemed important by customers (product functionality,product quality, service responsiveness, timeliness, etc.)
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On-Time Delivery
Measures the shipment of the right products in the right numbers
to the customer order.- Shows the effectiveness of the production process in making to
customer demand
Shows the percentage of the scheduled customer order volumesactually shipped on schedule.
How to calculate:
- On-Time Delivery =Orders Shipped on Time
Total Orders Shipped
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Employee Turnover
Measures the satisfaction of employees
Indicates the ability of the company to retain its employees
How to calculate:
- Employee Turnover =
-An Unwanted Departure occurs when a employee leavesthe company prior to the planned departure date
Employee Unwanted Departures
Total Employees
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Course Agenda
Welcome and Introductions
The Purpose of Performance MeasurementPerformance Measurement and Lean Manufacturing
The Starter Set
Corporate / Strategic
Value Stream
Cell
Developing Performance Linkages
Implementation
Summary and Evaluation
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Value Stream Starter Measurements
Support Measures
- OEE at the Constraint Cell
- Average Projects per Person
- Average Cross-Training per Person
- Number of Safety Incidents
Primary Measures
- Units per Person
- On-Time Delivery
- Dock-To-Dock Time
- First Pass Yield
- Average Cost per Unit Shipped
- Accounts Receivable DaysOutstanding
- Value Stream Gross ProfitPercentage
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Primary Value Stream Measurements
Establish value stream objectives and targets to link toattainment of strategic goals
Monitor attainment of value stream objectives
Identify constraints to value stream performance and directcontinuous improvement at the level of the cell to theirelimination.
Monitor the effectiveness of improvements in eliminatingconstraints to value stream performance.
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Linking Value Stream Goals toMeasurements
Accounts Receivable Days OutstandingCollect cash within30 days
First Pass Yield
Average Cost Per Unit ShippedValue Stream Gross Profit
Zero Defects/Zero Waste
Increase Value Stream Productivity
Dock-to-Dock TimeReduce order fulfillmentlead time to < 1 Day
On-Time DeliveryShip on time in the right
volumes 100% of the time
Units per PersonValue Stream Gross Profit
Increase throughputwith the same resources by 25 %
MEASUREMENTVALUE STREAM OBJECTIVE
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Value Stream Starter SetMeasure Weekly...
- Value Stream Gross Profit
- Average Cost per Unit Shipped- Accounts Receivable Days
Outstanding
- Units per Person
- Dock-to-Dock/Order-to-Dock Time
- First Pass Yield
- On-Time Delivery
- Value Stream Support Measures
FinancialPerspective
Customer ValuePerspective
OperationsPerspective
OrganizationPerspective
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Value Stream Gross Profit Percentage
Measures the profitability of the value stream during the period
Includes the sales value of all shipments from the value stream duringthe period
Includes all value stream costsproduction labor, production materials,production support, operation support, facilities and maintenance, allother value stream costs
Primarily cash based costing--charges costs directly from basicledgerspayroll, accounts payable, depreciation accrual
Limited allocations
How to calculate
Value Stream
Gross Profit %
(Value Stream Revenue Value Stream Costs) X 100
Value Stream Revenue=
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Average Cost per Unit Shipped
Measures the productivity of the value stream during the period.
Includes all value stream costsproduction labor, productionmaterials, production support, operation support, facilities andmaintenance, all other value stream costs
Primarily cash based costing--charges costs directly from basicledgerspayroll, accounts payable, depreciation accrual
Limited allocations
How to calculate:
-Avg. Cost per Unit
Total Value Stream Costs
Total Units Shipped=
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Accounts Receivable Days Outstanding
Measures the average time to collect cash after shipment
How to calculate:
- Calculate the average sales per day and divide it into theperiod-end accounts receivable balance
- AR Outstanding Days =
Average Sales per Day =
Accounts Receivable Balance
Average Sales Per Day
Average Months Sales
Working Days in Month
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Units per Person
Measures throughput and productivity of the value stream.
Shows value created by the value stream.
How to calculate:
- Units per Person =
- Include all full-time equivalent employees dedicated to the
value stream during the period, including first linemanagement.
Units Shipped by Value Stream
Avg. Number of Full-Time EquivalentDedicated Employees of The Value Stream
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Dock-To-Dock/Order-to-Dock Time
Dock-to-Dock Measures the flow of products from receipt of rawmaterials/customer orders to the shipment of finished goods.
Shows the speed of conversion of raw materials or customer orders tofinished product.
- Expressed in hours or days
How to calculate:
Dock-to-Dock Days =
Order-to-Dock Days = Dock-to-Dock Days + Order Processing Days
Units ofControl Partin the Plant
ManufacturedEnd
Products perweek
Days perWeek x
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18,400 pcs/mo
- 12,000 L
- 6400 R
Tray=20 pcs
2 Shifts
Customer
Staging
SHIPPING
2700L1440R
I1 PersonASSEMBLY#2
1200L640R
I1 PersonASSEMBLY#1
1600L850R
I1 PersonS.WELD#2
1100L600R
I1 PersonS.WELD #1
4600L2400L
I200 TonSTAMPING
Coils5 days
I
27,600 sec.avail2 Shifts
Uptime=100%C/O=0
C/T=40 seconds
EPE=2 weeks27,600 sec avail
Uptime=85%C/O= 1 hour
C/T=1 second
27,600 sec.avail2 Shifts
Uptime=100%C/O=0
C/T=62 seconds
27,600 sec.avail2 Shifts
Uptime=80%C/O=10 minutesC/T=46 seconds
27,600 sec.avail2 Shifts
Uptime=100%C/O=10 minutesC/T=39 seconds
Tues &
Thurs1 x
Daily
Michigan
Steel Co.
