The Right Key Performance Indicators drives "Optimal Reliability at Optimal Cost"​

The Right Key Performance Indicators drives "Optimal Reliability at Optimal Cost"​

 The Right Key Performance Indicators drives "Optimal Reliability at Optimal Cost"​

Does your plant have reliability issues and a hard time meeting production targets? Well, it’s time to listen up! Key Performance Indicators (KPI’s), when identified and aligned properly, can save your plant, your job, and your career. So grab a pen, open up your mind and get ready to learn.  
It is amazing to me that most companies in North America manage with very few metrics (KPI’s) to measure the current performance of their maintenance and reliability process. I find them crying for help, seeking a solution to their lack of management control. I know the feeling as I was once one of those crying for help. The sad part is these companies are not even aware they need to manage with KPI’s in order to know where to focus. They fight reliability, production, and quality issues on a daily basis and seem to be lost in the quagmire. These companies are replacing managers so fast that the people on the plant floor aren’t sure who is in charge from one day to the next. They are crying for help and don’t know which way to go.
If management truly understood the power of KPI’s, things would change quickly. In fact, managing without KPI’s gives one the feeling of being lost with no hope (reactive environment). Think of driving a car with the windshield painted black. You can’t see where you are going but you do get a glimpse of where you’ve gone, through the rear view mirror. You don’t know find out whether you were successful or not until either its too late, or disaster strikes. With the car example in mind, your results are:
Car goes in the ditch – high cost (or worse)
You never reach your destination – business goals not met
This is a serious problem and it costs companies around the world billions of dollars as a result of what, I consider, a lack of management control.  

Peter Drucker, the great industrial revolutionary stated:
“You cannot manage something you cannot control and you cannot control something you cannot measure.”
Defining and Understanding KPI’s
Let’s first get down to basics and define KPI’s. Within maintenance, we must first define the performance we want to measure. Is it the performance of the equipment? Is it the performance of the spare parts warehouse? Is it the performance of the maintenance function? This may seem like a simple question but often I see companies that mix their KPI’s as they have not defined the specific area of the business for which they are attempting to measure performance.
 Let’s assume we want to measure the performance of the maintenance function. There are really two kinds of KPI’s to choose from in measuring any particular function of a business. These two kinds of KPI’s are called Leading Indicators and Lagging Indicators (also referred to in this document as Leading KPI’s and Lagging KPI’s).

Leading Indicators are those that we use to manage a part of the business, while Lagging Indicators are those that measure how well we have managed. With Leading Indicators therefore, it is possible to directly and immediately respond when a poor result is found. With Lagging Indicators, we get value from knowing how well we performed, but we have little opportunity to immediately affect underperformance. Instead, when we see an unacceptable Lagging Indicator, we must typically drill down to the Leading Indicators to uncover the cause of the underperformance, and from there we can implement appropriate changes.
Leading Indicators for the maintenance function are those that measure how well we are conducting each of the steps in the maintenance process. For example, a Leading Indicator for the Work Planning element of maintenance process could be “the percentage of planned jobs that were executed using the specified amount of labor”. If the planner is estimating labor correctly, we will see a high percentage of jobs completed using the planned amount of labor hours. If the maintenance manager finds that the value of the KPI is lower than expected, he/she can speak with the planner to discuss how best to improve the results immediately – possibly for the remainder of that day.

With all KPI’s, by definition, we are measuring past performance, so I am not suggesting that Leading Indicators can be tweaked to improve upon past performance. But you can see in this case, that if we are managing using Leading Indicators, we can respond immediately when needed.  

So Leading Indicators measure how well we’re performing our jobs while Lagging Indicators measure results. We manage using Leading Indicators, and we react to results using Lagging Indicators.  
In the example above, a Lagging Indicator would measure the results of how well we managed the maintenance function. In a situation where the maintenance function is well managed, we would expect an appropriate balance between the cost of maintenance and the plant availability.

A Lagging Indicator could therefore be the actual maintenance cost for a month, as a percentage of the budgeted maintenance cost for that month. If the actual maintenance cost for last month is found to be 110% of budget, there is really very little we can do to directly influence the performance of this KPI today.

