Key Performance Indicator
Key Performance Indicators are measurements utilized to indicate the performance level or progress with regard to important objectives or defined success factors within your organization. To make it short KPIs are used to track or monitor the progress of your existing daily management system.
So how do measure our progress of our organization? How can we define what type of indicators we should use and what they tell us about the current state of our processes? And so on…
These are just some questions that might rise when thinking about implementing KPIs in order to better understand your organization and define a path to go for improvements. What processes are truly adding value to the final product or service the customer is willing to pay for and what is just waste?
Before you start implementing KPIs in your organization a helpful way is to categorize KPIs in two ways: leading and lagging indicators.
Leading Indicators
Leading Indicators are Performance Indicators that are tracking your process. So these are real time figures showing you deviation to given standard or if there is something missing in order to produce your goods or services. They have a real time effect on your delivery performance. The fun part with leading indicators is that you have real time results why it can also take months for a report showing how your organization is doing in general.
For example, talking about injuries, when an operator is involved in an accident during a process step. This incident will be documented on an incident rate report of the organization, for e.g. factory. So when you think about it you recorded an incident after it happened. This is a necessary process in the majority of organizations due to governmental regulations and safety laws. The question to ask is now what do you do with this information? Do you really know what caused it? The information is quite old. This is why the incident report is not a leading indicator but a lagging indicator.
Lagging Indicators
As just mentioned Lagging Indicators are result-oriented, because of this they are shown after something happened. With lagging indicators you react after an amount of time as you are reacting on something that is already in the past. Coming from automotive this is typically a customer claim in the field, you will have a lot of work to do to find out what actually caused the failure, if no proper traceability is installed. Attention: With those failures it is often miss leading that through assumptions symptoms are fight that are not real. Everybody from Task Force Managers to shop floor firefighters knows that. In this case you are not adding any value nor do you implement a sustainable solution.
Having this two categories in mind we can say that the majority of KPIs are lagging indicators. This is not only in the field of manufacturing. The most miss leading assumption thereby is that with Lagging Indicators we get the most information.
But openly asking - isn’t it better to prevent the accident before it happens? This is absolutely speaking for Leading Indicators - and by focusing on Leading Indicators your focus in daily operation will shift to your process and not the overall outcome. In fact: when focusing on improving your process as a side effect the overall outcome will increase automatically.
Where to start with KPIs?
First things first - don’t overdo it!
Start to ask yourself what is your daily business? What processes are constantly and repetitive in use? The same principle with Gemba Walks go to your employees and talk to them - ask what is doing well and what not. What can improve their work?
The situation can be daily checked with line reviews or the so called meeting cascade. Where on the lowest level with the shift hand over performance KPIs are reported and issues during the shift are addressed. This figures are then visualized on the e.g. “Cell Board” near the outline of the cell itself. Typically if you have an U-Shape Layout at the spot of raw material and finished goods.
If something goes wrong latest after one shift the focus will be on this process. This automatically prevents new incidents from having a threatening impact. This is the advantage from getting things done right away or afterwards when the game is already over.
Finally to bring it in a nutshell, try to bring your KPIs from lagging into leading. This will shift the focus on the whole organization towards daily processes and improving them with the help of daily Kaizen activities. Measuring the process constantly in real time gives you the opportunity analyze trends and adjust processes to be ahead of the game instead of being surprised by the market.
Analyze your data existing decide what to go for. Implement your KPIs and make sure they go hand in hand with a meeting cascade. This ensures the consistency of data used and that they are actually used to trigger actions. Based on the KPIs you will be able to drive focused improvement actions through shop floor management, visual management, standardized work and structured problem solving.
