Lean Six Sigma and Process Improvement Metrics Definitions
If you're playing a sport, the first thing you'll want to know is, "How do I win?" This typically depends on how you score, or earn points. The same concept applies when improving a process.
Before improving a process, we need to define what "improvement" is. That definition will help identify the necessary measurement or metric.
A process may be measurable in many different ways depending on the type of data that are collected, and how the data are characterized. Variable Data may offer a much higher information content than Attribute Data. For example, the actual measured weight of an object (Variable Data) includes more information than merely making an attribute distinction into two categories of 'light or heavy.'
It is often said that "What gets measured gets done." Measurements communicate values and priorities to an organization. Time and resources devoted to measurements demonstrate management commitment that the object of the measurement is important. Therefore, the selection of appropriate metrics is an essential starting point for process improvement.
Metrics can be organized into various operational and financial categories:
- Productivity
- People
- Safety (OSHA)
- Assets
- Quality
- Total Productivity Maintenance
Productivity
Labor Productivity
Units Produced divided by labor hours or labor $. The labor denominator will generally include all hours worked, including overtime. The numerator Units Produced may be calculated on an Equivalent Units basis to normalize this metric across different products within a plant or company (see below).
Equivalent Units
To aggregate Units when there is a product mix with different labor content, an Equivalent Unit factor can be calculated using the standard labor content to isolate the impact of product mix changes.
For example, an appliance plant makes refrigerators and microwaves. The standard labor content is three hours for a refrigerator and 1 hour for a microwave. One product is picked as the baseline, and the other is expressed in equivalent units. If the refrigerator is one unit, then the microwave is 1/3 of a unit. So the production of 3 refrigerators and 6 microwaves is five equivalent units.
Without this equivalence, if the plant started making more microwaves (80) at the expense of refrigerators (20) and had the same 15 hours of labor, then it might be more productive when it was less productive on an equivalent unit basis. As shown below, productivity measured by actual units can go up, while productivity based on equivalent units can go down. Equivalent units give a more accurate measurement of productivity improvement efforts.
Total People Productivity
This measure of productivity is similar to labor productivity but also includes salaried employees. As discussed above, the units numerator can be actual or equivalent units, while the denominator can be hours worked or number of people (heads). Units per head is usually calculated on an annualized basis.
Sales Per Employee
Total company productivity can be measured by sales dollars (annualized) per employee.
Asset Productivity
Asset productivity can be measured by comparing units produced (actual or equivalent units) to the net book value of property, plant & equipment, and inventory.
People
Turnover Rate
The impact of employee terminations, both voluntary and involuntary, can be measured by the number of terminations divided by the average employment during the period - usually annualized.
Unplanned Absenteeism Rate
Unplanned absenteeism is the number of employees absent that were not pre-approved (vacation, pre-approved personal time, holidays, long-term medical) divided by the total number of employees.
Safety
Number of OSHA 300 Log Incidents
Any injury or illness requiring more than first-aid (e.g.,/ prescription drugs, stitches, light duty, lost time) requires an incident to be logged. Year-to-year comparisons should be made through a comparable time period (e.g., the first 4 months of 2000 vs. the first 4 months of 1999).
Number of OSHA Lost Workday Incidents
Any injury or illness resulting in light duty or lost time is a lost workday incident. Year-to-year comparisons should be made through a comparable time period (e.g., the first 4 months of 2000 vs. the first 4 months of 1999).
Number of Lost Workdays
The number of lost workdays is when an employee is unable to perform his "normal" job, whether it is due to light duty or being off work. Year-to-year comparisons should be made through a comparable time period (e.g., the first 4 months of 2000 vs. the first 4 months of 1999).
Number of Days Off Work
Number of days off work is when the employee is unable to return to work in any capacity. Year-to-year comparisons should be made through a comparable time period (e.g., the first 4 months of 2000 vs. the first 4 months of 1999).
Incident Rate
(Number of OSHA 300 Log Incidents x 200,000) / Number of Hours Worked
Lost Workday Illness/Injury Rate
(Number of OSHA Lost Workday Incidents x 200,000) / Number of Hours Worked
Lost Day Rate
(Number of Lost Workdays x 200,000) / Number of Hours Worked
Workers' Compensation Cost Per Employee, or per unit (equivalent unit)
Annual cost for workers' compensation premiums divided by the number of employees or units.
Employee Experience
Average employee time on the job (or within a classification).
Assets
Total Inventory Turns
Cost of Goods Sold, annualized, divided by the average inventory level for the period, tells how many times inventory turns over, or flows through the process, for a given sales volume.
Raw & WIP Inventory Turns
This is the same measure as total inventory turns but excludes finished goods from the inventory denominator.
Days Supply of Inventory
This is the converse of Inventory Turns. Average inventory divided by Cost of Goods Sold times 365. For many reduction initiatives, inventory may be measured in physical terms, such as the number of bins of parts, and equated to days consumption rather than valuing the inventory. This is a quicker, more visible, and more easily understood measure for shop floor projects.
Total Cycle Time
Also known as Dock to Dock Time, Total Cycle Time is the time it takes to complete a physical process, including wait and inventory time. For example, raw material is received and consumed over 15 days, and the manufacturing process takes 7 days, including time spent in buffer inventories. Total cycle time is, therefore, 22 days. The definition can be broadened to include finished goods.
Value Added Cycle Time
A portion of the total cycle time where value is actually added to the product or service - excludes all wait and transit time through a plant.
