Measurement and Return on Investment

Lean Nation,

It has been a while since my last blog. Too long in fact, but I am committed to blogging more frequently in 2016.  Today's blog is on measurement and Return on Investment.  Great organizations can measure their results.  They can measure them at the local level, at the site level and the enterprise level.  And they can measure things in real time.  No waiting for month end reporting or quarterly reporting to know which way things are trending. 

Aside from real time measurement,  great organizations simply have the ability to measure things.  I firmly believe capability follows motivation. Great organizations do not accept the "computer system" can't give us that information.  they go get it.  Automated if possible, manually if not automated, and with a stop watch if necessary. "Go and See" is the best way to see if something is working.

Before I go on, let me state that measurement is critical because it is the only way we can show improvement.  If you can't measure it, you can't improve it.

Now before we get into ROI, let's review what to measure.  Measurement in an improving environment comes from one of five dimensions. Quality, Delivery, Cost, Staff Morale, and Growth.  Collectively these measures make up we call a balanced scorecard and also make up what we call the "true north" dimensions.  When waste is removed from a process, typically all five of these dimensions move simultaneously.  Done well, you can expect double digit growth in each of these measures year over year.  The following table explains the five dimensions in more detail.

True North Category	True North Measure Definition
People	Staff morale or staff engagement
Quality	Defects per unit of service or process outcomes related to meeting the customer’s requirements
Delivery	Lead time for goods and services from customer need identified to customer need met expressed in time (minutes/hours/days)
Cost	Hours or $ consumed per unit of service. Typically a measure of productivity
Growth	Increases in revenues or volumes

Now during the course of improvement, we want to ensure we have a good return on investment.  A well done lean management system will deliver an ROI of 3 or 4 to one on an annual basis.

Be cautious, however, as every A3 and every project will not return hard dollars. Nor should it.  But the collective of your improvement efforts should return 3 or 4 to one annually.  One of the biggest mistakes organizations make is expecting every single project to return hard dollars. This neglects the dozens of important pieces of work that return soft dollars, improve the customer experience, improve staff morale, make the workplace safer, and change the culture of the organization. 

One of the techniques I like to employ is running a multiple team kaizen event.  In this circumstance, one of the teams should have a hard dollar savings. This in effect funds the other teams.  The balance of the teams can attack a variety of different wastes, but may or may not have a hard dollar savings. 

Lean Blessings,

Ron

President and Sensei

Breakthrough Horizons LTD

www.breakthroughhorizons.com 

Time as a critical aspect of lean improvement

Lean Nation,

As a I travel around the world and watch lean thinking applied,  I see a theme developing.  As more and more improvement facilitators, engineers, and quality improvement scope out improvement activity and apply various tools a key aspect of the Toyota Production System is being lost. In the big picture,  every organization is trying to shrink the timeline between a customer having a need and that need being met.  Let's look at a few examples:

1. A customer has a need for a new cell phone.  a lean organization will aspire to:

• shrink the timeline from customer (market) need to product available on the market
• shrink the timeline from the moment a customer walks in a store until the time the phone is purchased and the service is activated
• shrink the timeline from the moment a support call comes into the service center until the customer issues is resolved.

    2.  A customer needs a surgery.  A lean organization will aspire to:

• shrink the timeline from appointment needed until the clinic visit is complete
• shrink the timeline from decision to operate until patient leaves the surgical center
• shrink the timeline from service to collection of cash

The single leading indicator of competitiveness is time.  World class organizations provide products and services in shorter time lines than their competitors.  There have been some studies done that show that those that can do that repeatedly have shown the ability to grow 4 times faster than their competitors. 

In a lean improvement project (event), time is used repeatedly.  Time is used to calculate takt time,  to determine manual cycle times, to calculate value added and non value added times,  to determine the loading diagram and staffing models, to calculate work in process space requirements and space requirements in general.   So time is a pretty important piece of data.

So now to get to the point of this blog. I have dozens of teams and organizations that run improvement events without a measure of time.   The goal is to create standard work, or improve the customer experience.  To be clear, there are events that focus on quality and safety  improvement.  These activities might not have a time measurement.  ( Although in the big picture, higher quality and safety will ultimately reduce lead times)  

However,  I would encourage you to always have a time measurement in your discrete improvement events.  Shrinking the time from customer need to customer need met through the elimination of wasted time and activity is the end game of lean improvement. Not everyone in management or staff likes the direct accountability of a time measure.  Also capturing time observation data can be time consuming, boring, labor intensive, etc. These are only excuses.  Some dimension of time should accompany every improvement project.

Lean blessings,

Ron

Ron Bercaw

President and Sensei

Breakthrough Horizons Ltd

www.breakthroughhorizons.com

Shingo Award Winning Author