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. 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.

Quality Impact

We don't measure quality separately from Effectiveness. Quality is inherently integrated into effectiveness measurements:

• Sales are only recognized after customer acceptance.
• Inventory reductions are only counted once items are deployed to production.

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