MEASURING OPERATIONAL PERFORMANCE

The Use of Metrics

Thursday, May 26, 2016

Joe Gudenburr, President, G. A. Braun, Inc.

The first step is to observe what is taking place. By simply observing and asking basic questions you can get a pretty good understanding as to the culture, training level, and operational health of the organization. You would be surprised how many facilities are not using metrics, or make limited use of the powerful information / data that they have at their finger tips regarding their processing environment. Yes, the senior managers know how many pounds they process, if their volume is up or down, and if their expenses are tracking in accordance with the volumetric changes. However, many simply aren’t able to drill down into the process beyond this level to truly harvest the opportunity that stands before them, or have missed the mark on educating their workforce regarding the use of such measures.

Often the commercial objectives dominate the reward and incentive programs that exist. The operational priorities and their associated metrics tend to be unrecognized, or take a back seat to order fulfillment, and revenue growth. This is not to say that these two areas are not vital, but too often top-line growth does not result in a bottom line return, operational health, business discipline, and synergistic corporate culture. A big reason why this happens is because the organizational leadership failed to take the time to observe, measure all aspects of the business, and to understand the true costs associated with supporting commercial growth. When this happens the business typically sacrifices investing in the operation to address said costs, and over time what looked to be exciting growth turns out to be unsustainable, or worse yet unprofitable.

In the laundry business we tend to speak in terms of therms per hundred weight, pounds per operator hour, and gallons per pound.

All of these are metrics, or measures of the business that we operate. Each of these tells part of the story as it pertains to the operational condition of the business. More importantly they provide a framework from which performance can be measured, opportunities to improve can be defined, and investments can be justified. It is unthinkable to run a business without first having said measurements readily available to base critical business, personnel, and investment decisions on.

There are a number of plants that have truly embraced the use of metrics, empowered their workforce to make decisions based on metrics, and are in a growth mode because of the disciplined practices they have put into place. For those operators they will only nod their head when reading this article as they “get it’, and for those operators who do not currently have a well defined set of metrics in place for managing their business perhaps they will embrace the use of metrics and leverage a few of the recommendations made in this article.

To get started, detach yourself from the daily fire fighting, and simply observe the operational environment around you.

Take notes regarding those things that are working well, and those areas that seem to be out of control. Evaluate where you have some type of performance measurement protocol, and define where measures are sorely lacking. This exercise will then act as a framework for defining the next steps that you want to take in transitioning the operating environment from a reactive one, to one that is proactive and highly efficient.

Now it is time for the management team to determine what key process variables are to be measured for each business process. In order to bring structure to the dynamic environment that we all face daily it is beneficial to have a discrete set of performance measures that can allow managers to quickly gain an understanding as to how their various processes are operating. This real-time snap-shot empowers those at the ground level to make educated and timely decisions which can impact client satisfaction, product quality, and the bottom line financially. These same measures allow owners and senior managers to make strategic decisions based on accurate current and historic performance information. Through this exercise operators can determine where the various departments or processes have overlapping, and divergent priorities. Where priorities are divergent action needs to be taken to insure that parochialism does not run amuck within the organization. A balance must be established across the business.

There is a simple visual tool that can be used to help get all levels and departments within the organization brought into the importance of developing synergistic business metrics.

Business Process Circle

Why a circle?

If the business process is efficient, and firing on all eight cylinders the circle will remain unbroken, clients will be satisfied, and strategic objectives that are defined by the business leaser will be achieved. This “simple circle” can be tailored to any business, but it acts as a great starting point for helping the entire organization visualize where they fit into the process, and allows all to see that they must work together to attain common objectives as opposed to harboring competing priorities simply to achieve short-term incentives of short-term business objectives. Once the business process is laid out around the circle the effort of defining what the key operating metrics are for each process step can begin. Many plants are measuring various aspects of the operation, but not all members of the organization are aware of said performance measures, or more importantly how their job impacts them. When this lack of communication or knowledge exists employees are then limited as to how they can contribute to the process of continuous improvement.

The business cycle is one that we all hope is unbroken meaning that once we cultivate an opportunity and close a sale we all desire to retain a satisfied customer beyond the servicing of the sale.

What are the right metrics and how many metrics are enough and how many are too much? Typically each functional area can determine how it’s performing through the use of no more than a handful of metrics. In a grander scale at the plant or corporate level this “handful” approach can apply as well. As these metrics are established it is management’s responsibility to tie incentives

and strategic objectives to common shared metrics, and to department specific objectives. By doing so management is essentially establishing a precedent that no-one area of

the business is more important than another; and an expectation that all employees within the organization must work together to achieve success. This synchronization process is one that often gets left out, and is vital to harnessing what metrics provide.

Although it seems so simple and straight forward many companies have not mastered it. We see waste, inefficiency, and a misalignment of priorities. The challenge is to have the wherewithal and the discipline to embark on this measurement journey knowing that it will be a road less traveled and one that can bear immediate results, but more importantly will provide sustained results!

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