500 ft. coilsMRP
Production
Control
90/60/30 day
Forecasts
Daily Orders
6-Week
Forecast
Weekly Fax
Daily Ship
Schedule
5 Days
1 Second
7.6 Days
39 Seconds
1.8 Days
46 Seconds
2.7 Days
62 Seconds
2 Days
40 Seconds
4.5 Days
Dock-to-Dock Time
23.6 Days
Value-Added Time
188 Seconds
Weekly Schedule
Dock-To-Dock Time
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First Pass Yield
Measures percent of total units successfully manufacturedthrough the value stream on the first pass without being repaired,
reworked, re-tested or scrapped.
How to calculate:
- The First Pass Yield for the Value Stream is the product of theFirst Pass Yields at each Evaluation Point in the entire valuestream:
FPY at EvaluationPoint (EP)
=Total Units Processed-Not OKs
Total Units Processed
FPY for ValueStream
= FPY(EP1) x FPY(EP2) x FPY(EPn)
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On-Time Delivery
Measures the shipment of the right products in the right numbersto the customer order.
- Shows the effectiveness of the production process in making toschedule.
Shows the percentage of the scheduled customer order volumesactually shipped on schedule.
How to calculate:
- On-Time Delivery = Orders Shipped on Time
Total Orders Shipped
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Supporting Measurements
Identify the focus for improvement initiatives at the cell level.
Calibrate the progress of the value stream in developing aculture of continuous improvement.
Track progress in the ability to use resources flexibly.
Measure progress in creating a safe work environment.
- OEE at the Constraint Cell
-Average Projects per Person
-Average Cross-Training per Person
- Number of Safety Incidents
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Value Stream Level PerformanceManagement
Value StreamMeasurements
Identify PerformanceGaps
Targets
Establish RootCauses of Gaps
ImprovementProjects
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Value Stream Performance ManagementFramework
Cell
ValueStream
Attains Target Misses Target
Attains
Target
Misses
Target
RunningSmoothly
Align celland value
stream targets
Implement cell-levelimprovements that
remove constraints;then reset
targets
Identify constraintsto value stream
performance andrevise cell
targets to meet
value streamgoals
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Value Stream Measures FocusCell-Level Continuous Improvement ...
Value Stream Performance
Measure Resultsagainsttarget
Provide focus for use
of House of Leantools at cell level
Understandpatterns andtrends
Define the
causes ofthe trends
Gap
Cellinitiatives
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Lean Performance MeasurementExercise
To improve these measures Which Lean Tools are Needed where?
Units Shipped per Employeefrom 1,150 to 1,533
On-Time Deliver improvefrom 90-98%
Dock-to-Dock Time from 23.6Days to 4.5 days
First Pass Yield maintainand improve
Accounts Receivable days maintain 30 days
Reduce Average Cost per Unit
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Course Agenda
Welcome and Introductions
The Purpose of Performance MeasurementPerformance Measurement and Lean Manufacturing
The Starter Set
Corporate / Strategic
Value Stream
Cell
Developing Performance Linkages
Implementation
Summary and Evaluation
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Cell
A group of machines and/or workstations physically andgeographically linked, staffed by a consistent team of operators,
which makes parts or products within a product family.
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Cell Starter Measurements
Support Measures
- Cross Training Chart
- Safety Cross
- 5S Audit
- Number of ImprovementProjects Completed
Primary Measures
- Day by the Hour Report
- Days of Inventory
- (or) WIP to SWIP
- Operational EquipmentEffectiveness (OEE)
- First Pass Yield
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Primary Cell Measurements
Enable the cell production team to monitor and control theirprimary production activities.
Facilitate the collection of problems and issues arising fromproduction.
Provide first-line data for analysis by the cell or thecontinuous improvement team.
The objective here is to keep to takt-image. The measureshelp to keep focus as a dash-board toolvisible to all
owner managed yet also acts as a visual control for managers
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Linking Cell Objectives toCell Measurements
First Pass YieldEliminate Scrap
and Rework
First Pass YieldEliminate Variability
Day-by-the-HourBuild to Schedule
Day-by-the-HourWIP to SWIP
Overall Equipment Effectiveness
Reduce / StandardizeCycle Time
MEASUREMENTCELL OBJECTIVES
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Overall Equipment EffectivenessEliminate Machine Waste
Inventory Days or WIP to SWIPReduce Batch Size
Inventory Days
5S Audit or Self-Audit
Institute Visual
Management
MEASUREMENTCELL OBJECTIVES
Linking Cell Objectives to CellMeasurements (continued)
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Day by the Hour Report
Measures adherence to production schedule.
