Dimensions and Measures of Manufacturing Performance Measurement

Khaled Gad El Mola1,2*, Hamid Parsaei3

1
Department of Mechanical Engineering, Industrial Engineering Program, College of Engineering in Al-
Kharj, Al- Kharj University, Al- Kharj,11942, +(966) 530573805, KSA (kmsoli01@yahoo.com)
2
Department of Mechanical Engineering, Industrial Engineering Division, Faculty of Engineering, Helwan,
Cairo, +(966) 530573805, Egypt (kmsoli01@yahoo.com)
3
Department of Industrial Engineering, University of Houston, Houston, TX 77204, + (713) 743-6041, USA
(parsaei@uh.edu)

ABSTRACT
The subject of performance measurement (PM) is generating increasing interest in both the academic and managerial
ambits. Although the subject of manufacturing performance measurement (MPM) has recently become a very crucial
issue, little has been done to identify the critical performance dimensions (competitive priorities), to enumerate the
measures that exist, and how to select the appropriate measures. The primary objective of this paper is to identify the
critical dimensions of performance and to identify a set of measures that reflects the performance it is trying to achieve
as a first step to design an effective PM system. The second objective is to propose a framework to select the
appropriate measures.
Keywords: Manufacturing systems, Performance measurement, Dimensions and measures of performance, Performance
measures selection

1. INTRODUCTION dimensions and indicators, a reporting process and

delivery tool, and a diagnostic and analysis tool.
The subject of performance measurement is Figure 1 is a representation of these elements [4]. As a
increasingly generating interest in both the academic result, identifying the performance dimensions and
and managerial ambits. Also, the business performance measures is the first and the most important step in
measurement has always been one of the management’s implementing a PMS in any organization.
objectives. This, for the most part, is due to the
boarding spectrum of performance required by today’s
competitive environment and the new production
Performance Reporting
paradigm known as lean production or world-class
Dimensions process & Diagnostic
manufacturing. In addition there is a need to support
& indicators Delivery & Analysis
and verify the performance improvement programs such
tool tool
as Just-In-Time (JIT), Total Quality Management
(TQM), concurrent engineering, etc. [1].

The classical approach to performance measurement

can be best described by the Sink model [2]. The
model claims that the performance of an organizational
system is a complex interrelationship between the
following seven performance criteria: effectiveness,
efficiency, quality, productivity, quality of work life,
innovation, and profitability/budgetability. Neely et al.
[3] defined the performance measurement system (PMS)
as a set of metrics used for quantifying both the
efficiency and effectiveness of action. As applied to
manufacturing systems, the effectiveness of a
manufacturing system describes the extent to which the
system performs the customer requirements, whereas
efficiency describes how economically (in terms of
resources utilization) these requirements are performed.
Figure 1 The performance measurement system
(Adapted from Tesoro and Tootson, 2000)
In fact, the importance of performance measures was
clearly emphasized by the Foundation of Manufacturing
Committee of the National Academy of Engineering
where one of the ten foundations of world-class practice
states “world-class manufacturers recognize the
importance of metrics in helping to define the goals and
performance expectations for the organization. They
adopt or develop appropriate metrics to interpret and
describe quantitatively the criteria used to measure the
effectiveness of the manufacturing system and its many
interrelated components” [5].

A practical PMS is composed of three simple Schmenner and Vollmann [6] argued that most firms
elements. The elements are as follows: a set of were both using wrong measures and failing to use the

