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KPI Correlation in Industrial Engineering: A Case Study

Eugen VIZIREANU and Irina SEVERIN*


Politehnica University of Bucharest, 313 Splaiul Independentei, Bucharest, 060042, Romania
*irina.severin@yahoo.com

Keywords: Management, KPI, Improvement.

Abstract. The paper presents how an enterprise has improved the overall activity results using a
various set of tools, strongly connected and deeply integrated in the organizations management
system. Several selected areas for improvement, in order to achieve desired results, are presented by
using a defined masterplan dedicated to a specific range of time. The masterplan contains tenths of
activities to be done, in order to raise or decrease the current status of an indicator. All the activities
are linked to different indicators that become Key Performance Indicators (KPI). These KPI are stored
and presented into a scorecard, showing at any time the overall status of an organizations activity.

Introduction
Companies have continuously searched solutions to improve the overall performance, mainly the
efficiency and effectiveness [1]. The case study brings in front ways of solving issues like different
type of waste as Taiichi Ohno describe them in his book Toyota Production System [2]. To identify,
measure and eventually eliminate, at least control, the existing or potentially loses, a various set of
tools are used, very clearly exemplified by Nancy R. Tague [3, 4]. The enterprise activity is based on
an ISO 9001:2008 Quality Management System and the suggested approach tries to follow the EFQM
principles and management model [5].

Content
The study presents an industrial engineering enterprise acting in locks and locking system industry
with a 15 % market share. The organization has 520 employees that brings a turnover of 22 mil. Euro
in the last year with an overall profit of 1.1 mil. Euro.
In order to control these results a plan is needed, and this plan is intended as object of our study,
being moreover a Masterplan, for its tenths of activities and actions to be done, in order to achieve
the established objectives, defined for the year 2016, as follows:
- Turnover of 30 mil. Euro
- Profit of 1.5 mil Euro
- Lean leading site in EMEA
- MTPT of 70 days (Manufacturing Throughput Time)
- Quality complains with max. 500 PPM
- Zero Safety and Environment accidents.
The Masterplan has three main factors of impact, as defined:
- Exceptional Core Business Growth
- Fit for Growth
- Operational Excellence
Each of these three factors is composed from two strategic themes or projects for improvement.
Here is the point where Key Performance Indicators has appeared, making the results of any activity
to become visible, related to the initial goal, in different charts and graphic histograms.
Table 1. Factors and KPI of exceptional core business growth
Exceptional Core Business Growth

Succes Factor KPI


1.0 Customer First OFR; MTPT; FG DOH

2.0 Uncompromised Quality Qcompl; NC PPM

(OFR = Order Fee Rate, MTPT = Material Throughput Time, FG DOH = Days of inventory on hands, NC = Defect Parts)

Table 2. Factors and KPI of fit for growth


Fit for Growth

Succes Factor KPI


3.0 Business environment Turnover;

Personnel turnover;
4.0 Passionate Professionals
Regretted loss

Table 3. Factors and KPI of operational excellence


Operational Excellence

Succes Factor KPI


5.0 Flawless Execution Losses reduction;

6.0 Cost,Cash, Profesional


EBIT; Working capital;ROS
procurement

(EBIT = Profit, ROS = Profitability Rate)


The segmentation of the masterplan goes forward, for each success factor a list of activities and
actions to be performed, by whom and when, is defined. Performing progress is registered each month
as done (X) or not done (O).
Table 4. Actions and activities for 2.0 uncompromised quality, perform status and responsible

(SKU = Number of different products, AX = Informatic system, BU = Business Unit, MPL = Multi-Point-Lock, DPPM =
Defect parts per million)
Scorecard of Key Performance Indicators
The overall activity of studied company is permanently reported, due to an integrated informational
system, which collects data from all areas. Compare them to a specific target and presents the monthly
results into a scorecard.
The scorecard contains all chosen KPI and presents their status in different colors: By green mean
the current status is in target, red is out of target and yellow acceptable but out of target. All target are
chosen by top management in their annual meeting, based overall capacity and market demand.
Table 5. June 2016 Scorecard

Any indicators are treated also individually, being presented the reasons that led to respective
result, as seen in Figure 1.
Sales, maybe the most important indicator of any organization, shows a decrease compared to last
year, and three gaps related to summer and winter holidays. Anyway the results should be associated
to others indicators to understand the lack of sales. For example, Headcount and People Efficiency,
this shows two different statuses, but strongly connected in sales calculation.
Accepted Headcount (HC) for 2016 is 540 employees comparing the financial results of 2016 to
2015 it can be seen that Sales decrease proportional to employees number. And the relationship is
fortified by efficiency status, which is more or less constant.
For this, top management agreed to invest in automation, to increase in this way also the People
Efficiency and Sales results by keeping the requested number of people.
All the other indicators are as important as those presented; the evolution of each one may have
impact on another one. By organizations profile to produce safety and security products, it has to
work with lots of suppliers, which mean different stocks in warehouse, consequently meaning money
stored in house.
Figure 1. Visual representation of indicators: sales, headcount and people efficiency

To make profit from those invested money, it is needed a lower time from purchase moment to end
product sale date (MTPT), but this cant be decreased without a good efficiency. It needs also that
ordered products to be delivered in confirmed time, and when it isnt, the order become Backlog line,
delivery time grows, MTPT grows. Thats how all the indicators interact one with another.
It may seem that lot of KPI are out of target and the overall activity is not in good trends, but there
can be also a strategy of self-improvement, setting the targets a little higher that it should to make
everyone (staff) more productive. In this way, an organization may reach his desired objective, under
less brightness.
Conclusions
Our study has confirmed that any organization intending to reach business success needs a strong
management system, irrespective the selected reference model. Based on good practices, core
activities with leaders and allocated responsible which follow the adopted and implemented
principles of different standards and control tools are clearly and coherently defined. For our study the
Masterplan has been based on EFQMs approach [5], the scorecard and all the charts and histogram
based on statistical analyses, all being presented using Visual Management techniques.

References
[1] ISO 9001:2008 and 2015, Quality Management System Requirements
[2] Taiichi Ohno, Toyota Production System: Beyond large scale production, 1988.
[3] Nancy R. Tague, The Quality Toolbox: Second edition, 2005.
[4] Masaaki Imai, Gemba Kaizen, 1997.
[5] EFQM, European Foundation for Quality Management, www.efqm.org.

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