ELECTRONICS AND ENGINEERING
A P U B L I C A T I O N F R O M B S M
Effective Performance Management
Consistently achieving good performance from any
business process does not happen by accident. It needs
to be actively managed. This normally involves frequent
reviews of KPI’s (Key Performance Indicators) by process
owners and support personnel, detailed analysis of
losses and the development and implementation of
effective countermeasures. Typically these reviews and
analyses need to happen on a daily basis so well defined
methodologies and highly structured meetings are
essential.
Measuring Performance
Effective management of performance begins with
measurement. Each individual measure requires a high
level of proactive management in order to drive
Effective
performance improvement. For this reason the number
management of of measures introduced is often limited to a maximum
performance of two or three. Any more than this causes a loss of
begins with focus on individual measures and the workload required
measurement. to properly manage them becomes unsustainable. Given
Each individual this restriction it is important that the measures selected
measure requires a are the right ones. They should reflect real performance
high level of and must be within the control of the personnel who
proactive are involved in the performance management process.
management in
order to drive Example: ‘Output’ is often used as a basic measure of
productivity but will not reflect real performance if the
performance
output is achieved by adding additional personnel.
improvement.
Equally there is no value in measuring something that
is substantially outside the direct control of the area
being monitored.
© BSM
For most manufacturing processes metrics in three key
areas are commonly measured i.e. Quality, Productivity
and Delivery Performance, although there are others.
SUMMER 2001
Over the years many different metrics and methods of
measuring performance have been developed. Some
are by necessity quite complicated in order to allow
performance to be measured across different products
or processes. Normally, the simpler the measure the
better it is but it is often dangerous to sacrifice accuracy
for simplicity. In selecting a measure it is important to
be able to see trends and to understand relative
performance.
Example: 40 rejects from a process might represent a
good result on Monday when output was high but
would be poor on Friday when output is much lower
due to a shorter working day.
The use of percentages avoids this problem but there
is an inherent issue with the human perception of
percentages. We are conditioned to feel that a figure
in the nineties reflects good performance (and vice
versa with low percentages). In fact a figure in the high
nineties might be relatively poor.
Example: If the electricity supply was uninterrupted
95 % of the time, we would have 439 hours or 18
whole days of power cuts every year.
Using defects per million can avoid this problem.
Analysing & Reconciling Performance
Once the key performance indicators have been selected
and measurement is in place, the results need to be
analysed regularly (normally on a daily basis). If there
is a poor result it is critical to establish why, so that
effective countermeasures can be taken. It is also
important to quantify the known losses. A useful
discipline is to use some sort of reconciliation template
(rather like a bank reconciliation) that ensures that losses
are identified and quantified.
Output Reconciliation Form
Target Output Less Actual Output = Losses A
Known Losses Minutes
Material Shortage
M/C Downtime
Changeover
Late Start after break
No. of Minutes x rate per min = B
Unrecorded Losses (A less B)
 FOCUS A P U B L I C A T I O N F R O M B S M SUMMER 2001

Reviewing Performance
INTRODUCING E-PROCUREMENT
• Actual performance should be reviewed with
the personnel whose performance directly E-procurement software allows purchasing
affects the result. organisations to automate the processing of
• Process owners and support persons such as transactions among buyers of products and services
engineers and planners need to be involved. within their organisations.
An icon on the computer desktop provides access
• Reviews need to take place daily to be
to supplier's e-catalogues that are typically customised
effective.
according to supply agreements negotiated by
• Meetings should be short, focused and highly commodity specialists. Where a person selecting an
structured. This normally means a fixed item hasn't the proper authority to buy it, the
agenda. software manages the flow of relevant documents
through necessary approval processes, streamlining
Usually the process owners meet at the start of each what was once a very time-consuming process.
shift for 5 or 10 minutes in order to review yesterday’s E-procurement software solutions also help
performance and to plan today’s performance. The companies to leverage buying volumes across far
meeting is led by the team leader (who is often a flung operations, rationalise their supply bases,
standardise buys, and negotiate more favourable
frontline manager) and individual team members are
contracts with suppliers. When integrated with back
given performance measurement tasks in addition to
office systems (ERP or legacy), these front-end systems
their normal roles. allow for automatic generation of general ledger
updates, supplier performance data, document
Problems, which are outside the control of this group, matching, supplier payment, and so on.
are referred to the support group who meet later to Ultimately, the software is supposed to permit
also review yesterday’s performance and use simple purchasing organisations to bow out of day-to-day
problem solving techniques to develop effective transactions processing - the traditional financial
The value of countermeasures for losses. The team leader is the link control mechanism for corporations -while making
between both meetings. Ongoing complex problems it very difficult for maverick or off-contract buying
having all the to occur.
personnel, who may be referred to a separate project team to develop
Until very recently, front-end e-procurement systems
the countermeasures.
directly affect focused largely on indirect spend (MRO, office,
performance, travel, etc) because this was the spending segment
Continuous Improvement Process Structure most in need of control and most expensive—activity
focused on the
wise—in relation to the value of items being
same measures
Steering Group purchased. But given the success of these systems
and working in • Manage the overall process
• Review Company measures in controlling and making indirect spending processes
a structured • Initiate Projects
• Form Teams more cost efficient, the big software companies
• Monitor progress and results
manner has a have now turned their attention to the more complex
significant tasks of managing direct production or raw materials
Process Team
Project Teams • Review performance spending by electronic means.
positive impact. • Investigate on-going problems • Plan production
• Present solutions within time frame • Solve day to day problems In considering e-procurement software, companies
• Implement solutions • Hold Daily Meetings
• Monitor progress and results • Display Performance Measures first need to choose between buying or renting.
Very large companies are expected to buy their own
front-end e-procurement systems. Where they
This Diagram shows a typical
continuous improvement structure Support Group already have installed ERP and/or supply chain
with defined roles for steering • Support 4 or 5 Process Teams
support process and project teams. • Cross functional members management IT systems, these companies are also
All of these also have a role in on-going • Available on a daily basis
performance management. • Hold Daily Meetings expected to prefer e-procurement packages that
• Address Process Team Issues integrate naturally with their back office systems
(budget, general ledger, payables, etc). This will
Conclusion allow them to take full advantage of the potential
for eliminating maverick buying and generating
While the basic structures and techniques for crisp, clean data for formulating commodity
management strategies and preparing for contract
performance management described above are
negotiations with strategic suppliers.
straightforward, it takes a lot of effort to implement
Alternatively, for companies more likely to outsource
and maintain them. Also many of the skills required their IT management functions, there are plenty of
by both the process team and the support group are applications service providers (ASPs) lining up to
not innate so specific training is required. The rewards host front-end e-procurement. ASPs will provide
however will normally more than compensate for the purchasing organisations the ability to customise
effort involved. The value of having all the personnel, according to workflow and business rules and to
who directly affect performance, focused on the same integrate with the back office without incurring the
measures and working in a structured manner has a high costs of supporting and maintaining the
significant positive impact. software.
Based on Purchasing Online Article

BSM help companies achieve significant performance improvement by developing processes, people and technology.
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