*
Corresponding Author
right measures in correct ways. Effective PM is the
compass that guides management in a direction that will
produce meaningful results at the process level, results
that will tie directly to your compnay’s goals.
Therefore, when designing an effective and
comprehehensive PMS it is necessary to address two
key questions. The first is what to measure and the
second is how to measure. Gad El Mola [7] answered
the first question by identifiying the critical
characteristics of the performance measures. These
characteristics are as follows: performance measures
should be derived from strategy, should be clearly
defined with an explicit purpose, should be relevant and
easy to maintain, should be simple to understand and
use, should provide fast and accurate feedback, should
stimulate continuous improvement, should link
operations to strategic goals, and should employ ratios
and non-financial measures.
Within the manufacturing environment the question
of ‘what to measure’ has traditionally been answered by
focusing on cost-related measures such as labor
efficinecy or machine utilization. But, in this paper,
this question will be answered by foucusing on the
competitive priorities that have been identified as part of
manufacturing strategy. Manufacturing strategy is the
effective use of manufacturing performance as a
competetive weapon to achive corporate goals. It
provides a framework for individuals in an organization
to make decisions on how to operate in order to meet
manufacturing objevtices, which are consistent with the
overall corporate objectives [8]. It is still apparent that
most companies do not let their manufacturing systems
to support their corporate strategies. The most important
reason for this incongruence is that perormance
measures do not match the manufacturning and/or
corporate strategy, and the company is measured based
on those misaligned performance measures. Therefore
selection of appropriate performance measures for the
monitoring effort should be done carefully, especially if
the company is maneuvered based on those performance
measures. Therefore, the dimensions and measures of
manufacturing performance measurement system will
be identified as a first and very important step to design
and implement an effective PM system. Then a
framework for measure selection will be proposed.
The paper was developed in five sections. In the
second section the dimensions of performance are
described and followed by identifying the critical
dimensions. The next section provides a clear
definition of the critical dimensions that were found in
the literature. Later, a framework for measure
selection is proposed which is based on the critical
characteristics of the performance measures. Finally,
the conclusion of this paper is given.
2. DIMENSIONS OF PERFORMANCE
A complete manufacturing performance measurement
system needs to be comprehensive and cover the most
critical performance dimensions of the organization.
The dimensions of performance for which measures,
within a strategically aligned performance measurement
system, should be developed, have been defined using a
variety of terms in the literature. This has caused a
degree of replication. Skinner [9] originally linked
manufacturing strategy and performance measurement
together. He suggests that manufacturing controls focus
on cost, quality, flows, inventory, and time, and that
results be measured in terms of productivity, service,
quality and return on investment. Skinner [10] then
argues that to be competitive, concentration on quality,
reliable delivery, short lead times, customer service,
rapid product introduction, flexible capacity and
efficient capital deployment is required.
Wheelwright [11] suggested that performance
measures be tied to the organization’s strategy as
reflected by its “competitive priorities”. Leong et al.
[12] claim that it is widely accepted that the
manufacturing task, and hence the key dimensions of
manufacturing’s performance, can be defined in terms
of quality, delivery speed, delivery reliability, price
(cost), and flexibility.
Maskell [13] identified six factors of a manufacturing
strategy that should be measured: quality, cost, delivery
reliability, lead-time, flexibility, and employee
relationships. Each factor, he identifies measures
commonly used by world class companies. Allen [14]
further developed this list to 19 critical success factors.
Lynch and Cross [15] considered that qualitative and
non-financial manufacturing performance measures can
help organizations to link operations to strategic goals
on all hierarchical levels, since they are easier to derive
from the qualifying and order-winning criteria and
easier to put into effect, but it is still necessary to link
corporate, business and manufacturing strategies.
Vickery et al. [16] presented a list with 31 items
according to a survey. They argued that manufacturing
does not have primary responsibility for all 31 items.
On the other hand, White [17] has suggested that the
items for which manufacturing have at least 50 percent
of the responsibility are quality (conformance to
specifications, reliability, and durability), cost,
flexibility (volume and process), delivery dependability,
and speed (delivery speed and lead time).
A review of existing literature on performance
measurement in accounting, manufacturing, and
managerial was performed in order to identify the
performance dimensions by focusing on the competitive
strategy. Different dimensions of a manufacturing
performance measurement system from 15 sources were
obtained. Table 1 summarizes the sources, with a
frequency count, of the dimensions of the MPM system
In summary, quality, flexibility, time, delivery, and
cost are commonly cited as the main operational
dimensions which should be measured [3, 6, 15, 17, 18,
19]. Finance, in various different forms, is also dimensions. It would be impractical, then, to review
considered to be a critical dimension of performance all the possible measures of manufacturing’s
[20-24]. In addition, customer satisfaction is performance in this paper. Therefore, a selection of
repeatedly cited as a critical measurement area [25-26]. the most important measures relating to those
dimensions will be discussed in the following section.
Table 1 Performance measurement system
dimensions frequency count summary Tamimi and Sebastianelli [30] classify the measures
Dimension
