What are the right KPIs for my Operation?

That's one of the questions I mostly get when starting a project. And of course the answer depends on all sorts of things, mainly what kind of operations it is, but also, what the exact business model is for that operation. 

Kind of operation: Obviously, KPIs for a production department are different from the ones for sales or R&D. There are a few KPIs out which can be called "Toolbox KPIs", as they are standard KPIs which are applicable for every respective department (i.e. productivity, labour efficiency, machine utilisation, customer satisfaction, sales force saturation, ...). 

Other than Toolbox KPIs, there are also ones which reflect the exact business model of a company. Say, KPIs in a make-to-order production environment are different from make-to-stock. Mass production KPIs can differ from single-unit production; i e. a shipyard has different KPIs from a car manufacturer. 

Another dimension is the hierarchical level. A CEO has different figures from a front-line supervisor. 

It is already apparent, this question cannot be answered in absolute terms. I can even imagine that there are books out there only dealing with KPIs for all sorts of environments. 

Maybe, to answer this, I should elaborate a bit on what the wrong KPIs are, because that can be answered much easier. 

• Absolute figures are not KPIs. I have seen production companies that use volume (tons produced) as sole indicator to measure the whole of the operation. And I have seen sales organisations that only measure turnover in currency terms. Now this is really über-bad, but I have seen it exist!
  
• A next "no" is the dominance of financial figures. In general, many figures which end up in the P&L are operationally not meaningful. They are of course important, but not sufficient. It is also an indicator that the CFO seems to be either too dominant or other directors simply incompetent.
  
• Lack of cascade. Quite often I have seen daily KPIs on supervisory level, which is perfectly okay, but they are not aggregated upwards and the CEO does only get daily figures. This is not so bad, as he can easily add them up and do his own little calculations. What is worse though, far too often there are only monthly and other highly aggregated numbers available and nothing on an operational level. It is good to know what the monthly productivity is, but what exactly does this mean for the shopfloor on any given day or even as a whole?
  
• Dead KPIs are sad. Ages ago, someone decided certain KPIs are needed, so they were produced. Fair enough. This very someone then left his position, but the KPIs did not leave with him and are being produced and produced and produced - and nobody reads and uses them. What is even worse, nobody understands them.
  
• Meaningless KPIs are those that are produced regularly and even looked at, but not used to take action or analyse the operation. Say, an operations department measures stockout situations for production. They look daily at this KPI which tells them how many orders could not be produced due to raw materials not being present on time and in full. This is actually not too bad for a KPI. 
  What one really wants from an ops department is an analysis rather than looking at the numbers and having a common understanding how bad the situation is:
  - Which suppliers are the worst offenders?
  - Which raw materials were affected the most?
  - Which customers did we disappoint the most by not delivering on time?
  - Are there daily/weekly/monthly trends when raw materials are not coming?, etc...

Of course there are more, but these are the worst offenders and blunders in the realms of KPIs. As one can see, I do not differentiate between KPIs or simple PIs. Numbers are numbers, some are more important than others, hence have deserved being of key value, but that's a different story. 

Let's go back to the original question: What are the right KPIs for my operation? Let me answer this with a counter question: Did you have a good day yesterday? Normally I can tell by the answer whether there are good KPIs in place or not. Just think about it for a bit......  

OEE - Overall Equipment Effectiveness and the New Project.

It is about time I am updating this blog again, as I have been managing a project in Austria since April. Since it is an active project, I cannot say who the client is and what he produces. But they are producing something MTO (Make to Order) which is made of metal and which one can find in most buildings. 

I think I should write about a few features of the project in the next few entries - what I am doing here, what I am learning, etc...

The project is about raising efficiency levels in the factory and the good thing about it is, it is a coaching project where I am coaching everyone from key operators to the managing director in efficiency raising techniques. 

We are tasked to do mainly 3 things - implementing OEE, doing some core SMEDs, and installing a "Lean Corner" (daily review meetings, action plans, etc). 

OEE Definition in German

 This poster about the OEE definition is in German but it shows the 3 areas OEE is looking at - Availability (V for Verfügbarkeit), Performance (L for Leistungsgrad) and Quality (Q for Qualität). OEE itself is calculated as a multiplication of all the 3 of them. 

KPIs of SCP

SCP has a few KPIs by which one can see how well (or not so well) they have done.

Customer Service measured as Customer OTIF (On Time In Full). This KPI measures the orders a customer wants at what date with the ones actually delivered on that date. Whether these should be orders or order lines needs to be decided case by case.

Internal OTIF from factory to distribution centre (also called Factory OTIF). This is a shared KPI with SCO and measured the weekly planned orders with the actually produced orders which enter the distribution centre for distribution to the customers. This is more interesting in an MTS (Make To Stock) environment where SCP would be responsible for reorder points, safety stock, etc, as MTS orders are mainly generated by SAP or any other production planning system.

Stock. These stock KPIs can be expressed in total nominal stock value (raw material, finished goods, work in progress, packaging, goods for resale) or days of stock/inventory. Also, obsolete stock should be measured.