Instead, we would look at all of the Leading Indicators, probably including those that measure the performance of our maintenance process, to determine whether those values give us a signal for managing the problem.

Unfortunately, in our quest for excellence, we often are attracted to outside consultants that offer “Benchmarking” services, claiming to provide all of the KPI’s we need to effectively run our business. Be careful, when considering these services, that you are not signing up for a laundry list of Lagging Indicators, since they won’t help you with managing; they’ll just quantify the problem you already acknowledged when you sought outside help.  
Figure 1 shows how Leading Indicators for the maintenance process can provide management capability, while the Lagging Indictors show us how well we have managed the maintenance function.

Leading Indicators such as “% of rework”, and “% of PM’s executed on time” will affect the overall performance of the maintenance process, which will result in a certain level of maintenance function performance. The Lagging Indicators in this case which are affected by these Leading Indicators are “Maintenance Cost as a % of budget” and “Plant Availability”. At least one of these Lagging Indicators will suffer if there is sufficient underperformance in the Leading Indicators. In this following example you see the alignment of the maintenance process as KPI’s transition from leading to lagging.
Figure 1 does not show the specific KPI’s that would be used to manage the maintenance process. Instead I have listed some of the ones I prefer to use in the table below, along with the world class level, where applicable.
In the same way that we use KPI’s in the maintenance function example, we can use them in other areas of the business. This approach is particularly interesting where multiple functional areas each play a role in a given goal, such as plant reliability. Plant reliability is a shared responsibility of the maintenance, production and engineering functions. Leading indicators for each departmental process would feed the lagging indicators for the department function, which would then summarize to the plant level as shown in Figure 2.
Figure 2 – The use of Leading and Lagging Indicators across Functional Areas

The Problem

The problem is management must learn to manage their operations through KPI’s (both leading and lagging). In my 30 year plus career, I have seen many plants shut their doors forever. They blamed the closing on many reasons but the one thing they all had in common was that NONE had properly managed with the KPI’s. The metrics or indicators they manage with were ones like:
> Cost 
> Asset Availability 
> Equipment downtime 

All of these measurements or indicators, while useful for measuring performance, cannot be used to manage the maintenance and reliability process. They are simply the results of all the actions that have taken place in the maintenance and reliability process. Again, you cannot manage results. You can only manage the processes leading to the results. If your company uses any of the above metrics to manage their operation, without Leading Indicators - pay attention.

Companies must ask themselves some very basic questions:
Does your company measure performance of the maintenance process, where they can easily manage when needed?

Most maintenance managers are told to control cost, improve reliability and increase asset availability with no idea where the problem may be in their maintenance process. Unfortunately many lose their job as a result. The fact is you cannot control cost, reliability, or availability without managing the maintenance process. 
Figure 2 - The Asset Reliability Process – Compliments of Ivara Corporation
The above model (Figure 2) of a proactive asset reliability process is used by many companies who utilize both Leading and Lagging KPI’s.

What do Leaders in Industry say about KPI’s?

You will find that leaders in many different industries follow a similar approach to managing their maintenance and reliability process utilizing KPI’s. Their KPI’s are both aligned from the corporate level to the plant floor and they manage using Leading Indicators. Following are some examples of companies that are make good use of Leading KPI’s. 

Adonis Campbell, Carpenter Company: Adonis Campbell is the corporate reliability manager for the Carpenter Company, a leading manufacturer of polyurethane foam. “By aligning our KPI’s properly and managing the right ones, Carpenter discovered, for the first time, profits in a down market,” says Campbell. “We‘ve seen profits continue to rise as cost continues to drop by simply managing using Leading KPI’s.”

Ron Thomas, Dofasco: Ron Thomas, the senior reliability specialist and World Class Equipment Reliability project manager for Dofasco Steel explains that the Asset Reliability Process, detailed in Figure 1.3, represents the collection of all of the tasks required to support the maintenance function. “The Asset Reliability Process is a supply chain,” says Thomas. “If a step in the process is skipped, or performed at a substandard level, the process creates defects known as failures. The output of a healthy reliability process is optimal asset reliability at optimal cost.”
The Asset Reliability Process measures are Leading Indicators. They monitor if the tasks are being performed that will ‘lead to results’. For example, a leading process indicator would monitor how well the planning function was taking place. If people are doing all the right things, then the results will follow. The leading ‘process’ indicators are more immediate than ‘result’ measures.