Reference of quality, based on a case study, into four major
Count 9 18 10 20 12 13 26 6 15 27 17 24 28 27 29 categories: consumer-based measures (number of
Cost 12 * * * * * * * * * * * * customer complaints, repeat business by
Quality 14 * * * * * * * * * * * * * *
customer, ...etc.), detection-based measures (number of
Flexibility 13 * * * * * * * * * * * * *
Time 13 * * * * * * * * * * * * *
defects, scrap, rework, …etc.), process-based measures
Customer (statistical process control, histograms, Pareto
8 * * * * * * * * analysis, …etc.), and financial-based measures (sales
satisfaction
Fiance 9 * * * * * * * * * and non-conformance costs). Toni et al. [31] presents
Delivery 4 * * * * an instrument for evaluating the quality performance
Speed 1 * measurement based on the classification of quality into
Inventory 1 * three categories: total quality offered, perceived quality
Flows 1 *
Rapid
and customer satisfaction, and quality costs. Sethi and
product 1 * Sethi [32] classified the flexibility into the following
introduction elements: machine, material handling, routing,
Emplyee expansion, program, production, market, product,
1 *
relations process, volume, and operation flexibility. To measure
Efficient a manufacturing system’s flexibility in matching
capital 1 * changes in customer needs for its products, product
deployment flexibility, technology flexibility, volume flexibility, lot
Human
resources
1 * size, set-up time, percentage of standard, common, and
unique parts, number of different parts and processes,
The competitive priorities (quality, flexibility, time, cross-training of production personal and similar
delivery, cost, finance, and customer satisfaction) measures can be used. Krupha [33] argues that time
can be used to drive improvements in both cost and
appear to have been most widely accepted in the
quality, and it has a common definition throughout the
manufacturing strategy literature. These seven critical
dimensions appear to cover all aspects of business: the manufacturing system. Five measures, the percentage
financial results, the operating performance (through the of quantity over or under original schedule, the
differences between actual start and completion dates
dimensions of quality, flexibility, time, delivery, and
and scheduled start and completion dates, the
cost), and the way the company is perceived externally
(through its customers). Also, those dimensions percentage of on-time shipments, number of shipping
provide the first level for classifying manufacturing damage complaints, and the shipment accuracy can be
used to measure delivery performance of a
performance measures. It is, however, important to
manufacturing system. The cost performances include
note that these dimensions are not prescriptive.
Instead, they are intended to encourage the holistic the production costs (separated into materials and labor
consideration of these areas when developing measures on one hand and machinery on the other) and the
productivity (which can be index measurements (partial
to support the company strategy.
productivity, total factor productivity, and total
productivity), linear programming (Data Envelopment
3. PERFORMANCE MEASURES
Analysis), and econometric models) [34].
Top management can talk about the need for making
improvements, but unless the right performance
measures are measured and rewarded, nothing will 4. FRAMEWORK FOR SELECTING
change. Today’s world-class manufactures are PERFORMANCE MEASURES
continually tracking operation performance measures
Although the literature is very good at providing a
that ultimately impact business success, such as
order-to-delivery cycle time, operating expense, set-up wealth of possible measures to choose form, it is not so
time, and customer satisfaction. Neely et al. [3] and good at indicating how to select from among those
measures [17]. Dixon et al. [35] provides a
White [17] have pointed that the generic terms quality,
questionnaire with 39 generic performance measures
flexibility, time, delivery dependability, cost, and speed
encompass a variety of different dimensions. From the that range from “yield” and “cost of quality” to “unit
literature survey more than 200 measures were overhead costs” and “return on investment”. The
questionnaire is designed to identify inconsistencies
identified as being relevant to quality, flexibility, time,
between performance measures actually used and
delivery, cost, customer satisfaction, and finance
company strategy; it does not indicate how measures
should be selected. So, what rules should guide
measure selection in manufacturing performance
measurement? Gad El Mola et al. [7] proposed eight
characteristics of the performance measures that can be
used to for selecting measures. Better measure sets
would certainly result from attempts to apply these
characteristics to the selection of specific measure sets.
Figure 2 illustrates a proposed framework for
selecting measures in manufacturing performance
measurement. The framework is divided into two
sequential parts: what to measure, and how to evaluate
the selected measures. First of all, the dimensions to
be measured must be defined before defining how the
measurement will be accomplished. A parallel
analysis concerns the specification of the information
needs that measurement will satisfy. Then, the critical
dimensions to be measured should be specified. Once
the critical dimensions and information needs have been
specified, candidate sets of measures can be generated
as alternative ways to measure the performance
dimensions. Given the sets of candidate measures,
comparisons and evaluations can be made. As shown
in Figure 2, eight characteristics can be used to evaluate
candidate measures differentially. Measures can be
compared in light of a single characteristic and can also
be compared and trade offs conducting among several
characteristics. Filippini et al. [36] have discussed the
concepts of trade-off of manufacturing performance
measures in depth. Ferdows and De Meyer [37]
propose the so-called ‘sand cone model’, where quality
improvement provides the basis for long-term
improvements in production. The sand cone model
proposes a sequence in the performance improvement
process, which starts from quality, then proceeds to
reliability and flexibility, and finishes with efficiency
and costs. The final step in the framework shown in
Figure 2 is defining, selecting, and testing the final
measure set.

