Many owners of small manufacturing businesses, up to about 30 employees in my experience, have only a vague grasp of the measures and mechanics of continuous improvement. Having a stable process, then experimenting to do the small things better, every time you do them. The impact compounds. Lean Manufacturing and Six Sigma offer practical tools to boost performance, reduce costs, and improve your ability to serve customers.
Below are 9 key measures for continuous improvement. Pick the few that are most relevant to you and focus on them.
Overall Equipment Effectiveness (OEE)
OEE shows how effectively your equipment runs by combining machine availability, performance, and quality into one simple metric.
Inefficient or underperforming machines will quickly create bottlenecks in your operation. The whole chain can only go as fast as the slowest link, so identifying those bottlenecks and earmarking them for attention will improve overall effectiveness.
In these days of cheap digital sensors and data collection tools it is becoming easier and cheaper to instal machine sensors, downtime logs, and quality checks to monitor uptime, output rates, and defects.
Cycle Time
Cycle time measures the time it takes to complete a process, from start to finish. Shorter cycles mean more output without extra costs.
The measure can be applied to an individual part of the chain, or the whole chain, using a tool as simple as a stopwatch, or as complex as a SCADA system.
This measure is not to be confused with Takt time, which is a measure of the rate of demand.
First Pass Yield (FPY)
‘Get it right first time’ is a cliché that refers to first pass yield. It tells you how many products come out within specifications the first time, helping cut down on rework, scrap, and wasted effort. The principle of the measure is simple, but the trap is in making it too easy. A wide spread of acceptable specifications is more easily met than a narrow one, and will distort the measure, possibly giving you a wrong picture of quality performance.
There is a myriad of ways to check quality ‘at source’ i.e.: from random checks to sophisticated visual and digital mechanisms.
Lead Time
Lead time normally measures how fast you fulfill orders. It can also be usefully applied to parts of the supply process, such as the time taken to respond to queries, provide details, quotes, and many other points of customer interaction. Faster lead times mean happier customers, referrals and repeat business, and better cash flow. In a world that is accelerating at unprecedented rates, being quicker to respond is a powerful competitive advantage.
The easiest way to track lead times is to start automatically time-stamping everything, and tracking through spreadsheets, your CRM, or even by hand.
Reversing the focus of lead time, and measuring your suppliers lead times, and DIFOT (explained below) is also a powerful way of managing improvement in your operations, and therefore ability to serve customers.
Inventory Turnover
In simple terms, Inventory Turnover is how many times your inventory is sold and replaced over a specific period. It is calculated using the average inventory value in a period and your Cost of Goods Sold. The simple formula is COGS divided by Average inventory.
Accountants see inventory as an asset, that is how it is treated in the balance sheet. However, as inventory is a measure of how much cash you have tied up, immobile, it is to my mind a liability beyond a delicate balancing point that is necessary to serve customers. Too much inventory ties up cash and risks obsolescence, too little causes delays. Balance is key.
There are many inventory systems, all do the same thing. Monitor stock levels, keep track of the value, and usually flag repurchase time based on usage and nominated procurement lead times when fed sales forecasts.
Inventory turnover is often expressed as ‘Days cover’ in fast moving environments. The formula is the same, the period is days.
Scrap, Rework and Waste Rates
Waste eats into profit. You expend time and resources to add to the scrap pile. Anything that reduces waste, scrap and rework will boost efficiency and margins.
Scrap is when you simply send a completed or partially completed item to the bin. Rework is when you invest further time and effort to turn a unit that could be scrapped into a saleable unit, and waste is the material left at the bottom of the ingredient bag, the leftover material after the templates have been stamped out. Each is different, each warrants attention.
As with the other measures, there are many ways of tracking these three ‘nasties’. Your accountant should be able to give you the numbers based on what is used to produce the inventory, and the difference is the place to start looking for the scrap and waste. Rework usually requires added time and labour which can be tracked.
Customer Complaints and Returns
Often the best source of problem identification is what your customers are telling you. A returned product can be a source of intelligence that enables you to track and pinpoint problems to be resolved before they escalate.
Keep records of customer feedback, returns, and service calls.
Equally, customer satisfaction is a useful measure, but challenging to build reliable data. Many enterprises use the Net Promoter Score method, alternatively monitoring social media feeds may deliver insight. However, when customers pay you their hard-earned money, they expect to be satisfied, just delivering what is expected is hardly reason for a party
Safety Incident Rate
Ensuring as far as possible the safety of employees is not only a moral responsibility, it is now a legal responsibility that in some jurisdictions has had the onus of proof reversed.
Factories can be dangerous, and removing as many of the sources of danger as is humanly possible is essential. Tracking safety incidents is a measure of how successful that effort has been.
Delivered In Full On Time. (DIFOT)
DIFOT is an overarching measure that pulls all the above together. Failure in your operational processes will make delivering in full on time challenging, if not impossible. It is one operational measure that should be on every KPI menu. As noted above, it is a very useful measure of the performance of your suppliers.
