"The Power of Measurement: KPIs and Performance Management in a Lean Six Sigma Business”

In the world of business improvement, the adage "what gets measured, gets managed" holds profound truth. For organizations committed to the principles of Lean Six Sigma, robust measurement through Key Performance Indicators (KPIs) and effective performance management are not just valuable tools – they are fundamental necessities. They provide the clarity, focus, and data required to drive meaningful change and achieve sustainable operational excellence.

What are KPIs and Why are They Vital for Lean Six Sigma?

Key Performance Indicators (KPIs) are quantifiable metrics used to evaluate the success of an organization, a particular activity (such as projects, programs, products and other initiatives) in which it engages. They are the vital signs of a business, indicating how well processes are performing against strategic goals.

In a Lean Six Sigma environment, KPIs are absolutely crucial because the methodology is inherently data-driven. Lean Six Sigma relies on understanding current performance, identifying root causes of issues, implementing solutions, and controlling the improved process – all of which require accurate, reliable data. KPIs provide this data, enabling teams to:

●      Define the Problem: Before a Lean Six Sigma project even begins, KPIs help pinpoint areas of poor performance, quantifying the problem in terms of defects, cycle time, cost, or other relevant metrics.

●      Measure Current Performance: KPIs establish the baseline performance, providing a clear starting point against which improvements will be measured.

●      Analyze Root Causes: By tracking various process parameters through KPIs, teams can analyze data to identify the underlying reasons for poor performance.

●      Monitor Improvements: After implementing solutions, KPIs are used to track whether the changes have led to the desired improvement and if the gains are being sustained over time.

●      Make Data-Driven Decisions: Rather than relying on intuition or assumptions, KPIs provide objective evidence to guide decision-making throughout the improvement process.

Performance Management: Putting KPIs into Action

While KPIs provide the data, performance management is the system and process for using that data effectively. It involves setting goals, tracking performance against those goals using KPIs, analyzing results, providing feedback, and taking corrective action.

Effective performance management in a Lean Six Sigma business ensures that:

●      KPIs are aligned with strategic objectives.

●      Data is collected accurately and consistently.

●      Performance is reviewed regularly at various levels of the organization.

●      Insights from KPIs lead to action and continuous improvement efforts.

●      Teams and individuals understand how their work contributes to overall performance and are empowered to make improvements.

It creates a feedback loop where data from KPIs informs decisions, leads to actions, and those actions are then measured again, driving a cycle of continuous improvement.

OEE: A Key Benchmark in Manufacturing

One powerful KPI frequently used in manufacturing and production environments within a Lean Six Sigma framework is Overall Equipment Effectiveness (OEE). OEE is a benchmark that measures how effectively a manufacturing operation is utilized. It provides a single metric that takes into account three critical factors:

OEE = Availability × Performance × Quality

Let's break down each component:

1.     Availability: This measures the percentage of scheduled production time that the equipment is actually running. It accounts for downtime losses due to planned stops (like changeovers or maintenance) and unplanned stops (like breakdowns or material shortages).

○      Calculation: (Run Time / Planned Production Time)

2.     Performance: This measures how fast the equipment is running compared to its maximum possible speed (ideal cycle time). It accounts for speed losses due to minor stops or slow cycles.

○      Calculation: (Ideal Cycle Time × Total Count) / Run Time

3.     Quality: This measures the percentage of good units produced compared to the total units started. It accounts for quality losses due to defects or rework.

○      Calculation: (Good Count / Total Count)

A perfect OEE score of 100% means the equipment is running exactly as scheduled, at maximum speed, and producing only good parts. While 100% is rarely achievable in practice, OEE provides a clear picture of where losses are occurring (downtime, speed, or quality) and helps prioritize improvement efforts.

In a Lean Six Sigma project focused on improving a specific piece of equipment or production line, OEE serves as a critical KPI. Analyzing the Availability, Performance, and Quality components helps teams identify the biggest areas for improvement (e.g., are we losing the most time to breakdowns, slow running, or defects?). Subsequent Lean Six Sigma tools and techniques can then be applied to address these specific loss areas, with OEE tracking the impact of the changes.

Conclusion

KPIs and a robust performance management system are the backbone of a successful Lean Six Sigma implementation. They provide the data-driven insights needed to identify problems, measure progress, and sustain improvements. Benchmarks like OEE offer a comprehensive view of performance in specific contexts, guiding targeted improvement efforts. By embedding the use of KPIs and performance management into the organizational culture, businesses can ensure their Lean Six Sigma initiatives deliver tangible results and drive continuous operational excellence. Measurement isn't just about tracking; it's about empowering teams to understand, improve, and excel.

Ready to leverage the power of KPIs and performance management to drive improvement in your business? Contact Pembroke Alliance today to learn how our expertise can help you establish effective measurement systems and achieve your operational goals.

Having completed our diagnosis of the current state situation in a business we then work with the senior management team to establish the digitalisation roadmap using the following framework.

Developing The Digitalisation Roadmap

From the established baseline we utilise the process presented below to develop a digitalisation road map for the business based on addressing identified and prioritised challenges and associated opportunities. Again, in tandem with Lean best practice this is a collaborative process with the client ensuring their input and buy in to the resulting roadmap.