@ Supply Chain Management


Are metrics driving or killing your business?

Running down the path of metrics, I came across this take on the use of metrics in the business world. This article by Julie Fraser titled – Are metrics driving or killing your business? can be found at Manufacturing Business Technology.

The question is whether the behavior that most companies are rewarding actually helps performance, or hurts it.

Ms. Fraser’s line is not really what the right metrics are but whether the measured metrics actually help performance or hurt it. In other words, does it work or not?
Here’s the standard example given (and why am I not surprised that manufacturing gets the short end of the stick?)

Many talk about fact-based management, but outdated manufacturing metrics often conflict with corporate goals. For example, a plant that measures equipment utilization as the top indicator of success may in fact lead the company to carry excess inventory. In another scenario, minimizing overtime might hurt on-time shipments to customers and thus, overall revenues.

But both of these metrics are not manufacturing metrics but confusions arising from accounting. It is true that manufacturing measures equipment utilization is measured in addition to cycle times, changeover times and mean time to failure. However, utilization is measured for accounting reasons not because a manufacturing/plant manager is going to feel extremely accomplished because his/her machine was utilized 95% of the time. The concept of unit cost arises in accounting and not in manufacturing and everything else follows from that.
While Ms. Fraser indicates that measuring equipment utilization “may” in fact lead the company to carry excess inventory but that is not only because manufacturing managers are measured using the notion of efficiency but because unit costs are minimized in large batch production. Costs in production as it is/was measured is a fuzzy concept because it is not related to actual demand and the actual price paid by the customer but a weighted factor of allocation of overheads, raw material costs etc. In order to minimize unit costs using the accounting dimensions, utilization is a key lever and it has been pulled many a time.
But what can one make of the following set of metrics led dead-ends?

Read the rest of this entry »

About me

I am Chris Jacob Abraham and I live, work and blog from Newburgh, New York. I work for IBM as a Senior consultant in the Fab PowerOps group that works around the issue of detailed Fab (semiconductor fab) level scheduling on a continual basis. My erstwhile company ILOG was recently acquired by IBM and I've joined the Industry Solutions Group there.

@ SCM Clustrmap

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March 2007