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Orry Fiume

Orry Fiume: Look at families of metrics – any single metric can be dangerous

By Orry Fiume, - Last updated: Sunday, January 27, 2013 - Save & Share - Leave a comment

Great story Sammy and it is the perfect illustration as to why the use of any single metric can be dangerous.  That is why at Wiremold I always looked at “families” of metrics.  To me the most powerful “family” of metrics is Customer Service (i.e. on time shipment), Inventory Turns and Productivity.  If all three are simultaneously improving then you have to be doing a lot of things right.  In Sammy’s example, where someone produced more than the customer required, productivity might increase but inventory turns would get worse so you would know that someone tried to game the system.

Regarding the productivity metric, the classic definition of productivity is “The Relationship Between Quantity of Output vs. Quantity of Resources Consumed in Creating that Output”.  In other words, quantity in vs quantity out.   Calculating this can be tricky especially when changes in mix occur. In a manufacturing environment, at the cell level it should be a pretty straight forward calculation assuming that all of the products in the cell have a similar cycle time.  In this case, changes in mix have little or no effect on productivity.
However, as we approach a plant wide or enterprise wide productivity measure then mix changes become a issue and in most cases we need use the principle “I’d rather be approximately right than precisely wrong”.  Thus, sales per employee is a commonly used surrogate for productivity, keeping in mind that the answer is affected by changes in selling prices.  This can be mitigated by factoring out the price changes (e.g. value this year’s sales at last year’s average selling prices or modify this year’s sales dollars by a “price index” to get a prior year constant dollar sales number).  Exact?…No. Useful?…Yes.

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