Process Performance Management

Performance management is a big topic in today's highly competitive, global market, where being first to the market and keeping costs at the bare minimum can mean the difference between success and failure. This article discusses the various approaches to performance management that manufacturers have taken to achieve success in the global marketplace, and provides brief insights into how those approaches work.

Keywords 5S; Balanced Scorecard; Enterprise Resource Planning; Factory Automation; Financial Metrics; Just In Time Manufacturing; Kaizen; Key Performance Indicators; Lean Manufacturing; Manufacturing Execution System; Manufacturing Performance; Process Improvement; Process Performance Improvement; Six Sigma; Systems Integration; Total Quality Management

Manufacturing > Process Performance Management

Overview

Before any discussion about performance improvement can be meaningful, one must understand what is meant by "performance." In the most general sense, of course, performance refers to the degree to which a business achieves its goals and objectives. At the highest level, across industries, most companies measure performance through revenue, margin, net profit, earnings per share and other financial metrics. However, in addition to setting the corporate or divisional goals, the organization must determine how it is going to achieve those goals, thus setting further goals and objectives tied to the division, department and even individual levels. These goals are tied more directly to operational activities which, if achieved, result in successful attainment of the organization's financial goals.

It becomes clear, then, that while financial performance measures are fairly consistent across companies and industries, operational performance metrics vary greatly, not only among industries, but even over time for a given company, as it devises new goals and new means for achieving those goals.

Performance management, in its broadest form, involves setting performance goals and managing and measuring an organization against those goals. While methodologies vary from industry to industry, and across companies, the basic steps are consistent. Performance goals are established through planning activities and communicated throughout the organization. Performance metrics are developed for each level and function within the organization. The organization will often enable the achievement of goals by making changes to the way the organization operates. Data is collected and analyzed from each function to measure its progress against the goals, and adjustments are made to activities and policies as warranted. Finally, the results of the exercise are fed back into the planning activities, and new goals are set.

Managing Performance

At its core, performance management is really concerned with performance improvement. Otherwise, what's the point? Thus, performance management involves setting clear, achievable performance goals, creating an environment that supports the achievement of those goals, measuring progress against the goals, and using the information collected to set new goals. While specific steps and verbiage varies among performance management methodologies and systems, this cycle is at the heart of all of them.

Key Factors for Performance Improvement

In any performance management system, there are a few key factors to ensuring effective improvements in performance. These are the three "C"s: Clarity, Communication and Consistency.

• Clarity refers to the performance goals that are set. They must not only be clear in expectation, but also focused and few. That is, they must be focused on the overall mission and financial goals of the company and the strategies that have been defined for achieving those goals. Additionally, there must be a limited number of goals. Human beings are capable of tracking only so much data, and cannot juggle a plethora of goals effectively. Too many goals cause confusion, dilution of purpose, and apathy.
• Even with clear goals, poor communication can completely undermine achievement of performance goals. If the goals are not communicated to, and embraced by, every division and every level of the organization, they will not be fully achieved. Effective communication is dependent on real leadership and it is in this area that many companies fail. Often, corporate leaders are excellent at defining a vision and the strategies that must be put in place for achieving them. Successful leaders are able to embed the defined goals and strategies into the fabric of the organization.
• Last, and certainly not least, is consistency. Great leaders have great vision. This can also be a weakness. Organizations, particularly large organizations, need time to align to new goals, which must be translated into objectives at various levels of the organization and executed through actionable plans. While goals certainly change over time, frequent shifts undermine the organization's ability to perform effectively.

The Balanced Scorecard

One of the most favored methods for business performance management is the Balanced Scorecard. Developed by Robert S. Kaplan, Marvin Bower Professor of Leadership Development at Harvard Business School, it has gained wide acceptance in the business world — with over 50% of the Fortune 1000 Companies using some version according to a 2002 Bain & Co. survey (Gumbus, 2002). The method has helped many companies improve process performance, as well as financial performance, customer service and the ability of the company to learn and grow (Kaplan, 2007).

