Tweak KPIs to improve performance
KPIs can create a stretch model that empowers the entire workforce and drives a continuous improvement engine that meets immediate and long-term goals
Key performance indicators (KPIs) are the lifeblood of your company. They measure how critical functions and activities are performing relative to your business plan and the goals established to meet market and business demands. Selected and used properly, KPIs create a stretch model that empowers the entire workforce and drives a continuous improvement engine that assures meeting today’s goals as well as the company’s long range objectives.
The right measures seamlessly integrate the diverse functions of the company into a homogeneous, focused team that will overcome obstacles and steadfastly march forward toward a shared vision. Unfortunately, the KPIs used often create win-lose scenarios where one function must miss for another to make its goals. When measuring production solely on output, the tendency is to reduce or eliminate downtime needed for sustaining maintenance. While this decision may enable production to meet its goals, maintenance suffers and misses its goals.
In too many companies the list of conflicting KPIs is almost endless. Procurement seems to march to a different drummer, spending as little as possible while production, maintenance and other functions suffer with wrong materials, late deliveries and a list of other issues. Engineering cuts corners on design and flexibility to meet its KPI to reduce capital costs. Maintenance is deferred to reduce annual expenditures. All of these create a reactive, stagnant work culture that reduces effectiveness and drives wedges between plant functions that create a silo mentality and adversarial relationships.
Are your KPIs driving a positive culture or creating conflict? If you are not sure, it might be time to reassess your performance management process, reengineer it, if needed, and create cascading indicators that pull your workforce together instead of driving them apart.
While not always easy, the solution to this type of conflict is straightforward. Assure that all KPIs create win-win scenarios for all stakeholders. In the production-maintenance example, combining the functions’ KPIs will encourage cooperation and coordination between them. Create KPIs that measure both production and maintenance on production output and level of sustaining maintenance performed and you create a win-win solution.
It starts with your vision of the future and both the short- and long-term objectives necessary to meet your strategic business plan. All of the performance indicators must fully support the plan and at the same time create only win-win scenarios throughout the company. Effectiveness of these new KPIs may, and most likely will, require a rethinking of your cost accounting methodology, and reengineering of your business and work processes.
Cost accounting will need to be configured to budget for and track cost data at the floor level instead of at its current higher cost-center level. Contributions of each functional group to these floor-level measures, such as conversion costs, energy utilization, etc., are accounted for and the resulting KPIs clearly measure the cooperative partnerships necessary for their achievement. This will correct deficiencies that allow hidden deficiencies to go unnoticed and add to conflicts and adversarial relationships that exist today.
Effective measures are fully integrated across the company and from the factory floor to the boardroom. The performance measurement process must be completely transparent to all and easily useable at all levels. For example, all companies track and measure net operating profit—the value that drives the future—but few floor-level employees understand how their performance affects it. Effective KPIs transparently tie floor-, intermediate-, and executive-level performance indicators to critical business drivers like net operating profit, return on net assets, etc.
With transparent, fully integrated KPIs, the entire workforce, from the factory floor to the boardroom, is pulled together into a homogeneous, focused team centered on business objectives, a team that, combined with a culture of continuous improvement, can overcome any obstacles and assure long-term survival.
Keith Mobley has more than 35 years of direct experience in corporate management, process design and troubleshooting. He can be reached at kmobley@LCE.com.
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