What? How?

How?
COMPARING CANDIDATE
MEASURES Selecting
Candidate
Defining
Measure
Functions & * Single Characteristic:
sets
Dimensions x Derived from strategy
x Clearly defined with a an explicit
x Purpose relevant and easy to maintain
Conducting
x Simple to understand and use
Specifying Critical Generating Trade offs
x Provide fast and accurate feedback
Dimensions to be Candidate x Simulate continuous improvement
measured Measures of
x Link operations to strategic goals
Critical
x Employ ratios and non-financial Selecting
Dimensions
measures and Testing
Final
Defending * Multiple Characteristics: Measures
Information x Trade offs Analysis Sets
Needs

Figure 2 A Framework for selecting measures in performance measurement

 5. CONCLUSIONS
The subject of performance measurement is
increasingly generating interest in both the academic
and managerial ambits. Manufacturing strategy is the
effective use of manufacturing performance as a
competetive weapon to achive corporate goals. A
complete manufacturing performance measurement
system needs to be comprehensive and cover the most
critical performance dimensions of the organization.
The competitive priorities (quality, flexibility, time,
delivery, cost, finance, and customer satisfaction) appear
to be the most widely accepted in the manufacturing
strategy literature. Those seven critical dimensions
can be seen to cover all aspects of business: the
financial results, the operating, and the way the
company is perceived externally. More than 200
measures were identified as being relevant to these
critical dimensions. Measures should match the
manufacturing and/or corporate strategy. These set of
measures can be used to compare the performance of
different organizations, plants, departments, teams, and
individuals. Therefore, selection of appropriate
performance measures should be done carefully for the
monitoring effort. The proposed framework for
selecting performance measures can be used to select
the appropriate measures based on the critical
characteristics of the performance measures.
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