Flow metrics: Difference between revisions
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Effectiveness measures actions that should not have been done but were nevertheless performed. That can be a little hard to grasp because "should not have been done" usually means "should not have been done YET". Essentially, it's work we could have done later but didn't. | Effectiveness measures actions that should not have been done but were nevertheless performed. That can be a little hard to grasp because "should not have been done" usually means "should not have been done YET". Essentially, it's work we could have done later but didn't. | ||
Effectiveness doesn't measure overpolishing (work that is being done too well, compared to what we or the customers need) | Effectiveness doesn't measure overpolishing (work that is being done too well, compared to what we or the customers need) but WIP: work in progress. Work that has been completed; is ready to be delivered to the customer, but it hasn't been delivered yet. | ||
'''Inventory-Dollar-Days (IDD)''' | '''Inventory-Dollar-Days (IDD)''' | ||
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* Calculated as: Dollar value of inventory × Number of days held | * 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 | * 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. The ultimate goal would be 0. | * Lower IDD indicates higher effectiveness. The ultimate goal would be 0 IDD. | ||
=== | ===A sidenote on quality=== | ||
We don't measure quality separately from Effectiveness. Quality is inherently integrated into | We don't measure quality separately from Effectiveness, Reliability or Throughput. Quality is inherently integrated into the three measurements: | ||
* Sales are only recognized after customer acceptance. | * Sales are only recognized after customer acceptance. | ||
* Inventory reductions are only counted once items are deployed to production. | * Inventory reductions are only counted once items are deployed to production. | ||
Like almost all lean thinking, you can only deliver quality products. Badly engineered products or bad testing is so antithetical to lean thinking, that none of the metrics will work correctly if you start reducing quality. | |||
==Reliability== | ==Reliability== | ||
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These three metrics are interconnected: | These three metrics are interconnected: | ||
* High effectiveness (low IDD) supports better throughput by reducing waste | * High effectiveness (low IDD) supports better throughput by reducing waste | ||
* Strong reliability (low TDD) enables consistent | * Strong reliability (low TDD) enables consistent delivery and higher customer satisfaction. | ||
* Improved throughput often requires balancing effectiveness and reliability | * Improved throughput often requires balancing effectiveness and reliability | ||
Revision as of 06:18, 3 February 2025
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. That can be a little hard to grasp because "should not have been done" usually means "should not have been done YET". Essentially, it's work we could have done later but didn't.
Effectiveness doesn't measure overpolishing (work that is being done too well, compared to what we or the customers need) but WIP: work in progress. Work that has been completed; is ready to be delivered to the customer, but it hasn't been delivered yet.
Inventory-Dollar-Days (IDD) Effectiveness is calculated in Inventory Dollar-Days.
- 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. The ultimate goal would be 0 IDD.
A sidenote on quality
We don't measure quality separately from Effectiveness, Reliability or Throughput. Quality is inherently integrated into the three measurements:
- Sales are only recognized after customer acceptance.
- Inventory reductions are only counted once items are deployed to production.
Like almost all lean thinking, you can only deliver quality products. Badly engineered products or bad testing is so antithetical to lean thinking, that none of the metrics will work correctly if you start reducing quality.
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 delivery and higher customer satisfaction.
- Improved throughput often requires balancing effectiveness and reliability
See Also
Other related terms that might be of interest:
- Theory of Constraints
- Operational Excellence
- Performance Measurement Systems