What are Good KPIs?

To control any kind of system, you need to know its status. For a simple system like heating, the indoor temperature may be the key input. For something as complex as manufacturing, however, there could be a myriad of different measurements that can help you to control the system. In this context, KPIs (key performance indicators) become crucial, offering a structured way to monitor various aspects of operation, from safety and quality to productivity and cost. Ensuring the right balance and focus among these KPIs can lead to more informed decision-making and enhanced operational efficiency. In this post I would like to dig deeper on what KPIs are good, and how you can go wrong with (too many?) KPIs.

Introduction

On your shop floor, you can easily find thousands of measurements somehow related to the system. Most of them do have their uses, but there are too many for one person to handle them all. Hence, these are narrowed down and aggregated into key performance indicators (KPIs). KPIs on the shop floor are essential metrics that help measure and evaluate the efficiency, productivity, and overall performance of manufacturing processes. By tracking KPIs, managers can gain valuable insights into operations, identify areas for improvement, and make informed decisions to enhance quality and throughput. At the same time, bad or even wrong KPIs can mislead leadership in the wrong direction and steer the entire company astray.

Good Categories for KPI

For a good KPI dashboard, there should be KPIs related to safety, quality, productivity or time, and cost. Safety KPIs might include workplace incidents and compliance with safety training. Quality KPIs could involve defective product rates and customer satisfaction. Productivity KPIs might measure task completion time and process efficiency. Cost KPIs could include budget adherence and cost savings. Prioritizing these KPIs in the given order ensures a balanced focus on essential operational aspects, ultimately driving success. See also my post series on The Toyota KPI Dashboard for more on how Toyota manages its dashboard.

For each of these areas, you should have at least one measurement, and possibly more. The exact nature of these depends on your business, and also on your position in the business. The CEO needs a different dashboard than the plant manager, whose dashboard is different from the dashboard of a section manager in charge of a part of the shop floor.

How Many KPIs?

However, striking a balance between too many and too few KPIs on the shop floor is crucial. Overloading the system with numerous indicators can lead to information overload, causing confusion and diluting focus on the most critical metrics. Conversely, having too few KPIs may result in an incomplete picture of the operational landscape, hindering comprehensive analysis and decision-making.

While managers would love to have a measurement for everything, taking a measurement is an effort. I have seen many shop floors where the people took numerous notes on the situation by hand (e.g., on breakdowns, their cause, and duration), which were then typed in manually into a spreadsheet. That is a lot of work. Depending on the KPI it may be worthwhile, but in other cases the benefit of the measurement may not be worth the effort.

This may be easier with a digital system, where the data is gathered automatically by sensors and the IT… albeit managers often underestimate the effort needed to set up such a system and then maintain it. The digital KPI may in some cases even be costlier than a manual one, since the “labor” involved is the more expensive programmers and IT technicians.

In my experience, there is also a tendency to increase the number of KPIs. At one point, someone decided to establish a KPI. It may have been necessary… or maybe not. But even if it was necessary back then, many of these KPIs are still around long past their intended use. When I took over a group managing a shop floor, one guy was weekly measuring a leveling performance. He’d been doing this for three years. But the last time anybody actually looked at the KPI was two years ago. And, by the way, the leveling performance was always the same, and not so good. I told him to stop calculating the number, which saved him thirty minutes every week. I agree, this is not a big change, but thirty minutes saved is thirty minutes saved. Make sure to occasionally weed out the KPIs and stop measuring those that are no longer needed. Of course, at one point in the future they may or may not be needed. But the effort in creating unused KPIs is a waste.

Another example was one small plant that reported its KPIs weekly to headquarters. This report was a half-day online meeting, and it took local management two days to prepare all the data, leaving them no time for other tasks. The plant performance suffered since management had little time left for managing, let alone improving. As a result, the headquarters EXPANDED the reporting, and now it took them three days to prepare the numbers. This is a good example for muri (overburden), where the managers had no time to manage due to an excessive KPI requirement.

Targets

A good KPI also usually has a target. However, not all measurements on the shop floor have targets. In theory, anything worth measuring should have a target associated with it. Besides “more than,” there could also be “less than” or “between upper and lower limit” targets. In practice, however, giving every KPI a target may lead to many, MANY targets, which dilutes the significance of the targets that are actually relevant. Don’t have more targets than your organization can handle.

Use Them!

Finally, if you have a KPI, you should use it. The KPI should be looked at regularly, and it should be checked if it is on track. If not, countermeasures should be initiated. If a measurement is not looked at regularly, then it may still be a valid measurement that is needed occasionally, but in this case it is no longer a key performance indicator.

In my next post I will go into more detail on the quality of a KPI. Now, go out, reduce your unneeded KPIs, and organize your industry!

Original Article: https://www.allaboutlean.com/good-kpis/