Flow metrics

Key Performance Metrics at Delft Solutions

Delft Solutions utilizes three fundamental metrics to measure and improve business performance: Effectiveness, Reliability, and Throughput. These metrics work in concert to provide a comprehensive view of operational excellence.

Effectiveness

Effectiveness measures actions that should not have been done but were nevertheless performed. It is quantified through two key components:

Inventory-Dollar-Days (IDD)

• Calculated as: Dollar value of inventory × Number of days held
• Example: If $100,000 worth of products sits in warehouse for 30 days, this creates 3,000,000 inventory-dollar-days
• Lower IDD indicates higher effectiveness

Local Operating Expense

• Includes costs like scrap and salaries within a specific business unit
• Directly impacts overall effectiveness
• Measured in standard currency units

Quality Impact

Quality is inherently integrated into effectiveness measurements:

• Sales are only recognized after customer acceptance
• Inventory reductions are only counted once items meet quality standards

Reliability

Reliability measures commitments fulfilled to the external world, particularly focusing on timely delivery.

Throughput-Dollar-Days (TDD)

• Calculated as: Value of late orders × Number of days late
• Example: A $50,000 order delivered 5 days late results in 250,000 throughput-dollar-days
• Lower TDD indicates higher reliability

Key Characteristics

• Incorporates both time and monetary value
• Provides more meaningful insights than simple percentage-based metrics
• Encourages focus on high-value customer commitments

Throughput

Throughput represents the rate at which the system generates goal units (typically money) through sales.

Key Components

• Revenue from sales
• Variable costs directly associated with production
• Rate of conversion from input to output

Measurement Examples

• Units produced per time period
• Revenue generated per day
• Orders completed per week

Relationship Between Metrics

These three metrics are interconnected:

• High effectiveness (low IDD) supports better throughput by reducing waste
• Strong reliability (low TDD) enables consistent throughput
• Improved throughput often requires balancing effectiveness and reliability

Implementation Guidelines

Best Practices

• Limit total metrics to five or fewer per person/team
• Focus measurements on areas needing improvement
• Ensure metrics drive behavior beneficial to the company as a whole
• Regular review and adjustment of targets

Common Pitfalls

• Over-focusing on local optimization at the expense of system performance
• Using too many measurements, which can create confusion
• Ignoring the monetary value component of reliability measurements

See Also

• Theory of Constraints
• Operational Excellence
• Performance Measurement Systems

References

• Goldratt's Theory of Constraints
• Beyond the Goal (audiobook)
• FlowchainSensei's Reliability and Effectiveness Framework