What to Measure & How

Sometimes in business, so much attention is given to that number on the bottom line that all of the numbers that come before it get lost in the shuffle. This misses an important business opportunity, explained Dan Holland (Clearspan Components, Inc.) and Joe Hikel (Shelter Systems Limited), because ultimately, it’s all of those other numbers that make up the bottom line. Building off past presentations they’ve given on lean manufacturing, Holland and Hikel delved into “Metrics for Managers: What to Measure and How” at BCMC 2012.

What to Measure

Every component manufacturing plant is unique, but the concept behind metrics remains the same. The purpose of measuring your operations is to improve, maintain and predict results, compare like operation units, and ultimately establish profit predictions in real time. “The most important thing any operator should focus on is understanding their real costs and determining how they are going to compete,” said Hikel.

“For me, the top three metrics are material efficiency measures for design, purchasing and production with each being a comparison to the material estimated," said Holland, adding, “Material is our largest cost and the thing we need to know the most about.”

To start, managers can focus on an area where they know their plant needs improvement. Examining an issue that significantly affects profit can also be a good starting point because, when the plant improves, it shows employees real-world results that they can buy into.

Holland and Hikel recommend tracking the following on a daily, weekly and monthly basis:

How to Measure

Metrics should be individualized for a plant to meet the goals and objectives of that specific business. It is important, however, to consider metrics that allow you to compare your operations to other component manufacturers through the industry’s financial performance statistics. Many component manufacturers think sales per man hour (SPMH), sales per board foot, and board feet per man hour are important metrics, while others subscribe to production metrics that track pieces and set ups per man hour.

Job costing, based on real-time labor, inventory and shipping costs, provides a global view of operations and allows managers to drill into highly detailed data. This metric should be activity based and not tied to financial reporting. Meetings structured around job costing are a good way to bring team leaders together to discuss how a loss or gain affects the company. For example, a mistake in the design department can impact production and shipping, resulting in a real dollar amount lost on a job. With accurate job costing, managers are in a good position to map out future growth.

Once you make the decision to use a metric, it’s important to stick with it. “This isn’t something you do, and then you’re through with it, and you never have to do it again,” said Holland. “It’s a way of life.”

Goals and expectations are never static; they change from day to day. It’s important to reevaluate expectations on a quarterly basis and build in incentives to reward and motivate employees. “For example, we bonus production employees on the positive variance between expected throughput and actual using dynamic SPMH as the metric. We bonus managers on the profitability of the company,” explained Hikel.

There are many benefits to measuring operations at your plant, but there can be pitfalls. Measuring can be very expensive. Whenever possible, automate measuring systems and get rid of any obsolete systems. “Do not hesitate to make changes or stop doing a measurement if it is not useful,” said Holland. “Obsolete activities are very expensive.” Another thing to be aware of is the Hawthorne Effect, the tendency for people to adapt to a measuring system and then work toward making the benchmark look great, which distorts information in a way they believe will serve them.

Inevitably, measuring affects the people and processes being measured. Managers want to make sure the change is positive (increased productivity, savings) and not negative (time consuming, demotivating to employees). Even if a positive or negative change appears small, it will ultimately affect that big number for all businesses—the bottom line.