Here is a cross posting from the Lean Edge Website. The question from the Lean Global Network was regarding productivity: “Is there a Lean Way to Measure Productivity”?
In theory this issue of measuring productivity is pretty simple but in reality it is usually complex for a variety of reasons…In general however I don’t like the question of “is there a specific lean way to measure productivity”. I will elaborate on the topic with some background information and explain my concern and attempt to make some suggestions.
First off here are a couple of quotes from the eminent British Nobel Prize winner (1906) J.J. Thompson regarding physics. The quotes also apply to lean as far as I am concerned.
“To measure is to know. If you cannot measure it you cannot improve it. In physical science the first essential step in the direction of learning any subject is to find principles of numerical reckoning and practicable methods for measuring some quality connected with it. I often say that when you can measure what you are speaking about, and express it in numbers, you know something about it; but when you cannot measure it, when you cannot express it in numbers, your knowledge is of a meager and unsatisfactory kind; it may be the beginning of knowledge, but you have scarcely in your thoughts advanced to the state of Science, whatever the matter may be”.
In Toyota we had a whole host of similar analogies. For example in order to improve you also need a standard for measurement. By definition a standard is a basis for comparison. If you cannot measure something then there is no way of comparing before and after and deciding whether or not you have made an improvement. So every leader in Toyota since Taiichi Ohno has made some obligatory remark about the fact that “without standards there can be no kaizen”, etc. And that is indeed true for physics and lean manufacturing.
Productivity is just one example of how you need to measure something in order to begin to develop your knowledge away from the “meager and unsatisfactory kind” that J.J. Thompson warned about. Profits, sales, cost, quality, productivity (labor and capital), delivery are many area that need to be measured in some fashion in order to quantitatively state whether or not the process or department or organization in question is getting better. In other words are we actually doing Kaizen (change for the better) or are we just staying the same level?
For decades Toyota explained the labor productivity angle in the following manner. Assume you have one person working ten hours and making ten parts per hour for a total of 100 parts at the end of the shift. If that person makes 120 parts one day is that a productivity gain? It would appear so but what if those 20 parts are beyond what customer demand actually is? Then we have not made a productivity gain we have simply over-produced and generated waste in the form of extra storage, conveyance, inventory, etc.
In this case of an actual demand of 100 items a “truer” productivity gain would be to have that same person only work eight hours instead of ten in order to make 100 parts. That would represent a very simple productivity gain from 10 parts per hour to 12.5 per hour. That point is very rudimentary but it is amazing how often it is overlooked.
The same example often continues to ask the audience how to improve (i.e. make the 100 parts in eight hours instead of ten). The standard answers are usually to add more time, add more equipment, add more people, or to work harder. None of these are correct. The first three add cost and the latter is unsafe and unsustainable….A productivity gain in this case comes if you subtract some of the unnecessary work or waste from the equation and or make things easier so the work can be done in less time. Not every productivity gain is “subtractive” in nature like this however this line of thinking has to be developed or people will always gravitate to the first four items mentioned…Of course there is a time and a place for improving capital productivity and many things but I don’t want to make this any more complicated than it already is.
In reality measuring labor productivity in discreet parts with a very consistent labor content from part to part, engine to engine or vehicle to vehicle is not that terribly difficult. Parts per person per hour, total manpower hours per unit, etc. can always be calculated with direct, indirect, and all worker categories accounted for if desired. There is a potential inherent flaw in this approach but I will get to it down below.
It becomes much more difficult to measure productivity (labor is the easiest case to explain) when the work content radically changes part to part which is very common in some industries. For example assume you make control panels. Some control panels due to the design have low labor contents and can be made in 2 hours for example. Assume a person can thus make 4 per day. Or on some days they only make 3 per day. Then there are also bigger more complicated control panels made in the same area by the same person on different days. Assume those take 6 hours for a person to build. So a person only can make 1.33 panels per day. However with some creativity and effort suppose she manages to make 1.5 controls panels per day.
In this simplistic example which is more productive – the day the person makes 4 panels (or fewer) per day or the day she makes 1.5? 4 is greater than 1.5 so that is better right? Or is it? The answer depends and just a simple labor hour number alone in this case does not do justice to the question. This is why many companies default to a standard time to manufacturing something and tracking actual times taken versus this standard. More complicated games and metrics come into play (what about machines and which ones we used today, etc.) as the productivity metric gets more involved. Toyota (gasp) actually does this type of actual hours versus standard hours comparison in Japan in quite a few plants on some product lines. However I don’t think they introduced it overseas since the product mix was always easier and I suspect they did not want to add the metrics confusion to the challenge of also learning TPS…
No metric is perfect unfortunately…some reward over-production, some reward working harder, some reward substituting indirect labor for direct labor, some favor adding capital in place of labor. Even Toyota ran into this latter problem during its improvement journey. By focusing so much on labor productivity (and measuring it as either parts per person per hour, or manpower hours per unit) they inadvertently increasingly added minor capital projects (and sometimes major ones) to get labor out of the production line in the name of improving productivity. Unfortunately the minor and major capital ultimately added total cost to the equation in the form of equipment expenditures, maintenance work, spare parts, downtime, energy consumption, and other areas…So as a “countermeasure” most engineers and managers in Toyota also have to measure cost per unit (CPU) for the items they are making. That data is not always displayed on the shop floor. The cost incorporates Toyota’s definition of manufacturing costs and I don’t even recall what was included. However as you can probably guess there are still potential concerns with this metric as well…
Sadly there is no such thing as a perfect metric for productivity or any other. However we do need a standard in order to make valid comparisons and draw conclusions about improvement. You will have to identify what that valid standard is for your respective situation. Sorry but copying Toyota or asking what is “lean” will not work. The more complicated and relevant question for the Lean Global Network is what do you need to improve, how will you measure it, how much do you need to improve, and how will you actually improve. Metrics alone (productivity or otherwise) rarely solve problems yet they are necessary to enable and validate improvement.
I would like to slightly diverge onto this tangential point made in the previous paragraph. How will you improve productivity regardless of how you measure it? Improvement requires the human ability to observe, think critically, compare, generate insights about problems or kaizen opportunities, identify and implement countermeasures, measure results, draw valid conclusions, standardize success, and follow up even when things go right. When they go wrong as is often the case it requires the tenacity, courage, and honesty to return to the problem and work it some more. It is this collection of skills that Toyota spends a great time fostering in its workforce in every department. I would take these “skills” plus an “ok” metric every day over a great “metric” and lousy skills in the method of improving.