- Constantly reinforces the need to achieve consistent cycle timeto match customer takt time.
Shows adherence to the production requirement for the cell foreach hour.
- Can be expressed as a quantity for the hour (#/hr) and/or as acumulative quantity for the shift. (#/shift)
How to calculate:
- Cell supervisor records the quantity completed at the end ofeach hour, the cumulative quantity for the day, and anycomments or reasons.
-At the end of each shift, cell supervisor calculates percentagecompleted in comparison to schedule.
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Inventory Days
Measures how effectively material flows through the cell, thestability of the process & visual systems, and the lead time for the
cell.
Shows the total inventory on the cell including raw material (at pointof use), work-in-process, and any completed items.
- Can be expressed in quantity of parts used in production or indollars.
How to calculate:
- Cell operators calculate cell inventory on a weekly basis bycounting material and production kanbans
- Inventory Days =Total Inventory of the Cell
Cell Production Rate
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Measures how effectively material flows through the cell, thestability of the process and visual systems.
Shows the total inventory on the cell including raw material (atpoint of use), work-in-process and any completed items.
Focuses the operator attention on the importance of kanban rulesand single piece flow.
How to calculate
- Cell operators count the total inventory on the celltotalkanbans, number of products, number of representativeparts
- Divide by the standard inventory for the cell
- WIP/SWIP =
WIP TO SWIP
Total Inventory in the Cell
Standard Cell Inventory
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First Pass Yield
Measures percent of total units successfully manufactured onthe first pass without being repaired, reworked, re-tested or
scrapped. Can be expressed for each workstation or for the entire cell.
- Shows where cell-level improvement should be focused.
How to calculate:
- Workstation FPY =
- Cell FPY =
Total Units Processed - Rejects or Reworks
Total Units Processed
FPYWS1 * FPYWS2 * FPYWS3 * ..
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Overall Equipment Effectiveness (OEE)
Measures a combination of availability, performance efficiency,and quality for a machine or a process.
- Identifies waste caused by machine & processinefficiencies.
Shows effective use of machine or cell.
- Can be collected by shift, by day, by product, or byproduct family
How to calculate:
- OEE = Availability * Performance Efficiency * Quality
Availability = Operating Time / Net Available TimePerformance Efficiency = (Ideal Cycle Time * Total Products Run) / Operating TimeQuality = (Total Products Run Total Rejects) / Total Products Run
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Support Measurements
Enable the cell team to monitor and control important
aspects of their work which support the cells primaryresponsibilities.
Cross training chart Safety cross 5S Audit Number of Improvement projects completed
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Cell-Level Performance Management
Establish Targets
Record Daily/ShiftOutcomes
Identify Problems &Causes
Take Corrective Action
Record Daily/ShiftOutcomes
Obtain assistance if needed. Notify improvement team when causes are
beyond scope of the cell team.
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Acme Stamping Initiatives
Pacemaker Loop:
- Objectives
- Develop continuous flow from weld through assembly cell
- Kaizen work elements to reduce total cycle time to 168 seconds orless
- Eliminate weld-fixture changeover time
- Improve uptime on welder # 2 to 100%
- Develop pull system with finished goods supermarket (eliminateschedules)
- Goals
- Only 2 days of finished goods inventory
- No inventory between workstations
- Operate the cell with 3 people at current rate of demand
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Stamping Loop:
- Objectives
- Establish pull system with stamped-parts supermarket
- Reduce stamping batch sizes to 300 (LH) and 160 (RH)
- Reduce stamping changeover times to less than 10 minutes
- Goals
- Only 1 day of stamped bracket inventory in supermarket
- Batch sizes 300 and 160 pieces between changeovers
Supplier Loop:
- Objectives
- Develop pull system with steel coil supermarket
- Introduce daily coil delivery
- Goal
- Only 1.5 days of coil inventory in supermarket
Acme Stamping Initiatives (continued)
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Course Agenda
Welcome and Introductions
The Purpose of Performance MeasurementPerformance Measurement and Lean Manufacturing
The Starter Set
Corporate / Strategic
Value Stream
Cell
Developing Performance Linkages
Implementation
Summary and Evaluation
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Creating Performance Linkages
StrategicGoals
Key PerformanceIndicators and
Targets
Value StreamObjectives
Value Stream
Measures
CellObjectives
Cell / Process
MeasuresMeas
urements
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Strategic Goals
What is the company trying to achieve?
- Financial
- Customers & markets
- Products & services
- Short-term & long-term
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Examples of Strategic Goals
Increase sales revenue and market share.
Increase cash-flow and reduce debt.
Create a culture of continuous improvement.
Maintain a stable and well-educated workforce.
Develop and commercialize new products.
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Corporate Objectives
How will the company achieve its Goals?
- Specify levels of achievement needed to attain thecompanys strategic goals.
- Set specific and measurable targets.
- Establish specific achievement dates.
- Use goals to develop corporate performancemeasurements.