The Balanced Scorecard recognizes that financial measures are inadequate as the basis for actionable performance improvement plans, and adds to the financial measures, performance metrics for customer service, process execution and organizational agility. Thus, strategic goals are translated into all four areas of performance; enabling an organization to develop clear goals from top management all the way down to the shop floor and within all support divisions.

Process Performance in Manufacturing

Our discussion thus far paints a broad picture of performance management across industries. Operationally, however, the specifics vary significantly from industry to industry. In manufacturing, success relies on the degree to which products can be produced quickly and cost-effectively. Thus, operational metrics are generally focused on cost reduction, quality and speed to market.

Cost reduction and quality go hand in hand. While many initiatives in manufacturing focus on quality, their goals are largely cost containment and customer retention. This is due to the fact that poor quality results in rework and dissatisfied customers. On the other hand, speed to market requires efficient and flexible operations that can respond quickly to market opportunities. At the heart of all of this are the processes for producing products. And so it is these processes that are the target for performance management in manufacturing organizations.

The Human Factor

Perhaps the biggest challenge to implementing process improvement strategies is the daunting task of focusing the organization on the key metrics for success, all the way from the board room to the factory floor. Most of the strategies outlined above require a completely new way of thinking and working, and this can be a monumental task in a large organization. Leadership must be very strong.

The Challenge of Systems Integration

The big challenge in manufacturing, as in other industries, is the link between the strategic and financial goals of the organization and the actionable plans that can make them a reality. A big part of this challenge is in the technology. The systems that control the shop floor are not yet connecting fully to the executive systems that set goals and measure business performance, although there is a lot of work going on in this area by vendors of the software systems and the companies that use them.

To compound the problem, of course, today's complex supply chains and geographically dispersed manufacturing require data to be shared not only between systems, but across distances. Add to this the communication that must take place to bring everyone to the same mindset, and process management becomes that much more daunting.

At the factory level, Manufacturing Execution Systems (MES) interface with the plant floor to collect and analyze dynamic operational data ("MES," 2007). These systems not only provide data that measures the performance of shop floor processes, but also enables factory managers to make dynamic adjustments that improve performance.

At the management layer of the organization are Enterprise Resource Planning (ERP) systems, which link various systems in the company to provide an integrated and unified view of the business, and enable interaction between the various units and systems. This enables more effective and timely measurement of performance, allowing for rapid adjustments. Although challenging and costly to implement (the average estimated cost is over $1million), ERP nonetheless has helped many companies improve performance ("ERP implementations," 2007). Some of the bigger ERP systems include Oracle, SAP and Peoplesoft.

While MES systems feed the ERPs, the links are not yet fluid in most instances, and are better suited for sending data up to the ERP than down to the MES. Currently, there is much talk in the industry about Key Performance Indicators or "KPI," which are used to quickly identify performance deficiencies and measure progress against goals. Typical KPIs include inventory levels, cycle times, scrap & rework, and raw materials quality. Which KPIs are tracked or emphasized depends on the performance goals that have been set, but these have been bridging the executive and shop floor gap.

Where the Rubber Meets the Road

Systems notwithstanding, where the rubber meets the road is in the actual shop floor processes and how they are modified, aligned, tuned and otherwise tampered with to achieve key performance metrics. Industry experts within manufacturing, business and academia have, over time, developed and applied a variety of strategies, methodologies and best practices to achieve improved process performance. While some of the more notable process improvement programs are discussed here, be mindful that a host of papers have dealt with the intricacies of machine and industry specifics within these broader categories.

Factory Automation

Throughout the history of manufacturing, mechanization (and later, automation) has been key to efficient production. Reduction in errors, consistency and speed have all contributed positively to process performance, and continues to do so, as companies develop newer and better automation tools. According to the Bureau of Labor Statistics, manufacturing employment decreased 20% from 1987 to 2004, while "its value-added output has increased by 220%" (Teresko, 2006).

The future holds ever more sophisticated automation. Rockwell Automation identifies and tracks trends in five technology clusters: Control and diagnostics, communications, electronics, materials and software. It sees diagnostics incorporated into control systems, and increased application of wireless technologies (Davies, 2006).

