In the next few postings I want to
talk about some of the basics of Continuous Improvement (CI). Not the tools of CI, but rather more of a
strategic viewpoint. In other words, some
of the principles and guidelines I use in my work which has provided me with a
strategy that I can honestly say has never failed to deliver excellent
results. But in order for everyone to
clearly understand my approach, I need to back up and review some of the basic
principles and beliefs that I believe in and aspire to.

Let’s start this discussion
with the end product…..performance metrics.
Why start with the end in mind you may be thinking? In my way of thinking, the key purpose of
performance metrics is that they drive behaviors within an organization. For example, if operator efficiency is one of
your metrics, what behaviors does it drive?
The basic math used to calculate efficiency is that you have a standard
time to complete a task or process step.
If you complete this task in exactly the same time that the work
standard says it should take, then your efficiency is 100%. On the surface, that seems like something
that we all want, but let’s look at this more closely.

The figure above is a simple
four-step process used to manufacture a product. Using the definition of efficiency, in order
for Step 1 to achieve and sustain 100% efficiency, it would have to produce one
product every ten minutes.
Simple….right? But, in reality,
what would happen after 100 minutes to this process if Step 1 continued
producing one part every 10 minutes?

If Step 1 produced one part
every 10 minutes and Step 2 could only process 1 part every 20 minutes, then
Step 2 would only process 5 of the parts in 100 minutes. Step 3 would process all 5 of these parts as
would Step 4. In other words, there
would be 5 parts sitting directly in front of Step 2 waiting to be
processed. This isn’t exactly what the
results would look like, but for demonstration purposes, it will suffice. The point is, if Step 1 continued producing
at its maximum capacity, the inventory would continue to build up in front of
Step 2. Steps 1 and 2 would be operating
at 100% efficiency, but what about Steps 3 and 4? Would it be possible for these two steps to
reach 100% efficiency?

The problem with using
efficiency as a performance metric is that it is controlled by the step with
the least amount of capacity…..the system constraint. The total system efficiency will always be
less than 100 % simply because of the existence of the system constraint. The system efficiency for our process would
be 100 % (Step 1) plus 100 % (Step 2), plus 50 % for Step 3, plus 25 % for Step
4 divided by 4 or 68.75 %. In fact, the
only place where efficiency makes any sense at all is in the system constraint
which in our process is Step 2.

The origins of operator
efficiency lies in traditional cost accounting where the belief exists that
everyone should be busy 100 % of the time.
In our process it is clear that the operator in Step 3 would only be
busy half of the time while the operator in Step 4 would only be busy one
quarter of the time! The Cost
Accountants would never stand for this and would be looking for manpower
reductions!

So if operator efficiency
isn’t a good performance metric (except in the constraint), then what is? In other words, how should we measure the
performance of our 4-step process? In my
next posting we’ll try to answer this question.

Bob Sproull

## 4 comments:

Got explanation Bob, this article a real keeper for me

Alex Fed.

Glad you enjoyed it Alex. If you liked this one, then you'll really like my next one....stay tuned. Bob

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