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EBITDA
Inventory Turns
Strategic
Goals KPIs and targets
Linkage of Strategic Objectives toKey Performance Indicators
Sales Growth
Grow our revenueby 25% over the
next 12 months andincrease market
share to 15% in our3 major markets.
Bring our debtdown to less than
$500,000 andimprove cash flow
from operations by25%.
Sales per Employee
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Value Stream Objectives and Measures
Define the organizations value streams:
- Order fulfillment value streams, new account sales valuestream, product development value stream, etc.
Relate the value stream objectives to the corporate goals.
- The value stream objectives must be the outworking of thecorporate goals.
Use objectives to develop value stream performancemeasurements.
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Linking Strategic Goals toValue Stream Objectives
Increase Thru-Put by 15% withSame Resources
Reduce Order Fulfillment LeadTime from 12 to 3 days
Reduce AR days outstanding to45 days.
Increase Inventory turns to 6 turns
Perfect Quality. Zeroproduct-faulty returns.
Improve Productivity. Cost perUnit of $17.65 or less.
Strategic GoalsValue Stream Objectives
Grow our revenue by25% over the next 12months and increasemarket share to 15%
in our 3 majormarkets.
Bring our debt downto less than $500,000
and improve cash
flow from operationsby 25%.
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Increase Thru-Put by 15% withSame Resources
Reduce Order Fulfillment LeadTime from 12 to 3 days
Reduce AR days outstanding to 45
days.
Increase Inventory Turns to 6 turns
Perfect Quality. Zeroproduct-faulty returns.
Improve Productivity. Cost per Unitof $17.65 or less.
Sales per Person
On-Time Shipment
Dock-to-Dock Time
First Time Through
Average Cost per Unit
Accounts Receivable Days Outstanding
OEE at Constraint Work Center
Value Stream Objectivesto Measurements
Value Stream
Objectives
Value Stream Measures
Value Stream Gross Profit Percent
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Cell Objectives
Relate the cell goals to the value stream goals.
- The cell goals must be the outworking of the value streamgoals.
Use goals to develop cell performance measurements.
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Linking Value Stream Objectives toCellular Objectives
Value Stream Objectives Cellular Objectives
Increase Thru-Put by 15% withSame Resources
Reduce Order Fulfillment LeadTime from 12 to 3 days
Reduce AR days outstanding to 45
days.
Increase Inventory Turns to 6 turns
Perfect Quality. Zeroproduct-faulty returns.
Improve Productivity. Cost per Unitof $17.65 or less.
Reduce Cycle Time
Build to Schedule
Reduce Batch Size/Single Piece Flow
Eliminate Variability
Effective VisualManagement
Increase OperatorFlexibility
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Cell Objectives Cell Performance
Measurements
Linkage of Cell Objectives to CellMeasurements
Reduce Cycle Time
Build to Schedule
Reduce Batch Size/Single Piece Flow
Eliminate Variability
Effective VisualManagement
Increase OperatorFlexibility
Day by the HourReport
Days of Inventory
OEE
First Pass Yield
# ImprovementProjects Completed
5S Audit
Cross Training Chart
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Exercise
Using the forms on the following pages develop linkages
for the remaining objectives of the starter set reproducedon the following page:
Grow sales and Increase Customer Satisfaction Continuously Improve Improve Employee Retention
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Strategic Goals Value Stream Objectives Cell Objectives
Exercise: Summarize Linking Strategic Goalsto Value Stream Objectives to Cellular Objectives
Improve EmployeeSatisfaction
Improve CustomerSatisfaction
Improve On-TimeDelivery
Perfect Quality
IncreaseResponsiveness
Improve CustomerValue
Provide IncreasedFlexibility
Reduce Number ofSafety Incidents
5S + Safety
Build to Demand
Eliminate Variability
Reduce Cycle Time
Continuously Improve
Reduce Batch Size /One Piece Flow
Institute Standard WorkIncrease Opportunitiesfor Advancement
Increase ProjectParticipation
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Course Agenda
Welcome and Introductions
The Purpose of Performance MeasurementPerformance Measurement and Lean Manufacturing
The Starter Set
Corporate / Strategic
Value Stream
Cell
Developing Performance Linkages
Implementation
Summary and Evaluation
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Implementation Steps
1. Choose Your Implementation Approach using the Maturity Path
Implementing the starter set
Creating your own linkages
2. Introduce the Measures
Train the Employees
Define the Measurements
Create Visual Displays
Setup a Review Process
3. Manage Performance
4. Disseminate the information
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Lean Manufacturing Maturity Path
Pilot LeanProduction Cells
LeanManufacturingWidespread
Lean Through-Out Company &
Partners
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Successful lean cells
Extensive training in leanprinciples
Kanban pull & 5S
SMED & quick change-over
Standard work Quality at source & self-
inspection
Implementation Approach:
New cell level performance
measurements and targets
Pilot LeanProduction Cells
LeanManufacturingWidespread
Lean Through-Out Company &
Partners
Just Getting Started with Lean
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Stage 2: Lean Manufacturing by ValueStream
Cellular manufacturing with std. work &single-piece-flow
Extensive use of visual systems
Improvement teams trained &established
Initial supplier certification & kanban pull
Manufacturing managed value stream Process control through SPC
Work in Process and Finished GoodsInventories relatively low & consistent
Integrated performance measurements atvalue streams & strategic or corporatelevels
Pilot LeanProduction Cells
LeanManufacturingWidespread
Lean Through-Out Company &
Partners
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Stage 3: Lean AccountingThroughout the Company & Partners
Company organized by value stream
Extensive cooperation with customers,suppliers, & partners
Value streams extend outside our fourwalls
Continuous improvement is a way of life
Lean throughout the enterprise
Target costing driven from the voice ofthe customer linked to features andcharacteristics
Target costing drives internal product
and process design Target costing drives supplier product
design
Pilot LeanProduction Cells
LeanManufacturingWidespread
LeanThroughout Company &
Partners
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1. Choose Your Implementation Approach
Use the starter set of measurements
OR
Develop your own linkages between your corporate strategy andperformance measurements
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Implementing the Starter Set
Introduce the new cell level measurements.
