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, or how well we're doing as a team. Almost every decision we take is influenced directly or indirectly by their impact on the metrics.
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-Euro-Days (IED) 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.
Reliability
Reliability measures commitments fulfilled to the external world, particularly focusing on timely delivery.
Throughput-Euro-Days (TED)
- 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. The ultimate goal here too, is 0.
Throughput-Euro-Days are very similar to Inventory-Euro-Days, with two key differences being: 1. the 'clock' on IED starts running from the moment you work on the project. TED starts from the expected delivery date or deadline of the project. 2. IED will only go up as you work on the project. If you skip a day of work for a sick day, vacation, or just the weekend, IED will not go up. TED will always go up, every day, even if no work on the project is being done.
- 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. We count all money arriving in the bank (cash flow model) paid by our clients. We don't consider invoices sent out as throughput because we, as a team, are also responsible for ensuring that the invoices get paid. Our work doesn't stop when the invoice has been sent.
Revenue is measured in euros. We track three key values in the Metrics sheet:
- Revenue per day.
- Revenue per quarter
- Average revenue, trailing four quarters.
These all measure the same, but we don't get invoices paid daily. Effectiveness and Reliability go up and down each day in semi-predictable amounts because they mostly directly result from the work you're doing and not doing as a team. Revenue requires work by third parties (customers and banks) and is much more lump-sum. We track revenue per quarter and average trailing four quarters as those graphs smooth the numbers to such an extent that visual analysis is much easier.
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.
Example
To illustrate the behaviour of metrics in various situations, we list a few examples:
Project
Late delivery
We sign a new customer for a project that is expected to take 3 days of work and be billed at 1.000 € per day. The customer agrees with the fixed-price quote we give her. However, we think the project will take us 2 days, so we decide to start the work on day 2.
It turns out we were wrong and the work actually takes us 4 days to deliver. The customer is slightly upset, but they added a little buffer for this possibility so they can still use the work. We send the invoice on day three and the customer pays the invoice on day five.
| Day | Effectiveness | Reliability | Throughput |
|---|---|---|---|
| 1 | 0 | 0 | 0 |
Cancellation
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