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 ManagementOverview
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.
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...
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