Use Leading KPIs to Spot Trouble

 Use Leading KPIs to Spot Trouble

 

Does your plant have reliability issues and a hard time meeting production targets? If so, it’s time to listen up! Metrics such as key performance indicators (KPIs), when identified and aligned properly, can save your plant, your job and your career. So grab a pen, open your mind and get ready to learn.

It’s amazing that most companies in North America manage with very few metrics to measure the current performance of their maintenance and reliability process. They come to me crying for help, seeking a solution for their lack of management control. I know the feeling, as I was once one of them.

 

The sad part is, these companies aren’t even aware they need KPIs to know where to focus. They fight reliability, production and quality issues on a daily basis, and seem to be lost in a quagmire. Many are replacing managers so fast, the people on the plant floor aren’t sure who is in charge from one day to the next. They’re crying for help and don’t know which way to go.

 

It doesn’t have to be that way. “By aligning our KPIs properly and managing the right ones, Carpenter discovered, for the first time, profits in a down market,” says Adonis Campbell, corporate reliability manager for Carpenter, a Richmond, Va.-based manufacturer of polyurethane foam. “We‘ve seen profits continue to rise as cost continues to drop by simply managing using leading KPIs.”

Measure the right things

Think about driving a car with the windshield painted black. You can’t see where you’re going, but you do get a glimpse of where you’ve gone through the rear-view mirror. You don’t find out whether or not you were successful until either it’s too late, or disaster strikes. Your car goes into the ditch (high costs, or worse), or you never reach your destination (business goals are not met). In the famous words of the late, great industrial revolutionary Peter Drucker, “You cannot manage something you cannot control, and you cannot control something you cannot measure.”

 

Drucker also said, “The problem with management is they’re measuring the wrong things.” If management truly understood the power of KPIs, things would quickly change, but trying to manage without KPIs leaves them feeling lost without hope in a reactive environment. This is a serious problem and it costs companies around the world billions of dollars due to what I consider to be lack of management control.

 

“The number of companies with adequate, meaningful key performance indicators is extremely low,” says James Nesbitt, reliability practitioner and KPI expert, Ivara (www.ivara.com). 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, Nesbitt says. “This can lead to poor decisions or wasted effort trying to improve indicators that have marginal or no impact on business improvement.”

Leading versus lagging 

Let’s get down to basics and define KPIs. 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? These may seem like simple questions, but I often see companies mix their KPIs, as they haven’t defined the specific area of the business for which they are attempting to measure performance.For example, we want to measure the performance of the maintenance function. There are really two kinds of KPIs to choose from in measuring any particular function of a business: leading indicators and lagging indicators, or leading KPIs and lagging KPIs.

 

We need leading indicators to manage a part of the business, while lagging indicators tell us how well we have managed. Leading indicators let us directly and immediately respond when a poor result is found. Lagging indicators tell us how well we performed, but we have little opportunity to immediately affect underperformance. Instead, when we see an unacceptable lagging indicator, we typically must drill down to the leading indicators to uncover the cause of the underperformance, and from there we can implement appropriate changes.  

Leading KPIs for the maintenance function measure how well we are conducting each of the steps in the maintenance process. For example, a leading KPI 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 number of hours. If the maintenance manager finds that the value of the KPI is lower than expected, he or she can discuss with the planner how best to immediately improve the results – possibly for the remainder of that day.

With all KPIs, by definition, we are measuring past performance, so I’m not suggesting that leading indicators can be tweaked to improve upon past performance. But as you can see in this example, if we’re managing using leading indicators, we can respond immediately when needed. 

A lagging indicator would measure the results of how well we managed the maintenance function. For example, 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. 

In the chart listed below I listed a number of KPIs I personally prefer to use, along with the world-class level where applicable. Leading indicators such as “Percent rework” and “Percent of PMs executed on time" affect the overall performance of the maintenance process. The corresponding lagging indicators are “Maintenance cost as a percent of budget” and “Plant availability.” At least one of these lagging indicators will suffer if there is sufficient under-performance in the leading indicators.

This short maintenance tip was taken from "Rules of Thumb for Maintenance and Reliability Engineers" written by Keith Mobley and myself.  Add your comments or "words of wisdom" to this article.

The Author: Ricky Smith CMRP, CMRT, CRL

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