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The metrics you use depend on where you are on your lean journey. Maximizing your cash-to-cash cycle is the target and your inventory turns or velocity is a great measure. Your inventory turns are composed of your finished goods plus Work In Process (WIP) plus raw materials. What do you need to measure?
First, your sales cycle drives finished goods turns, production drives WIP turns, and purchasing drives raw material turns. The faster each of these move, the better your cash flow. Many companies have inventory turns of 5-20. Drive yours over 100 and you are doing great.
Overall Equipment Effectiveness
Second, the fewer unproductive man hours you use to drive these measures upward, the better your numbers look. You can use the Overall Equipment Effectiveness (OEE) measure here.
OEE% = Availability% X Productivity% X Quality%.
Think of Availability% as machine running time (actually making parts) / total machine time (including setup, breakdown, or other down time). Productivity% is based on machine performance or operating speed compared to its maximum speed. Quality% is the number of good parts produced compared to the total number produced.
Multiply them together and you get the Overall Equipment Effectiveness or OEE, which can be used to find the waste that is holding you back. OEE varies dramatically by industry but target 90% and you will be doing well here.
Improvements Per Employee
Third, a strong aggressive program of improvement will overcome everything else. Kaizens or improvements tracked per employee will provide a barometer for action. Corrective action, preventive action, or just corrections are all required by ISO 9000. Lean also thrives on continuous improvement. Many companies might be happy with one improvement per employee per year. But if you really want to drive improvement you need something far more aggressive like two improvements per person per month. That’s right, per month!
One improvement per employee year means that an employee works about 240 days in a year and comes up with one idea. What kind of productivity do you think you are getting with 1/240? Now if that same employee provides two ideas per month, that’s 24 ideas per year or 1/10 productivity. Which do you think produces a more competitive company over time? But wait, you can get synergistic returns by communicating your improvements to all employees. Others will see one idea and think of an improvement on it and make it even better
Lean metrics can be as simple as inventory turns, Overall Equipment Effectiveness, and kaizens per employee. Use these three to get your lean program started and I guarantee you will see dramatic improvements in your organization.