Cash Conversion Cycle (Dell) - CCC = DSO + DSI - DPO
Days Sales Outstanding plus Days Supply in Inventory minus Days of Payables Outstanding. This metric shows how quickly purchased materials and other inputs are turned into cash vs. how quickly they are disbursed to pay for those materials and inputs.
Quality
Cp
Cp is a measure of potential process capability. It is the ratio of the six-sigma spread of a process distribution to the tolerance of that distribution. The process must be normally distributed and stable to assess Cp. Cp gives the maximum process capability (Cpk) if the process is centered exactly in the middle of the tolerance.
Cpk
Cpk is a measure of the actual process capability. It is calculated by dividing the distance of the process mean to the nearest tolerance limit by 3 standard deviations of the process. Again, the process must be normally distributed and stable before assessing Cpk. See the Statistical Process Control section of the Toolbox for additional help on this subject.
To learn more about Cpk and how to calculate it, check out this toolbox page.
First Pass Yield
First Pass Yield is the percentage of units that meet specifications without any rework or repair. This measurement is commonly used but has dubious value for two reasons: A) rework and repair are often "hidden" - they take place up the line but are not recorded, and B) multiple defects occurring on a single unit are not captured.
Defects Per Unit
This measurement is the total number of defects identified on all units divided by the number of units. This metric gives a better quality measure than First Pass Yield because it captures all defects. It takes great care to capture "hidden" rework and repairs that may occur up the line or before the reporting point. This metric is also more readily convertible to Defects Per Million Opportunities for Six Sigma projects.
Defects Per Million Opportunities (DPMO)
This measurement is a primary Six Sigma metric. Defects per opportunity is used instead of defects per unit to facilitate more direct comparisons between processes with varying levels of complexity. Assembling an automobile is far more complex than manufacturing a patio stone, with far more opportunities for error. Hence, defects per unit is a poor basis for comparing the capability of the manufacturing process.
Defects are a failure of the process to meet a "Critical to Quality Characteristic" - that is to say, a characteristic that customers care about. The number of opportunities must be determined based on these "Critical to Quality Characteristics" and should be based upon a well-reasoned process. Inflating the number of opportunities will lower the ratio of defects to opportunities and bias the sigma level upward. At three defects per million opportunities, the process achieves Six Sigma status.
When working with DPMO, an important point to remember is that customers don't buy opportunities; they buy units. Furthermore, all defects are not created equal, even if they are essential to customers. For example, customers care about paint flaws on a car, but they care a lot more about a defect that causes the car not to start. Accordingly, it may be helpful to categorize defects into different categories by process and assess the Six Sigma level of each process (e.g., Paint vs. Ignition System).
Fill Rate
Fill Rate is the percentage of units ordered that are shipped on a given order. If an order for 10 widgets and 10 sprockets is filled, but only 9 of the widgets are shipped due to a product shortage, then the fill rate is 95%.
Line Item Fill Rate
Line Item Fill Rate is the percentage of line items, or SKUs, shipped on a given order. If an order for 10 widgets and 10 sprockets is filled, but only 9 widgets are shipped due to a product shortage, then the line item fill rate is 50% because only one of the two line items (SKUs) was shipped 100% complete.
Shipment On-Time %
Shipment On-Time Percentage is the percentage of shipments made on or before the due date.
Shipping Errors Per Shipment
Shipping Errors Per Shipment is the total number of shipping errors (by line item) for a period divided by the number of shipments made during that same period.
Warranty Percent of Sales
Warranty Percent of Sales is warranty dollars paid during a period divided by the net sales for that same period.
Warranty Claims per Unit
Warranty Claims per Unit is the total number of warranty claims (not dollars) received during a period divided by the number of units sold during the same period.
Survey Complaints (TGW's) per Unit (or per 1000)
This measurement is calculated by taking the number of complaints, or "Things Gone Wrong," reported on a customer survey, divided by the total number of units included in the survey responses. This metric may also be expressed as complaints per 100 units, 1000 units, or even 1,000,000 units.
Customer Satisfaction
Customer Satisfaction may be measured directly by survey and expressed as a percentage, such as Percent of Customers Completely Satisfied.
Total Productivity Maintenance
A system of preventive maintenance of machines and equipment focused on proactive team-oriented actions to avoid downtime, with direct involvement of the process operators to perform the cleaning and simple maintenance of their own equipment.
MTTR
Mean Time to Repair
MTBF
Mean Time Between Failure
Operational Effectiveness Rate (OEE)
OEE is a combined metric that shows the impact of equipment availability, equipment performance, and output quality. The metric is calculated by multiplying Availability x Performance x Quality, as detailed below: Availability: 100% minus the following:
- All known losses ( stoppages), measured in time, due to equipment failures.
- Losses (in time) due to process set-up and adjustments.
- Losses (in time) due to start-ups after shifts, breaks, lunch, and weekends.
Performance: 100% minus the following:
- Losses (in time) due to minor stoppages.
- Losses (in time) due to speed (Actual vs. Engineered Speed).
Quality:1 00% minus the following:
- Losses due to defects
- Losses due to rework.
So, if Availability is 95%, Performance is 97%, and Quality is 98%, then OEE is .95 x .97 x .98 = 90.3%. For a more in-depth explanation of OEE, check out this blog.
Uptime
100% minus losses for all causes, including equipment failures, set-ups, adjustments, start-ups, and stoppages. Uptime does not measure actual speed vs. engineered speed.
Preventive Maintenance %
Proportion of total maintenance time spent on preventive actions vs unplanned actions.