Introduce the new value stream level measurements.
Introduce the new corporate or strategic level measurements.
Eliminate the old measurements.
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Creating Your Own Linkages
Although the standard measurement set is broadlyapplicable, it is only a starting point.
Different companies have different strategies, and theperformance measurements will change according to thechanging strategy.
Working with a cross-functional team, step through theprocess of creating performance measurements at thestrategic level, the value-stream level, and the cell/processlevel.
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Creating Your Own Linkages (continued)
Requires careful and disciplined analysis.
- Identify how company strategy drives performancemeasurements and performance measurements drivebehavior across the company.
Not a one-time exercise.
- Performance measurements change over time as thecompanys strategy changes and as the marketconditions change.
Must involve people at all levels of the business.
- Make it truly cross-functional.
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LE208 v1.0 Performance Measurement
Performance Measurement for Lean ManufacturingPerformance Measurement Definition
Value Stream
Cell or Process (if
applicable)
DefineMeasurement
How toMeasure it
How toCalculate it
Source of theData
Baseline Date: Result:
Targets Date: Result:
Frequency
Accountability
Presentation
Who Reportsthe
Measurement
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Performance Measurements for Lean ManufacturingCell or Process Performance Measurements
Value Stream
Cell or Process
Value Stream Goals Value Stream ObjectivesList the RelevantValue Stream
Goals andObjectives
Critical SuccessFactors for
the Cell
Objective Date Objective DateList the
Objectives of theCell
List thePerformance
Measures
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LE208 v1.0 Performance Measurement
Performance Measurements for Lean Manufacturing ValueStream Performance Measurements
Value Stream
Define the Value
Stream
Strategic Goals Strategic ObjectivesList the RelevantStrategic Goalsand Objectives
Critical SuccessFactors for the
Value Stream
Objective Date Objective DateList the
Objectives of theValue Stream
List thePerformance
Measures
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Performance Measurement for Lean ManufacturingStrategic Goals and Objectives
Company Strategy
Important StrategicIssues Related to
Lean Manufacturing
Strategic Goal Strategic Objective Date
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Introduce New Measurements
Cell
ValueStream
Corporate
Create cell performancemeasurement board fordaily control.
Create performancemeasurement board forcontinuous improvement.
Design performancemeasurementpresentation &dissemination methods.
People Define theMeasurements
Create a VisualDisplay
Set Up a ReviewProcess
Train the People
Train cell & processteam-members,managers, &accountants.
Train value streamteam-members,managers &accountants.
Train senior manager& financialaccountants.
Cell team designmeasurements withaccountants & leanspecialists.
Value stream teamdesignmeasurements withaccountants & leanspecialists.
Financialaccountants andlean specialistsdesignmeasurements.
Establish dailyperformance review foreach cell team.
Establish weeklyperformance review forcontinuous improvementteam.
Establish timely review
of corporatemeasurements. Oftenpart of Sales & Ops.Planning.
Introduce Lean PerformanceMeasurement System
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Introduction Tips
Make the presentation of measurements as simple and
graphic as possible.
Make sure there are places on the boards for thepeople to write their comments and suggestions.
Train the people in the use of the measurements, aswell as in the mechanics of creating them.
If possible, have the people manually create their own
performance reporting each day or each week.
Eliminate all other performance reporting.
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Establish Baseline and Targets
Once the measurements have been determined and introduced, allow timeto establish a baseline.
- Allows you to understand where you are now on these measurements.
Have the people develop performance targets from an understanding ofthe baseline:
- Base initial targets upon what is achievable.
- Later, set targets from a knowledge of what the customers value. UseQuality Functional Deployment (QFD) and target costing.
- Later still, allow the teams topursue perfection. As continuousimprovement becomes a way of life, targets become less necessary.
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4. Manage Performance
What performance management does:
- Enables the cell/process team to track & control their own processeseach day & each shift.
- Drives the value-stream continuous improvement team to make changesthat support the companys strategy.
- Enables the senior managers to monitor the companys progress towardsstrategic goals.
What performance management does not do:
- Monitor individuals.