What else is in the future for factory automation? At the 2006 IMTS show, the futures area showed off technologies such as predictive modeling and optimization, micro machining, nano machining, smart machining, increasingly sophisticated robotics, multi tasking machine tools, and more. All of this continually improves efficiency, speed and quality (Teresko, 2006).

Lean Manufacturing

Lean Manufacturing is a strategy for eliminating waste in the manufacturing process thus reducing the costs of manufacturing. Originally developed by Toyota as part of the Toyota Production System (TPS), it has become a more generic term used by manufacturers across the globe. "Successful use of lean techniques is credited with having made Toyota the world's largest car manufacturer, with revolutionizing the aerospace industry and with improving productivity in many other sectors" ("Why aren't we," 2007).

Lean manufacturing starts with mapping process flows and looking for areas that add no value. It usually includes a shift to cell manufacturing, where all the equipment needed to produce a product are brought physically together, rather than the work-in-progress being shuttled around to various machines throughout the factory.

There are a myriad of practices used within Lean manufacturing, all geared towards reduced costs in the manufacturing processes. They include 5S (sort, set, shine, standardize and safety), a methodology for improving the efficiency of a process through elimination of all wasted movements. Also an integral part of "lean" is Kaizen, a Japanese term and method for eliminating waste through constant attention to any waste and removal of that waste for good (Jutrus, 2007).

Just-in-time Manufacturing

Just-in-time Manufacturing (JIT) is a strategy for reducing or eliminating inventory by making products to demand, rather than by large batches. It is often associated with and implemented with Lean Manufacturing, but they are different, albeit complementary strategies. JIT is a philosophy as much as it is a strategy, and involves producing to demand in a "pull" system rather than a "push" or batch system.

Traditionally, manufacturers would plan their production to capacity, making large batches of a single product and putting the product into warehouses, to be drawn upon as orders arrive. Machine setup would then prepare the factory to produce a large batch of another product, and so on. The factory layout was based on keeping like machinery together, and products were moved from area to area (e.g. from molding to stamping). This strategy reduced the number of machine setups, which could be quite time-consuming, and grouped workers with like skills. Customers would order products in large batches, and store extra in their own warehouses or back-inventory areas, to be brought out as needed.

The downside to this approach is that there is a lot of cost involved with the storage of inventory, including the cost of the warehouse itself and the labor needed to move, store, organize, track and retrieve the inventory. Also, inventory could often go "stale" before it was needed, or demand would fall off, and the company would be left with unusable inventory.

Now, many factories produce to demand, working with customers and suppliers to ensure that only the right amount of product is produced as it is needed, and supplier materials are delivered only when needed at the time it is needed — often referred to as "small batch" manufacturing.

Process performance improvements now focus on reducing machine setup time. This requires a total realignment and factory layout overhaul that focuses on manufacturing cells — units that create a product from start to finish — with all the equipment and skill sets needed to produce a product or part from start to finish in the same location. This reduces the time needed to move the product around the factory, and also greatly reduced or eliminates "wait time," or the time a product remains idle while waiting for its turn at the next step in the manufacturing process.

Total Quality Management

When performance management is focused on quality, you will usually find a Total Quality Management (TQM) program in place. TQM is a philosophy that permeates an organization, where quality is always top priority. While it's clear that TQM improves quality performance, what may not be as readily apparent is the positive impact it has on process improvement. Because poor quality in a product results in returns from customers and rework on the factory floor, not to mention the customer service time to resolve issues, it is clear that the cost of poor quality is high. This is the impetus for TQM initiatives.

TQM is one part of Lean Manufacturing — a focus on the waste associated with poor quality. Thus, performance improvements focus on the processes that can lead to poor quality or rework.

Six Sigma

Six Sigma is a quality initiative that focuses on achieving near zero defects in manufacturing processes. It is a later generation of TQM and involves definition of improvement areas, measure to track the progress of improvement, and a "fix it once, fix it forever" control system. Six Sigma has come under attack for being too rigid and stifling creativity and innovation, but also lauded for creating consistency and high quality. A good example of its appropriate application is its use at 3M. 3M found that it was not effective in the laboratory or Research & Development, but finds it highly effective in manufacturing and the supply chain, which are made up of more transactional activities (Dodge, 2007).

