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David Meier

David Meier: Good units produced (total parts – scrap) / (Available work hours – wait Kanban) = GPPH (good parts per hour)

By David Meier, - Last updated: Wednesday, January 30, 2013 - Save & Share - Leave a comment

The first point I want to make is that any measure has flaws and will not completely reflect reality. They should be considered indicators and in some way all refer to some sort of “standard” or desired condition. This is the basis for problem identification, which is the main purpose.

Any measure is a “snapshot” of conditions during a specific time period and reflects many variables that are occurring. Some measures such as productivity are based on assumptions such as standard hours. The notion of standard hours is flawed in many ways that I won’t get into, but this measure can be used effectively (if used carefully). The mistake that is often made is to evaluate performance based on the measure and to drive inappropriate behaviors like overproduction.

The measure of standard hours is often used to determine “absorption” costs and thus motivates people to produce items that have a favorable variance regardless of need (everyone knows how to play the game to “make the numbers.”) Productivity in and of itself is not the primary goal of lean. In recent years several of the most “productive” auto plants (based on man hours per vehicle) have been closed. (http://www.nytimes.com/2008/06/06/business/06auto.html?_r=0)

My guess is that the American auto companies pursued “efficiency” as a primary measure of success (the results are published by the Harbor Report and are considered a victory) but failed to consider what was necessary for long-term success. As noted in the article it makes no difference if the plant is efficient if the market does not want the product.

Toyota’s operating strategy provides flexibility in the plants and as market demands shift, the vehicle production can be moved to other plants. Doing mixed model production is not the most efficient way to produce……mass production would be most efficient on a strictly units per hour basis. The actual goal would be something more like “To produce products that are desired by customers while maintaining the lowest possible cost.”

I have also seen the direct/indirect labor measure create undesirable behavior. At Toyota we did not have this labor distinction. The fact is cost is cost regardless of the labor type. Indirect labor can be standardized so that it can be maintained at a set level. The material delivery routes at Toyota were standardized and had a set cycle time. Kaizen was performed to improve them to reduce the total cost just like on any operation.

When people focus on controlling indirect labor the decisions made are typically removed from reality. It is more of an across the board edict declaring the need to reduce indirect labor by a set percentage (which is ok as a goal). Then management starts removing “heads” without much regard for the actual process.

One other point regarding productivity- in a lean system employing just-in-time it is quite often the case that production is stopped because of some trouble in the value stream. In this case it is important to deduct the “wait Kanban” time from the available time so that the people being measured are not negatively impacted by doing the desired thing (not overproducing). Nothing is worse than a measure that punishes people when they do the right thing!

I don’t think there is a specific “lean way” to measure productivity. Any measure has flaws and should be used as an overall indicator of performance and a basis for problem solving. I think if you keep your measurement system consistent (measure the same way) then you can see trends and determine if there are any problems that need to be corrected.

I would not use the measure as a basis for evaluation of performance (used as a stick to beat people if performance is not to the standard0, but rather an indicator of the need for real kaizen (not number manipulation as happens with a stick). If the numbers are not favorable make a plan and execute kaizen to make improvement!

Here is the formula we used for productivity in the Toyota Plastics plant in Kentucky.

Good units produced (total parts – scrap) / (Available work hours – wait Kanban) = GPPH (good parts per hour)

Available work hours are scheduled work time deducting for breaks and lunch and any non-paid time, and subtract any scheduled meeting time or required cleaning etc. At Toyota meetings and clean up were not done during the work time (line is running).

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