KPI CLASE 1

Key Performance IndicatorsIdentifying and using key metrics for performanceABB Basic Quality Tools Series15 July 2010, Slide * ABB Group July 27, 2010 | Slide #

ABB Group July 27, 2010 | Slide #

KPI - ContentWhat is it for? Understand how KPIs are deployed as relevant local goals Used to identify, measure and monitor the performance of key elements of the process KPIs are part of policy deployment

Where could I use it?At the local level to monitor process outputs and performance against scorecardAs part of listening to the Voice of the CustomerTo monitor shared goals and objectivesAlignment to the business objectives links to the Voice of the Business

How do I use it?Questions to ask when choosing a KPIEvaluating metricsKPIs for a service processCTQ tolerance limitsProcess metric worksheet

Risks and how to avoid themUse of existing data which may not be relevantCheatingCosts versus benefits of collecting data for the metrics

Examples15 July 2010, Slide * ABB Group July 27, 2010 | Slide #

ABB Group July 27, 2010 | Slide #

Expected Benefits:Gives alignment across the organisation when used in conjunction with a longer term business planProvides clear focus for the policy deployment of this planHelps identify where there are shared goals and objectives across all functionsMore specifically, at a local level it is an essential tool in monitoring and controlling our processes, and driving improvement in the areas which will increase the satisfaction of our customersClear and well defined KPIs will give us sound baselines from which to continue to improve our performanceUses of this tool:KPIs are used to measure and monitor our performance against the characteristics which we determine are critical for us to deliver our business planUsed at different levels from long term objectives, through shared goals and down to local levelAt local level we will often use the Voice of the Customer (VOC) to help identify our process metrics KPI - What is it for?15 July 2010, Slide * ABB Group July 27, 2010 | Slide #

ABB Group July 27, 2010 | Slide #

Background:Uses:

Often used at a high level to identify the key measures for the business to work on to achieve longer term objectives VOBTranslates into shared goals and objectives possibly at department or functional levelTypically used at local level to assess our delivery performance against the CTQ requirements by using a Key Performance Indicator (KPI) a process metric which is:Defined through the eyes of the customerHow they would measure what good looks like against their needsA fixed target with tolerance zonesThe basis to assess process capability and to implement process controlA process metric can describe performance at a point in time; over a period of time; at a point in the process; overall for a set of process stepsKPI- Where could I use it?Key Performance Indicators (KPIs) are the means by which we measure and monitor our performance.A good KPI must reflect a characteristic which is key to delivering success, and which will drive our behaviours and actions to do so.KPIs are used at several levels in an organisation, from quantifying the vision and long term plan, through the policy deployment process which translates these into relevant measures and targets at local level

15 July 2010, Slide * ABB Group July 27, 2010 | Slide #

ABB Group July 27, 2010 | Slide #

ABB Group July 27, 2010 | Slide #Some questions to ask when selecting a KPI Do we have existing measures in use within our business or process that can be used? If NO, then develop a measure and ask:Does the measure match how the customer defines the process quality?If performance changed, as reflected through the measure, would the customer feel the impact?Does the measure define success and failure? Will it provide an insight into defect rates?KPI - How do I use it? 15 July 2010, Slide *

ABB Group July 27, 2010 | Slide #

Evaluating metricsCriteria for evaluation of process metrics:Importance: Are you measuring the things that really matter?Ease: Does the measurement flow from the activity being monitored?Actionable: Can the metric initiate appropriate actions?Examples:A measure of how well the process step meets or exceeds customer requirements A measure of resource utilisation in the process step DefectsComplaintsBilling accuracyOne touch transactionsCost per transactionTime per process stepNo. of staff per process stepBill of materials per process stepKPI - How do I use it? 15 July 2010, Slide * ABB Group July 27, 2010 | Slide #

ABB Group July 27, 2010 | Slide #

ABB Group July 27, 2010 | Slide #For a service processNot necessarily delivered as fast as possible but rather delivered consistently against expectations held by or set for the customer. On TimeSustaining a balance of thoroughness, efficiency and positive experience across all encounters with the customer On QualityDecision / action cycle timeResponse timeRecovery timeTimelines metNo dead timeSPEEDCorrectness and clarityCompleteness and closureFairness and consistencyKnowledge of the service agentEmpathy of the service agentACCURACYKPIs are Based on Speed and AccuracyKPI - How do I use it? 15 July 2010, Slide *

ABB Group July 27, 2010 | Slide #

ABB Group July 27, 2010 | Slide #KPI - How do I use it?

CTQ Tolerance LimitsIn manufacturing, customer tolerance limits come from technical specificationsFor services, tolerances are based on data regarding customer needs and frustration levels as discovered through the Voice of the CustomerSet limits at the point where customer satisfaction begins to noticeably fall offThis is driven by what the customer feels is acceptable, not by what you think is economically feasibleThe limits around the CTQ become your target zone for consistent process performance15 July 2010, Slide *

ABB Group July 27, 2010 | Slide #

ABB Group July 27, 2010 | Slide #KPI - Local Process Metric Worksheet15 July 2010, Slide *

Metric NameDescriptionHow MeasuredTarget & LimitsSafetyQualityOn Time Delivery

ABB Group July 27, 2010 | Slide #

KPIs - Risks and how to avoid themRisks :Existing measures are used because they are available or they will do.

