As a follow-up to my last column, 'Must Have' Metrics for Continuous Improvement, the next must-have metrics are first pass yield (FPY) and rolled throughput yield (RTY).

While most companies I visit measure FPY, almost none measures RTY, and therefore they miss exposing huge opportunities to improve flow, quality and financial performance. Why? Because most companies report only by process, which grossly understates the true impact on how material flows through the plant from start to finish. The only metric that tells the whole truth is (RTY). That said, both have a purpose. FPY is equipment specific while RTY reports the cumulative effect of all processes on key deliverables.

Let's say there are six operations involved with the product, and each operation reports its FPY at 95%. RTY, on the other hand, calculates the accumulating impact of the fallout at each operation. In this example, RTY is actually .95 x .95 six times resulting in RTY of 74%. Fully 21% of the opportunities for improvement are being hidden. The opportunities are enormous not to mention how much positive spillover effects will result in improved delivery performance, quality, constraint utilization and financial performance.

The 74% number in this calculation simply means that only 74% of the material you start in process actually reaches the shipping room without flow interruption. While many won't be moved to urgently act on a 5% opportunity, who can stand by and not react to a 26% opportunity with high urgency? Immediately we want to do a deeper dive on the data and dedicate scarce resources to improve, and fully engage salaried and hourly people to help as a team. In other words, full court press!

The quality department typically has the individual numbers to do the calculations, but the missed opportunities aren't being recognized and no one is asking for the data. As we said at the beginning of this series, the first step in problem solving is recognizing there is a problem. The second step is knowing how to size it. The RTY metric will put it on the table. Collect the data. Pareto-ize it. Act on it to achieve improvements of the processes using the lean tools many of you already know. Results will show massive improvement in customer complaints, returns, allowances, rework costs, remakes, etc., in year No. 1 and for years to come.

Oh yes, and these changes will also result in new, free capacity (no capital investment required) to support sales growth and improved operating margin. GMs, VPs of OPS/Mfg/Quality, Plant Managers......where are you?

The Power of OEE

Original equipment effectiveness (OEE) is also a powerful metric used to improve the effective use of resources by machine The gist of it is that by multiplying FPY x Utilization (hours of operations vs. the scheduled hours) x Performance (e.g. machine speeds, rates), you get an overall number for that work center. Most companies I see don't report or use OEE well. Some, however, measure the three components of OEE but never translate that into the opportunities to improve. It's another way to expose large opportunities, particularly in the area of maintenance and the maximization of constraint throughput.   

(Once again, since we started this series you should know these things by now: 1) What data you need; 2)what data you already have; 3) what data you need to go get; 4) how to report it so it's actionable; and 5) you should have a start on using more powerful data to drive improvements.)

Critical Inventory Measures

Next up as a critical set of measurements is inventory. Inventory of all kinds is usually the greatest consumer of cash in a manufacturing business. (Major capital projects from time to time would be the other main cash use.) Inventory turns measure the velocity with which raw material (RM), work-in-process (WIP) and finished goods (FG) move through the processes. A simplistic example is if you always have one month of inventory on hand, it would turn 12 times per year. World class companies talk about inventory "spins" in their businesses where end-to-end supply chains include both suppliers and customers to participate in engineering continuous flow throughout the value chain. Their turn numbers are more in the range of 50 to 100 spins per year. Most factories I visit have RM and WIP turns in mid to upper single digits and FG turns of three to four turns. Of course, FG inventory is inventory in its highest cost state -- huge use of cash!