Situation
In the mid 1990’s, a automotive contract manufacturing firm was facing dire times. The company had a long established practice of doing what it takes to achieve delivery requirements from their automotive customers. This in reality meant there was no focus on procedures and other infrastructure requirements of typical firms. This was also a result of the firms “mom and pop shop” mentality, which up to this point in time, had serve the company well. In addition, 2 of the firm’s major customers have removed them from the quote list for further business due to quality and delivery problems.
In addition to this, the firm’s customers and potential new customers were demanding the organization adopt a formal Quality Management / ISO 9000 based system. Finally, due to the missed deliveries and quality issues, the plant’s operational profit had eroded.
Faced with these pressures, the owner of the company attempted to re-focus the organization and appointed a new Plant Manager. The PM had extensive quality experience as well as a strong operational background.
Solution
Working with a Rath & Strong consultant, it was immediately apparent that the entire organization was running this facility on a management by gut feel approach. There were no metrics to determine how successful the plant was performing relating to operational profit and this metric was not typically not available until 23 days after the previous month ended. Operational Profit was called the “Big Y” or output of the process. It was considered the Big Y because once it was determined, there was nothing that could be done to effect it.
The first step of the solution was to determine what were the key metrics of the plant that the plant was responsible for. This was not operational profit since this metric was the result of all the activity combined. With the plant staff, the following were some of the metrics that were defined:
- Delivery Performance – related to revenue
- Customer Rejects – related to revenue credits
- Hours Overtime – related to expenses
- Scrap – related to expenses
These became the Plant Top Line Indicators or “Little Y’s.” Our objective was to measure and monitor these routinely and determine if based on the performance of these metric, could we predict the Operational Profit or the Big Y.
After a few months, these metrics yields a fairly good prediction of the Big Y.
The next step was to drill down further into the process and identify metrics which were drivers or influences of these metrics. These became the X’s of the process. The resulting metrics and their relationship to the Little Y’s is presented below:
| Delivery Performance – related to revenue |
- Equipment Up Time
- Absentee Rate
- Process Rejects
- Customer changes
|
| Customer Rejects – related to revenue credits |
- Process Rejects
- Equipment Failures
|
| Hours Overtime – related to expenses |
- Absentee Rate
- Process Rejects
- Safey (Accidents)
- Supplier Problem
|
| Scrap – related to expenses |
- Process Rejects
- Equipment Failures
|
| As seen, there is duplication in the relationship and for each of the metrics listed, drivers or influencers of these were also defined and these were tied directly to a specific process as shown below: |
| Delivery Performance |
- Equipment Up Time
- Absentee Rate
- Process Rejects
- Customer changes
|
- Maintenance Process
- Supervisory Process
- Manufacturing Process
- Sales Process
|
| Customer Rejects |
- Process Rejects
- Equipment Failures
|
- Manufacturing Process
- Maintenance Process
|
| Hours Overtime |
- Absentee Rate
- Process Rejects
- Safety (Accidents)
- Supplier Problems
|
- Supervisory Process
- Manufacturing Process
- Supervisory Process
- Procurement Process
|
| Scrap |
- Process Rejects
- Equipment Failures
|
- Manufacturing Process
- Maintenance Process
|
Now the plant could identify and clarify an owner of the process and, therefore, an owner of the Metrics. It was his/her responsibility to monitor these metrics and if the metrics were not meeting targets, take the appropriate action to improvement the metric. In theory, if all these metrics were meeting targets, the operational profit should be automatic.
As a result, the plant now had the ability to effect their own performance. |
Results
A few months after all these metrics were defined, tracking and monitoring of these metrics initiated, and some education by the Management team along with Rath & Strong people, the individual process owners were taking action on their on based on the performance of the metrics and improvement was being realized. The plant subsequently were able to achieve the operational profit targets. Examples of the Big Y improvements realized were as follows:
On-time Delivery
Absentee Rate
Customer Rejects
Process Rejects
|
85% to 97%
14% to 2%
22% to 4%
35% to 14%
|
SUMMARY
Process Management methods enabled the organization to understand the basic equation
y = f(x),
and classify the key metrics of the plant as y’s or x’s. It also enabled the plant to develop standardize ways of monitoring these metrics and taking action. This follows the Plan Do Check Act process and without checking the right things, the action taken did not impact the outcome.
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