Cheating. When a local metric can be made better at the expense of another metric, either locally or at the process customer

Metrics are selected which may be perfect for the customer but which are difficult or expensive to collect and monitor

Steps to avoid them :This can result in the metrics being virtually useless we have to measure what is relevant to the key characteristic. Understanding the Voice of the Customer and converting this to the CTQ are essential tasks.

Have a balancing metric for the same process that will expose cheating on the primary metric. For example, if OTD is a primary metric, finished goods inventory is the balancing metric.

Take time to consider whether the metric really is important, easy to collect and actionable get the balance right between the time and cost of collecting the data against the benefit of the metric itself

15 July 2010, Slide * ABB Group July 27, 2010 | Slide #

ABB Group July 27, 2010 | Slide #

ABB Group July 27, 2010 | Slide #Example: Local Process MeasuresLV Motors Vsters Sweden15 July 2010, Slide *

ABB Group July 27, 2010 | Slide #

ABB Group July 27, 2010 | Slide #Example: Local KPIs used in a KaizenReduce cost of material stagingTarget of this Kaizen in a receiving department was to improve OTD and Efficiency. Focus here is on Efficiency.Notice the target: Reduce cost to $34 (current costs are not stable: $33 to $42 during last 6 months)Notice the analysis of cost breakdown.KPIs15 July 2010, Slide *

ABB Group July 27, 2010 | Slide #

ABB Group July 27, 2010 | Slide #KPI - Example: Objectives Link to Measures ABB Drives New Berlin Wisconsin USA15 July 2010, Slide *

ABB Group July 27, 2010 | Slide #

*Page *Page *Page **Key Performance Indicators are widely used in ABB to measure business results like Profit, as well as CTC metrics like On Time Delivery.

What is important here is to connect KPI to the Voice of the Customer.

**When purchasing and experiencing a service offering, a customer does not have any solid evidence to go on, as he would with a physical product. Services are timely in that they are scheduled and take time in the life of the customer, so have a start and end. After the end, the customer will have the benefit.

An additional element in services is that the customer, or his business, is actually involved in the process itself. For things like medical treatments, he is intimately involved, so correctness and humanness are important. ABB does not do medical procedures, but it is an good analogy. Think of our service offering being an medical procedure. Are we able to schedule it in a good way? Is the process painless and quick? How do we ensure there will not be any complications or side-effects? How do we keep the customer alive when we operate on his heart? Is he being treated in a kind way?*A key step in process improvement is deciding what will be considered a defect. SPECIFICATION LIMITSUpper Spec Limit. Where further effort to improve the requirement does not result in an increased perceived value.Between. The longer the cycle time, the lower the perceived value.Lower Spec Limit. Further decrease in cycle time does not decrease an already low perceived customer value.

In manufacturing, specifications are often determined by physical or mechanical requirements (e.g. a part needs to fit into another part). In other situations, you need to be more creative about setting specs.In a Help Desk case, for example, service representatives asked customers at the end of the transaction how satisfied they were with how quickly the phone had been answered.It is often difficult to gather data on customer satisfaction to the degree necessary to create graphs like those abovebut the concept presented in the graphs is still useful. The idea is to relate a KPI measurement directly to customer wishes.Specifications can be either one-sided or two sided. If there is a single value that the process output shouldnt go above or below, it is a single sided specificationIf you can define both a lower and upper boundary, you have two-sided specifications*Worksheet for VOB exercisePage **This factory board in the final assembly area of ABBs Swedish Motor factory shows many local metrics. The important part of this board is that it is updated and discussed every day. Things being measured at this process are:- Safety- Quality- Productivity as output compared to customer demand and order backlog- Attendance, do we have the people we need today?- Machine availability, are the machines working today?- Material availability, do we have the right materials to do the job today? A special graph for critical purchased components as well.- Order availability, do we have the complete orders for the day? This is also a measure of OTD of job orders.- There is a list detailing deviations in any of the areas and actions to fix them. - Delays of custom orders are recorded- Stock-outs of stock orders is also recorded- Maintenance records- Last Safety inspection record- Last Fire inspection- Last 5S inspection

If everything is in the limits in this process, then it can deliver on time on quality to the next process.*This example shows how at the beginning of a Kaizen, the team first looks at the process KPIs. This is part of the Analysis in Q1. *In ABB Voice of the Business metrics start at the Board of Directors, Executive Committee and Division level. These metrics are then deployed down to the Business Unit then Local Business Unit level. Inside the LBU, the metrics are further deployed to a workstation team level. For this lesson, it is important to understand that VOB metrics roll up to the Board, who represent the stockholders, whereas VOC metrics roll up to the customer.

This is how ABB Drives Inc USA deploys the metrics. At the process level, they have additional metrics that relate to the customer need (CTC).