Result measures monitor the products of the Asset Reliability Process. They include maintenance cost (as a contributor to total operating cost), asset downtime due to planned and unplanned maintenance (as a contributor to availability) and the number of failures on assets (the measure of reliability).

”Leading metrics presented as KPI’s provide a clear indication if the requirements of each element in the proactive asset reliability process are being satisfied,” says Thomas. "If those elements are not satisfied, Leading KPI’s will also determine what action should be taken to correct the lack of maintenance process adherence.”
John Day, (retired) Alumax: Since 1949, Alumax has been a leading bath enclosure and shower door manufacturer. Their Mt. Holly plant was rated as one of the best maintained plants in the world for over 20 years. John Day, the company’s former engineering and maintenance manager comments on how he managed using KPI’s. “Hundreds of companies visited our plant, paying $1000 each to see our maintenance program up close, but only a few learned from their visit.” John feels they missed out on how Alumax managed with aligned KPI’s. John was also invited to visit over 500 plants in the US, Canada, and Australia and says, “The one the thing over 90% of them had in common was they could not effectively manage their plants because they had no Leading KPI’s in place. Many of these companies were crying for help but did know which way to go.” Most managed only with Lagging Indicators and made decisions based indicators such as cost and reliability.

John learned early in his career that without Leading KPI’s you cannot to manage the maintenance and reliability of equipment. “For over 20 years, I could see problems brewing long before they would become a serious issue. Alumax had a system in place where we could measure everything in our maintenance process - from Leading Indicators such as the identification of potential failures through to the lagging financial results of all actions performed by maintenance.” This separation of Leading and Lagging KPI’s allowed him to make management decisions when Leading KPI underperformance was identified before cost and reliability (the Lagging Indicators) were impacted.

According to John, there is a simple reason why most companies don’t succeed: They don’t know what information needs to be collected. In 1979, John worked with Alumax’s accounting department to establish over 60 financial accounts just for maintenance. These financial accounts were linked to leading KPI’s in the maintenance process which provided information needed to manage proactively. In turn, these KPI’s were linked to equipment performance – also Lagging Indicators. Each of these Lagging KPI’s had established benchmarks which measured if the maintenance process was in or out of control. This approach may sound complex, but once you have it in place, management can truly manage the reliability of plant equipment.
John shared with me 13 years of KPI data that was so impressive it would bring tears to any maintenance and reliability professional’s eyes. Describing the data, John stated, ”Everyone from a maintenance person to the plant manager had KPI’s they looked at on a daily or weekly basis in order for make basic and immediate management decisions. Each level in our organization utilized a small number of Lagging KPI’s, along with a bigger number of Leading KPI’s that were important to managing their part of the business.” In reviewing Alumax’s KPI’s over a 13 year period, I found that their maintenance cost (a Lagging KPI) did not increase but was constant. Maintenance cost as a percentage of Return on Asset Value held at around 3% for all of those years. Equally impressive was that the controllable plant operating cost was very constant over this same time period. This Lagging Indicator data pointed to the obvious fact that the reliability of equipment directly correlates to operating cost.
By managing the maintenance and reliability process, element by element using Leading Indicators, Alumax was able achieve these results. John’s experience validates that managing with both Leading and Lagging KPI’s is the only way to effectively manage an operation in order to achieve the results expected to succeed in a business. By the way, over 26 years ago I worked for John Day at Alumax and enjoyed every day I worked at his plant.

Terry Wireman, Vesta Partners. Wireman is an accomplished expert in maintenance/reliability and the author of “Developing Performance Indicators for Managing Maintenance”. Wireman says, “In studies, over 90% of companies do not have corporate support for an enterprise level KPI program for maintenance and reliability. Even at the plant level, maintenance and reliability KPI’s are not clearly defined and hence are not used effectively. In most companies, KPI’s have just become a numbers game.“ Using my earlier analogy, these companies are driving their car with the windshield painted black.
According to Wireman, “The pitfall people encounter is they are trying to manage using too many lagging metrics and so they don’t have sufficient resources to manage the business process metrics. These companies never achieve the target business results and never will as long as they are sub-optimizing their measurement system.”

