In closure of our running lean blog series, we discuss metrics and their impact on truly running lean. Business systems have generated a myriad of different types of measures that we must track. Most executives I talk to today have anywhere between 12 and 20 key metrics they are held accountable to. How can anyone expect to influence 12 to 20 key metrics? Particularly when there are metrics like the infamous productivity measures. We want to measure how productive our employees are, in theory, it sounds great, in practice, it creates a culture of waste. To be productive or shall we call it busy, we require our employees to just work. When Dr. Ohno created TPS it was not to have employees just doing busy work. That is why I ask the question. Is what they are working on really important? Will it drive more sales? Will it reduce the cost of the products we are selling?
Remember the definition of running lean simply means profitably meeting customer demand in the shortest time possible. When you look at the companies that have achieved that status, their turns are world-class. Gone are the days of 5 turns or less: when running lean you see 15, 20 even 30 plus turns. Take for example a company I worked with that went from 2.3 to 8 in less than 12 months after implementation of truly running lean in their entire Supply Chain. When you look at cost of goods sold, a company that is running lean will have 8 to 10% lower costs and they don’t have the waste in Scrap, Rework, or my favorite; Expedite expense.
The secret to achieving this status is the establishment of flow and a total change in mindset in terms of measuring performance. It is flow that allows companies to have flexible employees that are productive AND efficient. These companies have productivity rates in the 90% range, with the aforementioned turns, because they optimize their employees’ talents and aren’t just building to build. They are putting the right people in the right position and the right time to be successful.
The change in mindset is focusing on the three primary metrics that we should be driving: Throughput, Operating Expense and Inventory. Everything we measure today will fit underneath one of those three metrics. When we start to really drive those three measures we lose the misconceptions that tie us to doing lean and prevent us from truly running lean. We no longer have those competing metrics that create the islands of excellence within a business that is losing money.
When reflecting on your lean journey, always think about what Dr. Ohno’s intentions with lean are; to profitably service the customer in the shortest time possible. Hold that as your foundation and look how it will change your decisions. That is when you achieve the results that most only dream of.
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