- Identify people doing the wrong things.
- Enable micro-management of the operation.
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Cell
Measure
Strategic
Goal
ValueStream
Objective/Target
ValueStream
Measure
CellImprovementFactors
CellObjective/Target
Guide valuestreamdirection
Refineproduct/market goals
Refinefinancial goals
Refineresource goals
Adjust valuestream resultsthat willachievestrategic goals
Set specifictarget
Establish timeforachievement
Measure theattainment ofvalue streamobjective/targets
Re-visitspecific leancell initiativesthat willachieve thevalue streamgoals/ targets
Adjust cellresults thatwill achievevalue streamobjectives/targets
Set specifictarget
Establish timefor
achievement
Measure theattainment ofcellobjectives/targets
Strategic
Measure
Measure theattainment ofStrategicGoal
Performance Measurement Linkage EnablesPerformance Management
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5. Disseminate the Information
Small companies with single locations.
- Visual and manual- Sales & operations planning
More complex organizations.
- Visual & manual performance measurement locally
- Computer systems to disseminate the information
- Often using simple spreadsheets, database, and graphic presentation
- Sales & operations planning
Large, multi-location, complex organizations
- Visual & manual performance measurement locally
- Performance management and policy deployment systems
- Sales & operations planning and Hoshin policy deployment methods
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Course Agenda
Welcome and Introductions
The Purpose of Performance MeasurementPerformance Measurement and Lean Manufacturing
The Starter Set
Corporate / Strategic
Value Stream
Cell
Developing Performance Linkages
Implementation
Summary and Evaluation
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Summary The Problem
Traditional cost and management accounting measurementsmotivate non-lean behavior.
If we continue to use traditional measurements we will not beable to sustain lean manufacturing, because themeasurements will push back against the changes.
We cannot have two sets of measurements: one for financialcontrol and the other for operational control.
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Performance Measurements ShouldReinforce the Goals of Lean
Improvement Results
Short cycle times Lower inventories Higher quality On-time delivery Less machine downtime Simpler planning & scheduling
Unfavorable Variances Volume variances Labor utilization variances
Machine utilization variances Overhead absorption
variances
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Summary The Solution
New performance measurements are needed for LeanManufacturing.
Implement the starter setof performance measurements forproduction cells, value streams, and the corporation.... ordevelop your own!
Use performance measurements to drive your businessstrategy throughout the organization.
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What Does a Lean PerformanceMeasurement System Look Like? Strategically focused and aligned
Primarily non-financial
Simple and easy-to-use
- Manually created
- Graphically posted
Changes over time and between locations
Provides immediate and timely feedback
- Daily, weekly, monthly
Fosters continuous improvement
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How Will This Change What YouMeasure Tomorrow?
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L E A N
E N T E R P R I S E
Thank You.
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P E R F O R M A N C E M E A S U R E M E N T
F O R T H E L E A N E N T E R P R I S E
Participant WorkbookL E 2 0 8
v1.0
APPENDICES
Recommended Readings
Glossary
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RECOMMENDED READINGS
Becoming Lean: Inside Stories of U.S. Manufacturersby Jeffrey K. LikerProductivity Press, 1998
Becoming Leanuses first-hand accounts, performance records, and real numbers to show howactual U.S. manufacturers have gone lean. Learn what they learned about the logistical andpeople issues related to a Lean transformation and what the results of that transformation meantto these businesses.
The Goal (A Process of Ongoing Improvement)by Eliyahu M. Goldratt and Jeff CoxNorth River Press, 1992
The Goalintroduced the Theory of Constraints to American business. A fast-paced novel, TheGoaluses fiction to vividly demonstrate how to overcome the barriers to making money. Used asa management text in business schools across the United States, this book offers real worldguidance on identifying and solving chronic productivity and quality problems.
Lean ThinkingBy James P. Womack and Daniel T. JonesSimon & Schuster, 1998
In Lean Thinking, Womack and Jones show how the principles of Lean production, described inThe Machine That Changed the World, have been successfully applied outside the automobileindustry. They document the transformation of 25 U.S., Japanese, and German companiesthrough the application of Lean thinking. (The description of the arrival of the Japanese sensei
at the Porsche plant in Germany alone is worth buying the book.)
The Machine That Changed the WorldBy James P. Womack, Daniel T. Jones, and Daniel RoosHarperCollins, 1991
The authors, who directed MIT's five-year study on the future of the automobile, explain thedevelopment and the principles of Lean production. The descriptions of the application of theprocess show not only howit works, but also whyLean manufacturing results in more cost-efficient products and is transforming manufacturing around the world.
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World Class Manufacturing: The Next DecadeBy Richard J. SchonbergerFree Press, 1996
How do you judge the worth of a company? In this book, Schonberger challenges the assumption thatworth is measured according to sales and profits. Using benchmark data derived from real-worldresearch, he shows how competence, capability, and customer-focused, employee driven performancedefine worth and can be measured.
Toyota Production SystemBy Yasuhiro MondenEngineering & Management Press, 1997
Toyota Production Systemprovides detailed examples of how to apply the lean tools. It considers how toadapt production schedules to the demand changes in the marketplace while satisfying the goals of lowcost, high quality, timely delivery, and improved worker morale.