Conclusion

While this article covers many of the more well-known strategies for performance improvement in manufacturing, it is clear that there are numerous detailed methods for improving process performance at the more specific industry and machine levels. Only this is for sure; performance improvement has been and continues to be a very hot topic for manufacturers who continue to face ever more competition and demand for fast turnaround.

Terms & Concepts

5S: A methodology for eliminating all unnecessary movements in a manufacturing process.

Enterprise Resource Planning (ERP): Systems which provide an integrated and unified automation of business level processes and functions, including financial, human resources, operations planning, and more.

Factory Automation: The move towards computer controlled equipment versus human controlled.

Financial Metrics: Formulas that measure the financial performance of a company. Common financial metrics include Return on Equity (ROE), Earnings per Share (EPS), and Debt to Equity ratio.

Kaizen: A methodology for eliminating waste through incremental and continuous improvement of manufacturing processes.

Key Performance Indicators (KPI): Data that provides advanced insight of an organization's ability to meet its performance goals. KPIs, unlike traditional metrics, do not measure outcomes, but provide advanced warning which enables managers to adjust operations.

Just in Time Manufacturing (JIT): A manufacturing strategy for alignment of factory operations based on a "pull" system (producing to demand) with the goal of reducing or eliminating inventory.

Lean Manufacturing: A strategy and philosophy for eliminating waste in manufacturing processes.

Manufacturing Execution Systems: Systems that receive data from discrete pieces of equipment on the factory floor, provide information to factory managers necessary for effectively managing operations, and control to varying degrees the equipment under its domain.

Six Sigma: A rigorous quality management methodology developed by Motorola aimed at reducing quality issues.

Systems Integration: The ability of discrete systems to share information, act on information received and synthesize the information for management analysis.

Total Quality Management: An approach to manufacturing that is focused on eliminating defects thus reducing the cost of rework and customer returns.

Bibliography

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Singh, A. (2013). Perceptions of software professionals regarding performance management processes: An exploratory study. Vikalpa: The Journal for Decision Makers, 38(2), 39-59. Retrieved November 15, 2013, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=89174330&site=ehost-live

Smith, F.O. (2007). KPIs made easy. Process & Control Engineering (PACE), 60(10), 16-19. Retrieved February 3, 2008, from EBSCO Online Database Business Source Premier. http://search.ebscohost.com/login.aspx?direct=true&db=buh&AN=28084617&site=ehost-live.

Yang, J.L. (2007). Reenergizing an old company. Fortune 156(8), 50. Retrieved January 25, 2008, from EBSCO Online Database Academic Search Premier. http://search.ebscohost.com/login.aspx?direct=true&db=aph&AN=26969449&site=ehost-live.

Yongjin, S. (2013). Elements of strategic management process and performance management systems in U.S. federal agencies: Do employee managerial levels matter?. International Journal of Business & Management, 8(9), 1-13. Retrieved November 15, 2013, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=87514144&site=ehost-live

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Suggested Reading

Kaplan, R.S. & Norton, D.P. (2007). Using the balanced scorecard as a strategic management system. Harvard Business Review, 85(7/8), 150-161. Retrieved February 3, 2008, from EBSCO Online Database Business Source Premier. http://search.ebscohost.com/login.aspx?direct=true&db=buh&AN=25358567&site=ehost-live.

Krieg, G.N. & Kuhn, H. (2008). Performance evaluation of two-stage multi-product kanban systems. IIE Transactions, 40(3), 265-283. Retrieved February 7, 2008, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=28111402&site=bsi-live

Teresko, J. (2006). Advancing factory automation. Industry Week/IW, 255(11), 30-34. Retrieved February 3, 2008, from EBSCO Online Database Academic Search Premier. http://search.ebscohost.com/login.aspx?direct=true&db=aph&AN=22956590&site=ehost-live.