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(Section C)
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6.2 Operating Metrics: Metrics that indicate and gauge change proficiency and its maturity and progress in both current and future competitive critical practices; recognizing and monitoring the development of this necessary class of core competencies. Agility issues are biased today by the immaturity of this practice in industry in general. They include the definition of metrics that measure innovation activity, capture the incidence of lost opportunities, and reflect change proficiency in critical operating activities—and the elevation of these dynamic metrics to the same importance as static operating metrics which measure output and its various traditional causal relationships.

The business practice is the collection of activities that define, gather, present, review (for effectiveness), and evolve the operating metrics. The framework for this practice consists of the annual divisional strategic plans and the corporate performance reporting and monitoring systems, as well as the perceptions and needs of employees (especially managers) and board members that will monitor these metrics and use them as operating and planning decision criteria.

Identifying critical practices to monitor; defining competency-monitoring metrics
  • It is common today for manufacturers who are trying to reduce costs in order to become more competitive to monitor process times for such things as change-over, set-up times, and die-change and to set goals for improvement. In general, it is even more common for companies to focus on cycle-time reduction in what they consider to be their current critical competitive practices and to set specific improvement objectives, especially in product development and product realization. Our interest in this reference model is specifically focused on change proficiency and related critical business practices. Outside of standard production process operating variables neither Remmele nor the machining industry yet focus overtly on change proficiency as a critical competitive practice across the board. Nevertheless, Remmele has laid some valuable groundwork with its early ABC implementation for costing and its informal monitoring of training and knowledge development (to ensure they maintain enough), quotation times, time taken to re-employ surplused capacity, and on-time deliveries. Though these activities are considered critical and are the subject of management review and discussion, their measurement remains informal for fear that hard display and monitoring will distort the actual practice.
  • When the metrics for on-time delivery performance indicated room for improvement many years ago, Remmele took the initiative and developed finite production scheduling capabilities. They continue to monitor on-time delivery for each plant.
  • Quotation time is watched principally because the Remmele quotation process is a highly detailed and consequently time-consuming activity. Cognizance of this metric through informal monitoring has supported the development of semi-automatic quotation assistance tools. It takes about six weeks to make a Plant 30 firm–fixed-price quotation for a focused-factory project that will make a commitment for years. Generally they will begin researching process possibilities well in advance of the RFQ in order to develop a working knowledge base.
  • Recently Remmele mounted a full-court press to find new business that could absorb personnel idled by an outsourcing contract that moved offshore. This division had grown principally in response to unsolicited opportunities and without the need for an aggressive business development capability. Though the experience resulted in five new contracts, the protracted time and uncertainty involved in the period of prospecting and negotiation for additional outsourcing contracts sensitized them to this process. An informal metric is now in place to gauge response time improvement when the next reaction event is required.
  • ABC-like practice at Remmele is used both as an improvement yardstick and as a foundation for automating quotation assistance. In general, ABC practices are a strong and necessary enabler for change proficiency as
  • robustness requires predictable costs. At the same time, ABC-like measurements are the only direct way to actually measure the cost of change. "We don't have a full ABC implemented, but Peat Marwick estimates that we are about 75% there. Years ago when customers wanted to analyze the costs of their products, Remmele had to justify allocations of square feet, machine, lights, etc., and Remmele plants needed to know how to make real money so they could buy some more equipment." That's the motivation Remmele cites for their implementation of costing concepts years before ABC gave credence to the practice. The company has always kept the "value" on equipment that was established during the depreciation period, even after full depreciation has occurred. They allocate factory burden and SG&A costs according to machine hours and people hours. Standard rates are calculated for 80% of full plant capacity and updated annually. Machine hours are in the allocation scheme to eliminate artificial pressure to remove people and automate fully. If work disappears from the shop or plant capacity is underutilized, the rates are not changed; rates are based on "standard plant capacity" and not on actual plant usage. They strive to do as much "direct" costing as possible, for example:
  • The Repetitive Batch Division charges costs of quality people directly. "We did more wrap-rate roll-ups until technology became a major factor. Pulling people out with burdened labor only really caused a problem."
  • Job quotations from Plant 30 show direct costs for: engineers (including quality), engineering technicians, tooling, and square footage allocation for occupancy. All are direct charges and not buried in the allocated overhead rate.
  • At the Automation Division: "We want 90% direct engineering charge-off and 80% direct technician charge-off from a 40-hour week. But we actually average a much higher work week in order to accomplish training."

