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.

PDCA

The idea behind the PDCA cycle is to empower employees to independently identify and solve problems. It is also a crucial element of the continuous improvement process (CIP).

Many projects in which a culture of continuous improvement (CIP) is to be anchored also fail because of the tools required for this. With the A3 Report, for example, there are such tools. Just for clarity upfront, problem solutions, decision bases and strategies are presented on a sheet of paper in DIN A3 format. The A3 Report provides employees with a kind of template for which analysis and action steps must be taken when solving a problem. This process, in turn, is based on a systematic approach: the PDCA cycle.

The four phases of the PDCA cycle

Of all the quality improvement tools, the PDCA cycle is the most important. It describes the basics of an improvement process and divides it into four phases:

Phase 1: Plan

In this phase the problem and the actual state are described, the causes of the problem are analyzed and the target state is defined. In addition, measurements for reaching the target condition is defined.

Phase 2: Do (Implementation)

In the implementation phase, the predefined measures for achieving the target status are fixed.

Phase 3: Check

In the review phase, the experience gained and the results achieved in implementing the measures are reflected and the measures are readjusted if necessary.

Phase 4: Act

In this phase, the experience is gathered and the problem-solving process is evaluated and standards for future action are derived.

PDCA Cylce

Teams always go through this process when they have identified a problem or a relevant opportunity for an improvement. Then a new PDCA cycle is started with the aim of establishing a new standard in the company which serves as a basis for further improvements. The following case study shows how working with the PDCA cycle works.

The PDCA cycle explained using a case study

The management board of an electrical motor manufacturer has adopted a new strategy to further expand the company's quality leadership in electric motor production and increase customer satisfaction. To this end, the management team defined the following so-called breakthrough targets:

• The production processes must be state of the art

• The work must be based on the zero-defect principle

• The striving for continuous improvement (CIP) should be anchored among the employees

These goals have been broken down to all levels. At a meeting, the head of department pointed out to the group leader that the five pressing lines he supervised produce less than the target of 35k motors per day. The consequences: Supply bottlenecks and customer dissatisfaction. The group leader should now solve this problem. In accordance with the PDCA cycle, the following procedure was followed.

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PDCA Phase: Plan

The group leader analyzed the production figures of the past weeks. He found that the joining line supervised by the team leader only delivers an average of 32k motors per day instead of 35k. The team leader suspected that this was due to high line rejects. They then took a look at the sorted motors in the quarantine stock. The result: the labelling on almost all rejected motors are displaced or not readable.

The group leader asks the team leader what could be the cause of the problem. His assumption: "The printer is not running perfectly and the application process is not stable. A check of the incoming labels has proven that all material is in specification, so the failure has to be within the printing and application process. The team leader then looked at the scrap figures in the shift reports. It turned out that over 80 percent of the rejected motors are produced during the night shift.

So the group leader and the team leader observed the labelling process in the following night shift. They noticed that the labeling belt occasionally jams in the conveyor belt, which is why the labels are applied offset to the desired location. The team leader suspected that this was due to the fact that the printer mounting and so the printer location was in the wrong position, a further analysis has shown that a new employee has been placed in the night shift and he didn’t understand the correct setting and placement of the printer after exchanging the labeling roll. In addition, it came out that the cartridge has to be replaced after 24 hrs which also was usually coming to the night shift. So the root cause was clear.

The group leader then asked the team leader to formulate a target state for possible countermeasures. He knows through trainings that targets should follow the SMART rule, but on this topic mainly measurable. He wanted to achieve the target by training the new operator. Done deal.

PDCA Phase 2: Do

But the group leader was not satisfied with that. He asked the team leader if he knew exactly how the operator were going to change roles and cartridges if there was a standard operation instruction (SOI) of this process and how to train new operators. The team leader denied this.

In the following night shift, they both watched the change of roles and cartridges by experienced and inexperienced operators. The experienced operators made sure that the labels did not touch the floor during the change and that the printer is in the correct position after replacing the role. The inexperienced, on the other hand, often rubbed the labels on the floor and just pushed the printer in the station without checking the first parts after replacement. Dirt gradually collected in the label dispenser, causing the tape to jam from time to time and the incorrect position of the printer led to misplaced and crushed up labels which in the end of line led to the rejects of the motors.

The group leader asked the team leader and his team to consider possible countermeasures, prioritize them and draw up an action plan. The countermeasures were among others: 

1. 5S sessions at the end of each shift to restore cleanliness and order in the line

2. Installation of training matrix in order to know how is able to follow the process and how is experienced enough to train new operators

3. Install a Poka Yoke fixture to ensure a process stable positioning of the printer

4. Install a counter with light indication when the cartridge of the printer needs to be replaced after an evaluated amount of labels printed

Based on the prioritization, the team members drew up an action plan. They also agreed:

The current status of the project is always documented on the cell board of the labelling line for the next three months

The progress figures are reported in the daily shop floor meeting – not the team meeting of the cell. It has mgt. focus.

PDCA Phase 3: Check

In the following weeks, the team leader of the cell reported daily the figures and the impact of the measures on the outcome. They also defined further measures on the basis of their experience to date. For example, the machine is always stopped when the label tape reaches into the light barrier, caused by an air blast. The measure was to install a duct for the carrier tape of the labels into a bin placed under the line, easily accessible for the line clean up at the end of the shift.  As a result, the reject rate fell by almost 80 percent after three months. The initially formulated target of 40 percent fewer rejects was achieved.

PDCA Phase 4: Act

After this assessment, the group leader asked the team leader what he wanted to do with regard to standardization. He replied that he would prepare a written description of the optimal process "maintaining the label printer" as well as for training new operators. In addition, from now on he will carry out a daily process control in order to detect target/actual deviations earlier.

The group leader praised the team leader and asked him at the next team leader meeting to inform the team leaders of the four other production lines about the new standard and the findings in the PDCA problem-solving process so that they could learn from the experience. Him himself informed the head of the motor production department that the problem of insufficient motor production had been solved.