Real Numbers: Management Accounting in a Lean Organization
By Jean E. Cunningham and Orest J. Flume with Emily AdamsManaging Times Press, 2003
Real Numbers describes how management accounting evolved to this point and how simplicity and claritycan be restored, particularly in a lean organization.
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GLOSSARY
TERM DEFINITION
5S System A system designed to organize and standardize a workplaceand consisting of five component parts: Sort, Set in Order,Shine, Standardize, and Sustain.
8 Wastes Wastes addressed by Lean manufacturing that include:overproduction, waiting, transportation, non-value addedprocessing, excess inventory, defects, excess motion, andunderutilized people.
8D or 8Discipline The eight-step Ford methodology for problem solving.
Batch-and-Queue Processing Producing more than one piece of an item and then movingthose items forward to the next operation before they are allactually needed there. Thus these items need to wait in aqueue. Also called Batch-and-Push. Contrast withcontinuous flow.
Bottleneck A resource whose capacity is less than the demand put on it.
Buffer Inventory The strategically placed inventories that protect the materialflow and whose consumption set the schedules in a PullSystem.
Buffer Stock Finished goods available to meet Takt Time when variationsin customer demand exist.
Capacity-Based Lot Sizing An approach to calculating batches on a setup-intensiveresource that is based on the capacity of the resource, noton unit cost.
Catchball The handing back and forth of information between workersand management and the subsequent feedback.
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Cell Operating a true continuous flow on machines and workstationsplaced close together in the order of processing, sometimescalled a U shape. Cell operators may handle multipleprocesses, and the number of operators is changed when thecustomer demand rate changes. The U shaped equipment
layout is used to allow more alternatives for distributing thework elements among operators, and to permit the leadoff andfinal operations to be performed by the same operator.
Cellular Manufacturing Linking of manual and machine operations into the mostefficient combination to maximize value-added content whileminimizing waste.
Changeover When a piece of equipment has to stop producing in order to befitted for producing a different item; for example, the installationof a different processing tool in a metal working machine, a
different color paint in a painting system, a new plastic resin &mold in an injection molding machine, loading differentsoftware, and so on.
Charter A document that clearly defines the focused kaizen teammission, scope of activities, risks, and deliverables (if requiredby management to provide additional details).
Continuous Flow Processing The process by which items are produced and moved from oneprocessing step to the next one piece at a time. Each processmakes only the one piece that the next process needs, and the
transfer batch size is one. Also called single-piece flow orone-piece flow. Contrast with batch-and-queue processing.
CONWIP Constant Work In Process. This is another way of definingFIFO. (See FIFO.)
Core Team The designated group of people primarily responsible forcompleting the details of the plan.
Cycle Time How frequently an item or product is actually completed by aprocess, as timed by direct observation. Also, the time it takesan operator to go through all of his or her work elements before
repeating them.
Defects Waste Inspection and repair of material in inventory.
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Demand/Customer Demand Also commonly referred to as Takt Time. (See Takt Time.)
Direct Consumption Kanban A Kanban approach which replenishes an inventory buffer inthe quantities withdrawn, thus allowing any variability incustomer demand to propagate through the supply chain.
EPEI Refers to the every-part-every interval, which is a basis forproduction batch size. For example, if a machine is able tochange over and produce the required quantity of all the high-running part types dedicated to it within three days, then theproduction batch size for each individual part type is aboutthree day's worth of parts. Thus this machine is making everypart every (EPE) three days.
Excess Inventory Waste Any supply in excess of a one-piece flow through yourmanufacturing process.
Extended Team Member An individual who provides expertise to the project team, butwill not have the responsibility of implementation.
Fabrication Process Segments of the value stream that respond to requirementsfrom internal customers. Fabrication processes are oftencharacterized by general-purpose equipment that changes overto make a variety of components for different downstreamprocesses. Compare to pacemaker process.
FIFO Stands for first-in, first-out, which means that materialproduced by one process is used up in the same order by thenext process. A FIFO queue is filled by the supplying processand emptied by the customer process. When a FIFO queuegets full, the supplying process must stop producing until thecustomer process has used up some of the inventory. FIFO issometimes called CONWIP, or Constant Work In Process.
Fixed Replenishment Interval A production cycle in which goods must be produced in a fixedsequence.
Flow A main objective of the entire Lean production effort, and one ofthe key concepts that passed directly from Henry Ford to Taiichi
Ohno (Toyotas production manager after WWII). Fordrecognized that, ideally, production should flow continuously allthe way from raw material to the customer and envisionedrealizing that ideal through a production system that acted asone long conveyor.
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Heijunka The act of leveling the variety and/or volume of items producedat a process over a period of time. Used to avoid excessivebatching of product types and/or volume fluctuations, especiallyat a pacemaker process.
Heijunka BoxA physical device that visually displays the product family.Pitch and work orders for meeting daily demand arerepresented by Kanbans.
Inventory All of the money invested by purchasing goods intended forsale.