Improving accuracy of meeting metric objectives

  • As a general metric improvement policy, Remmele focuses on attainment accuracy. Thus, actuals vs. committed objectives are monitored for the usual operating metrics, with awards given for accuracy and generally not for doing better than the objective. This operating philosophy is not yet predominant in the change proficiency operating metric practice only because most are still in the informal stage.

Developing new metrics targeted precisely at change proficiency

  • Successful quotation development, engineering change incorporation, process development and installation, production-rate doubling, single part quotation-delivery cycle, corporate-wide change of divisional performance-reporting system, and other such change proficiency issues will become critical with time. Remmele has just decided to try to monitor the amount of knowledge development conducted each year by the company, knowing that this change proficiency cornerstone practice feeds its competitive leadership ability to enter new markets and apply new technologies effectively.

Eliminating or fixing metrics that distort or replace the attainment of the true objective

  • Management theorists have long told us that we generally won't get performance by simply setting objectives, but that we must measure and display the progress and attainment as well. However, that old warning "be careful what you wish for" is highly applicable when it comes to operating metrics and well regarded at Remmele. Just as counting strokes per day as a figure of merit for a stamping plant increases the stroke count without increasing the finished parts count, so will measuring the hours or dollars invested in training divert the focus away from valuable and high quality knowledge development. Remmele management understands this phenomenon and has chosen explicitly to exclude training and knowledge-development measurements from operating reports and management incentive programs—though they have started an off-book metric to insure that this critical knowledge-development practice isn't short changed in boom cycles.
  • At a meeting with divisional controllers: "Accountants here just keep score; we don’t run the place. That’s different here, and we like it that way."

Allowing different metrics for different plants

  • Change-proficient processing for repetitive batch operations have different key factors than those for production machining or even general machining divisions, not to mention custom automation development and fabrication. One division may be especially concerned about set-up times and short-lead-time orders, another with constant cost reduction and production rate changes, a third with team learning curves and quotation development time, while a fourth frets over some of the same as well as some others. All need the
  • ability to custom design and fit their operating metrics, and all benefit from seeing the achievements possible with different approaches. Though Remmele has some universal performance metrics in the financial arena, even there they understand that different markets and operating realities will have differing optimal performance levels.

Expanding the user base

  • At this early informal stage of change proficiency operating metrics, the management team is responsible for definition, review, and evolution. When the competency and progress of change proficiency at Remmele requires explicit and broader involvement, the open-communication, dissemination, and buy-in practices and vehicles within the company will facilitate the introduction and utilization of metrics.

View Executive Overview: Abstract, Preface, Table of Contents

View Section A: Intro to Model | Change Proficiency Maturity Model | 24 Business Practices | Summary

View Section B: Intro to Remmele Case Study

View Section C: Integrated Model & Case Study | C-1.3: Strategic Plan Buy-In | C-2.1: Capital Investment Justification | C-3.1: Business Unit Relationships | C-6.2: Operating Metrics

Download This Report: PDF

Order Hardcopy Bound Report: An Agile Enterprise Reference Model and Case Study of Remmele Engineering


Features: Home | Library | Corp Info
Major Concepts: Realsearch ||| Enterprise Model ||| Maturity Model
                        Knowledge & Agility ||| Agile System Principles
Book: Response Ability - The Language, Structure and Culture of the Agile Enterprise
Book: Value Propositioning - Perception and Misperception in Decision Making

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Last modified: February 14, 2012