When starting out with Lean Key Performance Indicators (KPIs) – Less is More

In a post I wrote earlier this year, I talked about the key pitfalls of visual display boards and some tips for avoiding them. I briefly mentioned what I believe is a key fundamental for new lean practitioners or those new to visual display boards which is to avoid having too many Key Performance Indicators (KPIs) when you’re first starting out.

It’s easy to get seduced by the thousands of examples of amazing visual display out there. Colorful and visually seductive, these images give the impression of systems that are truly and perfectly under control. We can easily be convinced that the more we measure, the more ‘lean’ we will be. Nothing could be further from the truth. The fact is, why would we measure something if it doesn’t add value, or assist in adding more value to the customer? In the end, we owe it to our customers to only measure and display what we truly have to, to avoid adding further unnecessary cost to the product or service we are offering.

In my experience, it’s better to focus on what matters and drive a small number of KPIs rather than casting the net wide. It’s not about who’s board is bigger! The reality is that good boards that add enough value to offset the expense of maintaining them evolve out of a critical need to manage or improve a process.

A good rule of thumb when working out which KPIs are critical to you and which are not is to use the ‘survival rule.’ Ask yourself if you can operate without knowing the details of this KPI. If your answer is ‘Absolutely not, OMG, don’t take away my precious data’ then it’s probably worth keeping in the maybe pile. Conversely, if your answer is ‘Frankly, I’m not sure who even uses this information anyway’ then get it as far away from your management process as possible.

It is wise however to be careful when starting to focus on any KPI that we do not focus on it to the exclusion or detriment of other critical KPIs. For example, I once worked with an inventory controller whose mission in life (incentivised) was to drive down inventory. Focused and committed, he spent a great deal of time reducing stock levels and saved the company a great deal of money in terms of the value of inventory. However, this inventory controller was not incentivised or motivated whatsoever to achieve delivery in full on time (DIFOT). Directed by the financial department and not by operations, he failed to ensure that the customers of the company were receiving their products in a timely manner. This made the customer service team, who were motivated and incentivised by DIFOT very frustrated. This is a great example of a localised KPI that doesn’t take customer value into account. Conversely, I’ve also seen examples where companies have held too much of everything to make sure their customer never suffers, to catastrophic effect on cash flow. The pendulum can swing both ways. This is a tip in itself. Successful KPIs focus on delivering value to the customer while protecting the long term survival of the business.

Case Study: Starting KPIs from scratch with a clean slate

A colleague of mine was keen to implement KPIs in his distribution warehouse. Up to that point, we weren’t measuring anything, mostly because there weren’t too many issues making us uncomfortable. On a lean tour of other facilities we saw a lot of great KPIs in use. We saw boards covered in data, digital and hard copy. On our return to our own facility I asked my colleague what he had learned from the lean tour and how it had affected his thinking about implementing KPIs. His response was that despite all he had seen, he had realised that he only deeply cared about one thing, whether his facility delivered the right product every time. He needed a distribution version of the KPI known as First Time Pass Yield (FTPY) to measure pick accuracy. I asked him if he wanted to monitor Delivery In Full On Time (DIFOT), a standard metric for distribution centres. He said “Why?”, we never miss a shipment, that’s not the issue, what I care about is the the shipments that get to the customer but have the wrong part. So that’s what he measured. He put a big whiteboard up in the area and put one KPI on it. It was abundantly clear to everyone in the area what the target vision for the area was. Not long after this, the team celebrated a month where pick accuracy was 100%. Because this approach was used, the development of the rest of the board was very deliberate. The team identified information they couldn’t live without and slowly added to the board. The result today is one of the best examples of living visual display I’ve seen in twenty years of being heavily involved in continuous improvement.

Case Study: Inheriting someone else’s board

A marketing colleague of mine inherited a large series of six boards when she started with the company. She was shown the boards, set up by the previous leader of the area, and told to keep them up and working. Not long into her tenure, she admitted to me that she had no idea what the boards were trying to achieve and felt that she was missing something. In addition, her team didn’t really know what the boards were for either. What was missing was that these boards had been set up so that the team could ‘have boards’. In addition, they had been set up by the previous manager whose target vision and key focus areas were different to the new manager. Once she realised this, she started working out what KPIs were really important to her team and what actually needed visual management. From there, she revamped the boards to suit. A  few months later she realised that some of the KPIs she had chosen weren’t as relevant as she had originally thought, so she removed them and replaced them with what she really wanted to measure and manage. Over time, as she has matured in the role, the boards have matured with her and are now an essential part of the team’s management system.

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When it comes to choosing what KPIs to use in your business, less is definitely more. KPIs should support your journey towards your target vision while making sure that basic commercial and safety targets are met as well.

In the simplest terms, if a KPI is not helping you move forwards in line with your strategic plan then it is waste. We are striving to drive waste out of our companies, not bring more in.

Like many lean boffins I like my graphs, there’s something about watching the line go in the right direction that fills me with great satisfaction. These days, I make sure that I’m only watching one or two really important lines.

2 thoughts on “When starting out with Lean Key Performance Indicators (KPIs) – Less is More

  1. Thank you for this post! I’m reading some of your texts and they’re all very interesting. Please continue writing about the correlations between minimalism and lean.

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    1. Thanks for your comments Carlos. I believe there is a very strong relationship between the principles that underpin the Toyota Production System and the key fundamentals of minimalism in that they both embrace focusing only on what adds value and working towards the elimination of what does not. I’m glad you are finding value in this blog.

      Like

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