Performance Measurement
Abandoning a standard cost system also removes a major operational control system,
and it must be replaced. The lean control system uses a Box Scorecard that compares operational,
capacity, and financial metrics with prior week performances and with a future desired state.
Trends over time and the expectation of achieving some desired state in the near future are the means used to motivate constant performance improvement.
Thus, the lean control approach uses a mixture of financial and nonfinancial
measures for the value stream.
The future desired state reflects targets for the various measures.
Operational, nonfinancial measures are also used at the cell level.
A typical value stream Box Scorecard is shown in Exhibit 16-7 (metrics and format canvary).
Only a brief introduction to the Box Scorecard is made because the Balanced Scorecard is a more thorough and integrated approach that encompasses the concepts of a Box Scorecard.
For the operational measures, units sold per person is a partial labor productivity measure and is therefore a measure of labor efficiency.Dock-to-dock is the time it takes for a product to be manufactured from the moment the materials arrive at the receiving dock until the finished product is shipped from the shipping dock
Dock-to-dock is a cycle time measure, a concept that is more fully explored in thesection on the Balanced Scorecard.
First-time through is a measure of quality and is simply the percentage of product that made it through production without being defective and thus needing to be rejected or reworked. Capacity is labeled as productive (value-added), nonproductive(non-value-added—used but wasteful) and available(unused) capacity.
The scorecard measures are expected to improve over time and tobe helpful in managing and bringing about improvement.
For example, from the Box Scorecard in Exhibit 16-7, we see that the nonproductive capacity is targeted to go from 46 percent (current state) to 30 percent (future state), with productive capacity increasing from 20 percent to 25 percent and available capacity increasing from 34 percent to 45 percent. As waste is eliminated, the nonproductive capacity convertsinto available capacity.
The machines, people, and other resources used for wasteful activities are now available for more productive work. For financial performance to improve, some decisions must be made with respect to the increase in available capacity.
The most sensible and practical approach is to commit to use the freed-up resources to expand the business. One possibility is to add new product lines.
Another possibility is to transfer the resources to other value streams that are in a high growth state with increasing resource demands.
Another is to realize cost reductions by reducing headcount and eliminating resources. This latter approach is the least desirable. It makes it hard to gain the cooperation and involvement of employees with the transformation into a lean workforce if their suggestions and actions are going to lead to the loss of their jobs or the jobs of their friends and coworkers.