Tuesday, January 31, 2012

Focus and Leverage Part 82

This is my final posting on performance metrics and I want to thank Bob for asking me to contribute to his great blog.  By the time this is posted, some of you will have purchased, received and perhaps read our new book Epiphanized:  Integrating Theory of Constraints, Lean and Six Sigma.  Bob and I both hope you enjoy the book and have as much fun reading it as we did writing it.  And now, on to utilization and a summary of the past three postings.
Utilization is most often the metric that organizations should be using instead of erroneously using the efficiency metric.  Unlike efficiency and productivity, which are ratio calculations based on input and output, the utilization metric is a proportional measure of resource time used divided by resource time available.  Simply stated as:
Utilization = Actual time used / Time available

As an example, suppose we wanted to measure machine utilization for a specific machine in our system.  Suppose this machine was available to work one-full shift, which for our example would equal one shift of 8-hours in duration.  During this 8-hour shift there are 480 minute available to work (8 hours X 60 minutes = 480 minutes).  Of those 480 minutes available let’s say our machine was busy making parts for 395 minutes then;
395 (Time used) / 480 (time available) = 82.29% Utilization.
In many organizations lower utilization percentages (if they measure them at all) are considered as inefficient and should be improved to operate as close to 100% as possible.  It is possible that lower utilization numbers can be attributed to lengthy set-up time, or periods when an operator is not available (reasons can be, and are, varied), or simply periods of time when the machine has nothing to do.  For many organizations this is an unacceptable situation and they take actions to correct it.  So, in order to improve the utilization (efficiency) of the machine (resource) more work is released to keep the machine active.  Most organizations take these actions not because they must, but solely because they can.  The only reason this action is taken is to preserve the internal utilization/efficiency measure.  However, there is an important lesson to be learned here and that is: activation of a resource does not necessarily equal utilization of the same resource.  In other words:
Activation ≠ Utilization
Activation is using a machine because you can.  Utilization is using a machine because you must!  There is a vast difference between these two approaches.  If you understand your system, then you understand that high utilization should only be considered at a constraint location and not implemented at non-constraint locations.  It’s not important that utilization numbers be at or near the 100% mark for all the resources in the system.  Those actions would be counterproductive to system output.  What is important is that utilization is implemented and monitored at the constraint location of the system.. Subordination should be the implemented rule for all non-constraint locations.  In others words, let the non-constraint work at a level necessary to support the needs of the constraint.  No more - no less.
Are these metrics useful or evil?  The answer is: it depends.  It depends on if you calculate and use them correctly.  If these metrics are used to define a baseline measure, the metric can help you answer the question: “Did we improve?”  Used incorrectly these metric will result in poor decision making.
In a production system the productivity metric is probably the most important, if used correctly.  It is possible to combine the sub-elements of productivity and define the common denominator of dollars for both the production process and the monetary process.  Using productivity in this fashion will give you the clearest and most accurate assessment of your system.

The utilization measure is best used to monitor the constraint in a system, but only the constraint and not the non-constraints.  It’s a good metric, but not when it is applied everywhere.  Implementing utilization at the constraint will help you focus on the most important location in your system.  By monitoring this location you can determine how much leverage you have in the system to meet the growing loads demand.

Efficiency is by far the worst metric in a production system.  It’s just not a good fit.  It’s like trying to put a size 9 shoe on a size 10 foot.  It requires a lot of manipulation and it doesn’t always feel right.  It usually creates the opposite behavior from what you are really trying to achieve in the system.

Bruce Nelson

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