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Core business metrics and measures

Attempting to select the right measures for your business can be complex – whether in manufacturing or the service sector – activity can be so diverse that it can be sometimes difficult to pin down activity that directly contribute to a businesses success (or failure!). It’s worth remembering that Measures should provide a structure for continuous improvement and increasing levels of customer satisfaction and that fundamentally they should relate to activity that contribute to the bottom line.

Usually KPI’s can be distilled into 3 core areas – they are Cost, Quality and Delivery. The SMMT Industry Forum Action Group in the UK (http://www.industryforum.co.uk/) have divided these into 7 core measures for manufacturing – these were identified as the best method for benchmarking suppliers. Whilst it may be difficult for your industry to apply these in all instances there is certainly value to be had in analysing the approach – The genesis of these measures has been the manufacturing environment – however with a bit of thought – they could all be “tuned” to apply to service based organisations. All of these measures impact the organisations bottom line and all have a role to play in improving competitiveness – the measures are:

Not right first time

A measure of an organisations ability to produce an output without defect – this can be analysed as a % against total output (i.e. parts per million) and is indicative of the ability to manufacture correctly against a given specification. This also has some relevance to service industry (for example on a service desk environment – a measure could be taken reviews the amount of times that the 2nd line have to go back to the service desk for more information) – this is a key measure in understanding process waste.

Delivery Schedule Achievement

All business (whether manufacturing or service related) have to satisfy their customers within agreed timeframes – this measure analyses the success of that. This can be measured by analysing planned delivery requirements and then expressing the success result as a percentage. Many businesses have a target set for this measure that is benchmark able within their industry sector. This measure can also be applied to internal business processes where departments rely on an a timely input from another part of the organisation.

People Productivity

This measure analyses the people contribution – there are a variety of methods of measuring people productivity – perhaps the most popular way is to measure the business or departmental output against man-hours required during the production (or manufacturing) process.

Stock Turn

A stock turn can be defined as “how many times, on average, the stock was sold and replaced during the year.” – this measure indicates how materials are controlled within the organisation and is an excellent indicator of whether the right materials are stocked for the production process.

Overall Equipment Effectiveness

This measure takes into account the effectiveness of the tools and equipment utilised during the production process – in a manufacturing environment this obviously relates to the plant and equipment – this could also be utilised in the service industry – for example where an ERP system is used – is this available all the time – do you suffer from communication outages (e.g. phone/email etc).

Value add per person

Measuring the financial contribution (based on organisational output against a process) per employee can provide an important indicator of the value add contribution made by staff – tracking this measure during a continuous improvement program provides a good method of seeing the success of the program over a period of time (a hint – the value add per person should increase over time!).

Floor space utilisation

A measure of sales revenue generated per square meter of business floor space – an important measure in manufacturing as this takes into account space required for plant, equipment, stores and personnel.

 

 
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