All businesses should develop metrics for the following five key elements.
Modern Machine Shop,
From the monthly column: Competing Ideas
Metrics provide direction, focus, clarity and prompt change when needed. However, the actual metrics needed in an operation and how to best track them is open to discussion. Rather than provide a list of metrics from which to choose, I suggest looking at the following key elements of every business and considering which metrics you need from there.
• People Skills. If the phrase “people are our most important asset” is to be more than just a cliché, we need to commit to a means of determining just how important our people are. Certainly an employee’s “hard skills” are important, but other things might be just as critical to a company’s success. When developing a workable people-skill metric, the following employee attributes should be considered:
1. Reliability: getting to work on time.
2. Open-mindedness: accepting new concepts and ways of doing things.
3. Initiative: willingness to do more than is expected, and figure things out when necessary.
4. Potential for promotion: interested in assuming more responsibility with a goal of becoming a key player in the company.
5. Support: working well with others and providing help when needed.
• Quality. Although most will say that “quality must be a given in order to compete,” we still need to measure our effectiveness.
Sometimes an organization has great product quality, but it invests a great deal of time and effort checking, adjusting, repairing and replacing things during the process. These actions are often hidden as the focus rests on end results. A good quality metric should include not just end-of-process results but in-process efforts as well.
• Customer Service. There are many components to customer service.
1. Delivery timeliness: how long it takes to get the product to the customer.
2. Communication: how well we advise customers of all things related to their orders.
3. Problem resolution: how we do when things do not go as planned.
4. Ease of doing business: being accessible, showing flexibility in serving customers and demonstrating commitment to helping customers.
A meaningful customer-service metric needs to show us how well we serve our existing customers and whether these customers would enthusiastically recommend us to other potential customers (remember: being neutral in this area is not a good thing).
• Cash Management. This is, perhaps, the most important metric category because it encompasses so many parts of the business. Obviously the inflow and outflow of cash needs to be watched closely. Days of receivables and payables must be kept in balance to ensure an adequate cash flow. The following cycles must also be considered for cash management:
1. Sales cycle: how quickly we provide quotes to customers or how quickly we enter purchase orders into our systems.
2. Engineering cycle: the speed with which we complete custom product designs; design and build tooling and equipment used in production; and develop programs for our CNC machines.
3. Production cycle: how fast we get the product through all the required steps.
4. Inventory cycle: how long we hold raw material, work-in-process and finished goods in our facility.
5. Shipping cycle: how effective we are at gathering, packing and shipping things to our customers.
An effective cash-management metric needs to be far-reaching. It might turn out that the biggest improvement in cash management comes from one of these other cycles and not just “slow down payables and speed up receivables.”
• Productivity. In its purest form, productivity is a measure of output over input. Productivity metrics vary widely from company to company and industry to industry. The output can be dollars, units, orders or any criteria applicable to our type of business. The input can be raw material consumed, labor hours, machine hours, number of people involved and more. The most meaningful productivity metric is one that best represents the effort involved in getting goods and services to our customers.
Any metric selected should be included in some type of scoreboard for ease of communication and tracking. The scoreboard is an ideal tool for comparing where we are to where we should be. The scoreboard can be tailored to a company’s specific business, but should include visual indicators, such as color codes (green is good, yellow is neutral, red is not so good) or graphs to clearly illustrate company performance.
Of course, like collecting the metrics, there needs to be a commitment to maintaining the scoreboard. Keeping the scoreboard up-to-date demonstrates to all employees the value that metrics bring to running a business.
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