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Organisations measure what they value: volume, profit, safety, errors, customer or employee satisfaction.They measure what they hope to influence.
Problems arise for organisations when they substitute proxy measures for what they value that are not actually directly related to what they value.
A personal example of this was when I was a production manager in charge of a lubricating oil plant in Sydney, Australia.
What the organisation I worked for valued was profit before tax, which was duly measured. Other measures which received air time were customer satisfaction, employee satisfaction and safety.
At an operational level we had a fixation on costs and as a driver of costs, labour productivity. We fought for a long while to get productivity accepted by the unions as a legitimate measure that influenced their take home pay.
The performance of our plant at which I was a supervisor at the time was illustrated by continual stock outs, long back orders, high levels of obsolete stock, despatch areas congested with returned stock, poor customer satisfaction and overall productivity one quarter of the national average.
We were, as a supervisory group, considered by our senior managers, marketing colleagues and distributors to be incompetent.
We finally succeeded in negotiating a wage case including productivity as a yardstick of performance. We went about setting productivity targets for blending oil expressed in litres blended per man hour, filling oil expressed in packages per man hour for every package size and warehousing expressed in litres per man hour moved in and out of the warehouse.
We expected that by concentrating on productivity in this manner, productivity would rise, costs would drop and our ability to supply the market would increase dramatically. We told our marketing colleagues and distributors to expect better times.
Initially, productivity rose, costs declined and customer service levels improved slightly. However, the improvement was nothing like what we expected and after a year or so, the results started to decline. We redoubled our efforts looking at the drivers of productivity.
Still the improvements did not come as we expected.
At this time I was transferred to a plant in Brisbane, returning eighteen months later as the manager of the Sydney plant. The time away had not changed the statistics; we were still poor at what we did. Our concentration on productivity had failed to deliver on what the organisation valued.
Eighteen being months production manager at a plant which had the highest level of productivity in the country allowed me time to think and observe what drove people and what demonstrated that manufacturing plants were functioning from a customer's point of view and what measures at a plant level influenced what the organisation valued.
Note: the reason I had time to think in Brisbane is that the guys running the plant did it so well, there was not a lot to manage.
I made a decision upon my return to Sydney to no longer measure labour productivity. We would measure instead, the number of days it took us to bring the stock level of a stock keeping unit back above its reorder point level after it had fallen below the level. The measure we would report was our worst open case. That measure at the time stood at 265 days.
That meant we had not replenished the stock on one of the stock keeping units for 265 days even though our stock levels were built on satisfying customer demand with a maximum of twenty days replenishment cycle.
The whole of the production team, supervisors, clerks and storemen were given the challenge to reduce the measure from 265 days to 30 days in six weeks. Then to reduce it 25 days in six months and to reduce it to twenty days in twelve months.
They achieved their targets and we achieved some interesting results. Our in-stock levels increased from 82% to 93%, our customer and distributor complaints dropped to zero, our levels of returns reduced from thirty pallets a week to two, our congested loading dock freed up, our completed delivery rate went up, our space requirement for holding stock reduced by forty percent.
Customers were happier, employees could complete a job without passing blame and you guessed it, productivity went up.
Concentrating on productivity had forced our employees to concentrate on long run, low set up cost, products. Low run and high set up cost "speciality" grades were not filled. This resulted in high stock outs, long back orders and when we finally did get stock, high levels of returns from customers who had gone to competitors to get their order filled.
Concentrating on operating our plant to a plan to satisfy customer orders and improve customer satisfaction kept the focus on delivery to customers, one of the outcomes the organisation valued.
We became what we measured.
Problems arise for organisations when they substitute proxy measures for what they value that are not actually directly related to what they value.
A personal example of this was when I was a production manager in charge of a lubricating oil plant in Sydney, Australia.
What the organisation I worked for valued was profit before tax, which was duly measured. Other measures which received air time were customer satisfaction, employee satisfaction and safety.
At an operational level we had a fixation on costs and as a driver of costs, labour productivity. We fought for a long while to get productivity accepted by the unions as a legitimate measure that influenced their take home pay.
The performance of our plant at which I was a supervisor at the time was illustrated by continual stock outs, long back orders, high levels of obsolete stock, despatch areas congested with returned stock, poor customer satisfaction and overall productivity one quarter of the national average.
We were, as a supervisory group, considered by our senior managers, marketing colleagues and distributors to be incompetent.
We finally succeeded in negotiating a wage case including productivity as a yardstick of performance. We went about setting productivity targets for blending oil expressed in litres blended per man hour, filling oil expressed in packages per man hour for every package size and warehousing expressed in litres per man hour moved in and out of the warehouse.
We expected that by concentrating on productivity in this manner, productivity would rise, costs would drop and our ability to supply the market would increase dramatically. We told our marketing colleagues and distributors to expect better times.
Initially, productivity rose, costs declined and customer service levels improved slightly. However, the improvement was nothing like what we expected and after a year or so, the results started to decline. We redoubled our efforts looking at the drivers of productivity.
Still the improvements did not come as we expected.
At this time I was transferred to a plant in Brisbane, returning eighteen months later as the manager of the Sydney plant. The time away had not changed the statistics; we were still poor at what we did. Our concentration on productivity had failed to deliver on what the organisation valued.
Eighteen being months production manager at a plant which had the highest level of productivity in the country allowed me time to think and observe what drove people and what demonstrated that manufacturing plants were functioning from a customer's point of view and what measures at a plant level influenced what the organisation valued.
Note: the reason I had time to think in Brisbane is that the guys running the plant did it so well, there was not a lot to manage.
I made a decision upon my return to Sydney to no longer measure labour productivity. We would measure instead, the number of days it took us to bring the stock level of a stock keeping unit back above its reorder point level after it had fallen below the level. The measure we would report was our worst open case. That measure at the time stood at 265 days.
That meant we had not replenished the stock on one of the stock keeping units for 265 days even though our stock levels were built on satisfying customer demand with a maximum of twenty days replenishment cycle.
The whole of the production team, supervisors, clerks and storemen were given the challenge to reduce the measure from 265 days to 30 days in six weeks. Then to reduce it 25 days in six months and to reduce it to twenty days in twelve months.
They achieved their targets and we achieved some interesting results. Our in-stock levels increased from 82% to 93%, our customer and distributor complaints dropped to zero, our levels of returns reduced from thirty pallets a week to two, our congested loading dock freed up, our completed delivery rate went up, our space requirement for holding stock reduced by forty percent.
Customers were happier, employees could complete a job without passing blame and you guessed it, productivity went up.
Concentrating on productivity had forced our employees to concentrate on long run, low set up cost, products. Low run and high set up cost "speciality" grades were not filled. This resulted in high stock outs, long back orders and when we finally did get stock, high levels of returns from customers who had gone to competitors to get their order filled.
Concentrating on operating our plant to a plan to satisfy customer orders and improve customer satisfaction kept the focus on delivery to customers, one of the outcomes the organisation valued.
We became what we measured.