Inventory buffer A quantity of inventory located at a specific point in the valuestream to protect the flow of material and to providereplenishment schedules.
Just-in-Time (JIT) Producing or conveying only the items that are needed by the
next process when they are needed and in the quantity needed.
Kaizen Continuously improving in incremental steps.
Kanban A signaling device that gives instruction for production orconveyance of items in a Pull System. Can also be used toperform Kaizen by reducing the number of Kanban incirculation, which highlights line problems.
Kanban Quantity The replenishment quantity of material authorized by a Kanban.
Lead Time The time required for one piece to move all the way through aprocess or value stream, from start to finish. Envision timing amarked item as it moves from beginning to end.
Lean A systematic approach to identifying and eliminating waste(non-value-added activities) through continuous improvementby flowing the product at the pull of the customer in pursuit ofperfection.
Lean Enterprise The organization that fully understands, communicates,implements, and sustains Lean concepts seamlesslythroughout all operational and functional areas.
Leveling The process or method used to distribute work within the valuestream to maximize material and information flow efficiency.
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Line Balancing A process in which work elements are evenly distributed withinthe value stream to meet Takt Time.
Location Indicator A type of red tag that shows where an item belongs. Theseinclude lines, arrows, labels, and signboards.
Material Handlers Production-support persons who travel repeatedly alongscheduled routes within a facility to transfer materials, supplies,and parts in response to pull signals, and to make pacedwithdrawal of finished goods at pacemaker processes.
Material RequirementsPlanning (MRP)
A computerized system typically used to determine the quantityand timing requirements for delivery and production of items.Using MRP specifically to schedule production at processes ina value stream results in Push production, because anypredetermined schedule is only an estimate of what the next
process will actually need. Manufacturing Resource Planning(often called MRPII) expands MRP to include capacity planning,a finance interface to translate operations planning into financialterms, and a simulation tool to assess alternative productionplans.
Milk Run Routing a delivery vehicle in a way that allows it to makepickups or drop-offs at multiple locations on a single travel loop,as opposed to making separate trips to each location.
Mixed-Model Scheduling An approach to scheduling final production processes which
smoothes out demand on the supply chain by producing someof each item over the shortest possible time horizon. (SeeHeijunka.)
Motion Waste Any movement of people or machines that does not add valueto the product or service.
Muda See Waste.
Non-Bottleneck A resource whose capacity exceeds the demands put on it.
Non-Repetitive Demand Independent demand that does not require inventory buffers tomeet customer service requirements.
Non-Value-Added Any activity that does not add market form or function or is notnecessary. (These activities should be eliminated, simplified,reduced, or integrated.)
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Operating Expense The total amount of money spent to convert inventory intothroughput.
Operator Balance Chart A seven-step process used to meet customer demand or Taktthrough optimal human and equipment efficiencies.
Order Point The buffer inventory level at which a replenishment order mustbe placed.
Order Quantity The amount of a replenishment order.
Overproduction Making more than is required by the next process. Makingearlier than is required by the next process, or making fasterthan is required by the next process.
Paced Withdrawal A timed sequence of withdrawal of finished product from the
pacemaker process. Paced withdrawal is a tool for pacing anassembly process and becoming aware of production problemswithin a pitch increment.
Pacemaker Process A series of production steps, frequently at the downstream(customer) end of the value stream in a facility, that isdedicated to a particular product family and responds to ordersfrom external customers. The pacemaker is the most importantprocess in a facility because how you operate here determineshow well you can serve the customer, and what the demandpattern is like for upstream fabrication processes.
Pack-Out Quantity The number of units/parts that can be moved throughout thevalue stream to ensure flow efficiency. Pack-out quantity mayor may not be customer driven.
Pitch When Takt Time is too short for a reasonable pacedwithdrawal, it can be adjusted upward to a consistent incrementof work called pitch, which becomes the basic unit of yourproduction schedule for a product family. Pitch represents thefrequency at which you withdraw finished goods from apacemaker process as well as the corresponding amount ofschedule you release to that process. Pitch is often calculatedbased on the customers ship container quantity.
Point of Use Storage (POUS) Raw material stored at the workstation where it is used.
Process Cycle Time The amount of time taken to produce one good part before itcontinues to the next process in the value stream.
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Process Kaizen Improvements made at an individual process or in a specificarea. Sometimes called point Kaizen.
Processing Time The time a product is actually being worked on in a machine orwork area.
Processing Waste Effort that adds no value to the product or service from thecustomers viewpoint.
Product Family A group of products that goes through the same or similardownstream or assembly steps and equipment.
Production Kanban A printed card indicating the number of parts that must beproduced to replenish what has been consumed from thesupermarket.
Production Smoothing See Heijunka.
Pull System An information system for controlling and improving the flow ofmaterials and information and for allocating resources based onactual consumption, not forecasted demand.
Push System A system where resources are provided to the consumer basedon forecasts or schedules.
Quality at the Source When operators are given the means to perform inspection atthe source, before they pass it along. A final inspection stationis not required when quality at the source is used.
Queue Time The time a product spends waiting in line for the nextprocessing step.
Quick Changeover Changing over a process to produce a dif