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5.21 - Measures of Performance


Lean manufacturing systems require new types of controls to maintain their performance. To target and demonstrate continual improvements in operational manufacturing performance, it is necessary to identify key manufacturing parameters that reflect business objectives at all levels in the organisation. These must be:-

  • Owned by the business unit, product module, natural group or cell and reflect overall business ratios
  • Easy to calculate and typically be not less than 3 or more than 7
  • Consistent
  • Understood by all at the level in the cellular structure at which they are used
  • Calculated daily / weekly / monthly as appropriate to provide meaningful information
  • Based on the supply chain and emphasise customer / contractor relationships

Measures of Performance

The Purpose of Measures of Performance

  • Motivate
  • Allow comparison with world’s best practices
  • Focus on controls that lead to effective performance
  • Provide information to employees showing how they contribute to the divisional costs and profit and allow direct causes and effects feedback
  • Record performance achievements that can be used to establish future performance goals

Categories of performance measure for office natural groups and manufacturing natural groups:-






module accounts, sales / employee, cost / transaction



defects parts per million (ppm), stock accuracy



lead-time, percentage achievement of plan

Measures of Performance for a Supplies Module

Stock Turns RatioValue of Material released to production divided by current value of gross stock(1)
Turnover per EmployeeValue of Goods Received divided by number of employees(1)
Value of Stockper metre of floor area (1)
Cost Index (Cost Creep)% price increase / decrease for a selected representative group of components compared to previous year(1)
Number of Supplierstotal number of raw materials suppliers, bought-out items & sub-contractors, with records of quality status(1)
Supplier ConformanceNumber of defective items x 10^6 divided by number of items purchased(2)
% Delivery PerformanceSum of items delivered divided by number of items purchased(2)
Lead-time Elapsed time between placing an order and receipt of goods into manufacturing(2)

Measures of Performance for Manufacturing Module or Cell

Stock TurnsNumber of items processed divided by the average quantity in stock(1)
Sales Value per employeeTotal Sales divided by the number of employees(1)
Quality Performancenumber of items defective x 10^6 divided by the number of items processed(2)
% Production AchievementSum of items manufactured divided by the number agreed on the production schedule a 10%(3)
Manufacturing Lead-timeElapsed time between the cell order being received and the components being completed(3)

Measures of Performance for the Customer Interface

Product FailureNumber of items defective x 10^6 divided by the number of items processed(2)
Warranty ReturnsNumber of items defective in service x 10^6 divided by the number of items supplied(2)
% Schedule AdherenceSum of products delivered by category to the customer divided by the number of items ordered per category x 100%(3)

Product Cost

Product cost is an important variable that forms the cornerstone for the pricing policy. It can be calculated in several ways - choose the correct method for the purposes and be consistent in its application. The cost used must include all overhead charges based on bottom-up support service analysis and highlight costs of none-value added activity. Monitoring of product costs movement (Cost Creep) should focus on sources of changes within the business and the supply chain processes.

Measures of Performance must be supported by regularly check against the world’s best performance analysis - professionally done!

Further Reading