The automotive industry has recently been plagued by doom and gloom as the economy continues to erode any chances for a rebound. Chrysler has already met with the reality of an uncertain future and has subsequently filed for bankruptcy. Unfortunately, as Chrysler plants shut down and cease operations for the next 30 – 60 days, suppliers will also feel the impact as well. This will affect other OEM’s such as GM, Honda, and Toyota, as the remaining suppliers will not have the sales to keep their doors open to support these demands.
These times demand extremely effective use of resources to minimize waste and reduce losses in all facets of the business. For this reason, it is a good time to revisit the metrics you use to manage your organization and to make sure that they are providing the right information, at the right time to manage your business effectively. This post was also presented on our companion blog.
We use the term Vantage Point Metrics to identify those metrics that are core to the day to day management of your business. The objective is to distinguish these metrics from the “noise” that is easily created by other less significant metrics. (While it is important to measure everything that is important to your business, not all measurements are equally important at all times or at the same time.)
Determining Vantage Point Metrics is simply a matter of identifying those metrics that are critical to the profitability of your operation. A few simple examples include Safety, Overall Equipment Effectiveness (OEE), Labour Efficiencies, Profit, Absenteeism, Cost of Non-Quality, Delivery Performance, Performance to Schedule, and Inventory Turns.
Keep the number of vantage point metrics to a minimum. Note that we are NOT suggesting that you stop measuring. There is a difference. Too many metrics can create noise and loss of focus. What we are suggesting is that metrics that are critial to the day to day operation must be reported more frequently than others. What is important to who. Can the metric be measured in real time? Can the people reviewing the data make changes in real time? If the data being collected cannot be used to make decisions to correct a current trend then why is it being measured?
Although we can’t control the weather, we certainly spend a signficant amount of time, money, and resources to get up to the minute data and short term forecasts. Only the few key metrics are reported with an explanation of the various environmental influences that may affect the forecast in the short term.
In a similar way, Vantage Point Metrics are those few that have a direct relationship or impact on the current business climate. Changes in the weather may cause us to alter both personal and business plans. Agriculture, NASA, and Aerospace companies rely on the weather as a dynamic component of their business. Vantage Point metrics should assimilate the same sensitivity to climate change in your business.
Measuring for measurement’s sake is waste. Measure critical to success factors that can be used to alter or change the course of business as required. Real time data collection in conjuction with short response-control loops is the key to using these metrics successfully.
Consider managing your personal cash flow in real time versus performing a month end summary. Anyone who has purchased fuel for their vehicle this past year is keenly aware of the fluctuations in pricing and the cost of filling the tank. As the variation in price increases, we in turn become more sensitive to our purchasing habits.
What is the Vantage Point Metric that would allow you to manage your fuel purchases? Is it the price per gallon or litre at the gas station? Could it also be worthwhile to monitor the price of a barrel of oil? Our logic suggests that a direct correlation between price at the pump and the cost of barrel of oil should exist although our experience strongly suggests otherwise. Repair costs, refinery costs, weather, and the value of the dollar, all seem to have an impact on the price at the pump.
Fortunately, gas pumps display the price in real time as the tank is being filled. Knowing our current cash position allows us to fill our tanks to such an amount that we don’t exceed our ability to pay for it. This is measuring and managing in real time. The Vantage Point metric in this case is CASH. It is possible to manage cash flow in real time to determine what and how much can be purchased. If cash is the Vantage Point metric, it becomes clear that many business transactions can be controlled and understood from this one simple metric.
Consider what Vantage Point Metrics can do for your business. Focus on the few metrics that provide the greatest level of control and management of your business. Keep it simple and keep it real. Keep measuring and be prepared to drill down when you have to.
Overall Equipment Effectiveness or OEE provides a single metric that combines Availability, Performance, and Quality into one unique index. It is very possible to drill down into the details of the metric as required.
Inventory turns is another Vantage Point metric that tells a story much greater than just how well material is moving through your organization.
Turning ordinary metrics into Vantage Point metrics requires training all employees, associates, or business partners. They need to clearly understand what the metric is measuring and the various aspects or elements of the business climate that can affect positive change.
When the weather is reported on the news, the forecast is typically accompanied by an explanation of the reasons for the current weather conditions and future forecast. They don’t just post a weather map on the screen and leave it for the viewer to determine the emerging weather patterns. Similarly, Vantage Point Metrics require supporting details and explanations to educate the team on the meaning of the data and how to respond to the current conditions and what the effects will be if we don’t.
Metrics can be extremely valuable if selected and used wisely. Easy data is not necessarily meaningful data. Collecting and analyzing the data is the beginning not the end of the process. Measuring absenteeism for example is not a difficult task. Understanding why certain behavior patterns exist and affecting change to produce positive results is the journey to be pursued.
The Six Sigma DMAIC model (Define, Measure, Analyze, Improve, and Control) suggests that we already know that a problem exists. This model does not support Vantage Point Metrics in that a defined outcome or goal has been established. The data is analyzed to determine and define the root cause for the current trend. Improvements are then formulated into an action plan, implemented, and monitored accordingly. The metric continues to serve as continual feedback as actions are taken.
You can either wait for the problem to define itself or implement Vantage Point Metrics that will prevent the problem from occurring all together.
Most people have had the opportunity to drive a car or truck and know that we need to obey the rules of the road. A speeding ticket is a problem that is readily defined. It is a problem not only because it could cost you some money but repeated occurrences could also result in the loss of your licence to drive. To avoid this dilemma from happening you can monitor your Vantage Point Metric (the speedometer) and respond to the current conditions – all in real time – and avoid the ticket.
When or if we do receive a speeding ticket, it is the result of a conscious decision to speed, not mere fate or bad luck. As such, the issue, like many, becomes that of not adhering to policy or standard operating procedure.
Focus on the vital few Vantage Point Metrics to achieve stability in your organization. As problems are resolved and opportunities to improve are pursued, new metrics will begin to surface that will bring even more positive results to the bottom line.
Until Next Time – STAY lean!
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