Performance management is the systematic process by which an organization improves its effectiveness in the accomplishment of its goals and objectives. While those goals and objectives can vary, for all organizations the ultimate metric that matters is the bottom line.
As a result, a type of modern day detective work is now afoot on the manufacturing floor to identify what operational metrics offer the greatest opportunity for improved operational and financial performance. The goal: Determine exactly what actions to take on the shop floor to deliver greater gains to the top floor.
That’s exactly the focus of research conducted by LNS Research and MESA International titled 2013-2014 Manufacturing Metrics that Really Matter, which surveyed more than 200 manufacturing professionals globally to understand which operational metrics had the greatest bearing on their bottom line and what strategies were most effective in helping drive improvement around these key metrics.
Business Systems Aid Performance Management Initiatives
Many of the “metrics that matter” identified by the research aren’t new — they’re things that organizations have traditionally tracked. What has changed however, is the velocity and the need for quality data. Business demands today dictate that speed must be real-time and the quality of information absolute.
This is where business systems, such as enterprise resource planning (ERP) solutions and manufacturing execution systems (MES) can add value to performance management programs. Automated systems ensure the validity of metrics data so organizations don’t go awry chasing red herrings, and also improve the speed of data delivery.
The Metrics that Matter research reveals that manufacturers with the right software tools in place to track and manage performance metrics come out on top — outperforming competitors by up to 10 percent in areas such as manufacturing cost reduction, net profit margin increases, and on-time delivery.
Having the right systems in place also ensures the right people have visibility into key metric insights to work and act virtually — enabling organizations to have everyone on the same page throughout global or multi-plant manufacturing entities.
Whereas in the past these systems were only affordable to big companies, today they are now price that is accessible to companies of all sizes to help support performance management efforts.
While having the right systems in place to collect and aggregate performance data is key, systems past their prime can actually have a negative impact. Organizations with aged systems in place often lack integration with key areas of the business (i.e., planning/scheduling, quality management, document management, asset management, etc.) as these systems were historically deployed as point solutions. This lack of integration can keep organizations from being successful in closed-loop execution, true continuous improvement and agility/responsiveness.
Software Isn’t Enough
While the LNS/MESA research revealed that software is a key factor in helping companies optimize performance improvement metrics and boost financial results, nearly 85 percent of survey respondents had process improvement programs in place — underscoring the importance of people, processes and methodology for performance management.
However many organizations have a difficult time moving performance management initiatives forward. The reality is it’s all too easy to become mired in the tremendous amounts of data, processes and systems — especially when faced with resource constraints.
Many organizations have a difficult time getting started with performance management initiatives — from getting the data collection software in place to translating the analysis in a way that’s meaningful to company goals and objectives.
In reality, understanding the metrics that matter is just the beginning; a well-dressed performance management program will encompass all of the following:
- Discern who the right people are to engage in this continuous improvement initiative. Ensure the initiative is poised for success with executive buy in.
- Ascertain goals — what is the organization trying to achieve?
- Conduct training
- Put data collection processes in place
- Evaluate data — what are the right things to look at from a performance perspective?
- Gather data
- Interpret results and make improvements
It’s important to have the right expertise to understand “which levers to pull” to enhance performance and also essential not to skimp on training. These elements are vital to ensure success, and to accelerate improvements for greater returns.
It’s also critical to examine your data and correlate operations practices — strategic and tactical — with manufacturing performance. This is about understanding the “why” behind the data — the root cause. Bringing in expert resources at this stage can be helpful as they can help your organization to leverage vertical and industry best practices as opposed to striking out on your own.
At the end of the day, it’s important to understand how to interpret your organization’s unique data and metrics so that improvements become repeatable and sustainable. It’s about building a framework for future improvement, not just a string of “one-hit wonders.” Forward-thinking manufacturers know that metrics do matter, but that real performance management mastery lies in making data insights actionable for operational excellence.
Stew Baillie is the vice president of manufacturing products for Epicor Software Corporation.