On a positive note, Wireman described a recent client visit where the company had a completely integrated, enterprise level, KPI system. “This company was able to review from corporate headquarters their KPI’s and monitor trends. As they saw negative trends develop in their corporate KPI’s, they were able to drill down to the plant causing the trend. They could then examine their plant level KPI’s and find the trend driver. This was usually a process indicator, such as PM compliance. One example clearly showed the PM compliance was so low that it caused the reactive work to increase. This, in turn, created more maintenance overtime and impacted production schedule compliance. This increased the maintenance costs (per unit produced) and also the total cost per unit for the plant. These cost drivers cascaded upward, impacting the overall corporate costs.” According to Wireman, this integrated view of the corporation’s plant and departmental performance allowed this client to monitor their business performance and immediately take steps (manage) to improve the underlying process that would result in the desired increased profitability. Unfortunately, only 10% or less of companies understand KPI’s well enough to develop these types of performance management systems.

James Nesbitt, Ivara Corporation: James Nesbitt is a reliability practitioner with Ivara Corporation – a leader in the world of reliability. Nesbitt is one of the industry’s most knowledgeable and well-respected KPI professionals. According to Nesbitt, “The number of companies with adequate, meaningful key performance indicators is extremely low. Often managers seeking to measure the performance of their organizations start by measuring too much. Without understanding where the opportunities are in their organization, they are left trying to translate data from a host of disconnected or misleading indicators. This can lead to poor decisions or wasted effort trying to improve indicators that have marginal or no impact on business improvement.”
Nesbitt recommends that the first step to establishing meaningful KPI’s is education. Next, he recommends assessing or benchmarking a company’s current business performance against world class standards. This way, the organization will be able to identify gaps and then align and measure the business processes to deliver on these opportunities. By identifying the behaviors they seek to change and the processes that will effect these changes (Leading Indicators) management will be able to effectively measure process change that will enable them to attain their goals (Lagging Indicators).

The Solution

How much money do corporations loose every year due to plants not managing with good leading and lagging KPI’s ? The costs may be too high to calculate, so we must stop these massive loses now by putting a plan in place to develop and align KPI’s. Take note and listen up! This section may save your plant or your job. But I warn you, don’t look for short cuts in the process I am about to explain because there are none.

Step 1: Educate management, from executive level to floor level supervisors, on KPI’s and how they Leading and Lagging Indicators should be aligned to meet the business goals. You then must provide a similar education to the maintainers and operators.
Step 2: Define and assess your current maintenance and reliability process against a future state. A future state is known maintenance and reliability “best practices”. As part of this assessment, you must develop a business case with financial opportunities and cost of change. This step continues the education process and creates an awareness of the opportunity at hand.

Step 3: Develop a plan based on the assessment to include financial opportunities and cost on a time line. This plan must include: The definition of the elements of your maintenance and reliability process (work identification, planning, scheduling, work execution, etc.) The definition of Leading and Lagging KPI’s in each element of your maintenance and reliability process. The definition of roles and responsibilities for each task. World class benchmarks that are established against the defined KPI’s.  
Step 4: Implement the process and begin managing based on Leading Indicators. I would begin measuring only a few KPI’s at first. Then allow people at the lowest levels to make the decisions required to ensure your maintenance and reliability process is proactive and effective. The use of Leading KPI’s is a great awareness tool and will bring everyone into the decision making process.


Remove the black windshield and manage with Leading Indicators and not with Lagging Indicators. Leading KPI’s should be used to drive your decision making process. Remember Leading Indicators (KPI’s) are manageable, while Lagging Indicators just tell us how well we managed. If you want to be the best in your business, step up to the plate and manage in the most efficient manner by following my recommendation

To all my friends, The Maintenance Community on Slack is an incredible free space where over 1,500 maintenance and reliability professionals like myself share real life experiences with each other.   
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