Make Money by Flowing Part 4 of 4

For Flow & Pull systems to achieve productivity gains, lean performance measurements are required. It also requires that traditional measures, which are not lean-focused, be eliminated from the business. Flow & Pull systems require active management of the process by the people working in the process. Lean performance measures must be simple & easy to calculate, be relevant to the value stream and drive root cause analysis

 

The variability of waste is eliminated over time through continuous improvement events. So the measures must tell the value stream the impact of every improvement event. If improvement events successfully eliminate waste, measures should improve.

 

The effectiveness of the Pull system’s management of variability must also be measured frequently & consistently. Lean companies need to know exactly how well processes are performing in delivering customer value every day, all the time.  If variability is impeding flow, then it’s up to the people to take short-term countermeasures to manage the issue.

 

Lean performance measurements are not about the measurements themselves, it’s about people identifying root causes and taking action. It’s about what actions people do because of the measures, not the measure itself. This is the primary reason that lean performance measurement systems are not based on ERP. ERP systems cannot think or do root cause analysis. The measurement system needs to be designed by people, for people.

 

 

 

For Flow & Pull systems to drive annual productivity improvements of 10-20%, lean-focused measures are required.  A Lean Performance Measurement system is different from traditional performance measurement systems based on standard costing.

 

Lean focused measures have the following characteristics:

  • Processes are measured, not people
  • Measures are relevant to the process
  • Measures reveal problems & issues, which drives root-cause analysis
  • Measures are simple & easy to gather & report by the value stream

 

In general, lean focused measures need to measure the following characteristics of value stream performance:

  • Flow
  • Productivity
  • Quality
  • Delivery
  • Cost
  • Lead time

 

The Lean CFO must transform existing performance measurement systems away from traditional manufacturing measures to lean performance measures to drive the productivity gains possible with lean practices.

 

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