A

Report on

Key Performance Indicators on Administrative Aspects of a Lean

Organization

Submitted by
A. Sandeep Reddy (2013A4PS155P) in partial fulfilment of the
Course No. ME F266
to
Prof. K. S. Sangwan

Birla Institute of Technology & Science, Pilani

 ABSTRACT
This report deals with identification of key point indicators for a lean enterprise. As
lean is being implemented by many organizations, there is a dearth of measurement of the
level of lean implementation. An organizations fate is decided by its management so it plays
vital role in development of that particular organization. In this report we present some
indicators which measures the performance of an administration system of an enterprise. For
identification of the proposed indicators we have went through 15 papers which deals on lean
administration, after analyzing the frequency of indicators we found 19 indicators which can
be used for measurement of lean implementation in an organization.
 Acknowledgement
I take this occasion to thank Dr. K S Sangwan, professor, Department of Mechanical
Engineering for guiding me in completing this project and also for giving me this valuable
opportunity to work under his guidance. It’s my pleasure to thank Narpat ram sangwa,
Research Scholar Department of Mechanical engineering without whom this project would
have not been possible. I would also like to thank Vikrant Bhakar, Research scholar
Department of Mechanical engineering who helped me understand the basics of this project.

I also thank Dr. B.K Raut Head of Mechanical Engineering Department for giving me
this opportunity to do project under Mechanical Department.
 Table of contents
Sl.NO Topic Page No
1 Abstract i
2 Acknowledgement ii
3 Introduction 1
4 Wastes of lean 2-3
5 Lean principles 4
6 Lean tools 4-7
7 Key performance indicators 8-10
8 Conclusion 11
9 References 12-13

List of figures
S. No Content Page No
2.1 Lean Principles 4

List of tables
S. No Content Page No
1 Key performance indicators 11
2 Frequency analysis of indicators 12
1. INTRODUCTION
Increased competition and expectations among customers forced organizations to put
into practice, various kinds of tools in organization. Lean production and methods
implementation gave comparable advantages to the companies over their counterparts, so we
find that lean implementation is necessary for an organization if it needs to stay in
competition. As many companies started executing lean, here comes measurement of level of
lean implementation. There has been lot work done in the field of lean implementation.
Pakdil and Leonard (2015) identified cultural aspects of lean processes and investigated on
the relationships between organizational culture and lean process effectiveness. He identified
the various cultural dimensions and their supposed effect on lean implementation and
sustainability. He developed a model with Competing Values in the quadrants. He also
presented a frame wok on organizational culture divided into Group Culture, development
culture, hierarchical culture and rational culture. Annika Kristofferson (2014) discussed the
role of employees and their relationship with administration. Rehaman et al. (2013) found the
effectiveness of Kanban system in multinational organization; and identified factors
hindering Malaysian small and medium enterprises (SME) from implementing Kanban. He
realized that that top management commitment, vendor participation, inventory management
and quality improvement are important for Kanban deployment and towards lean
manufacturing. Proposed a layout for the company he studied.

Herald and Joosten (2014) worked on Management systems and manager behaviors
(traits) are of crucial importance to any organization because of their connection with
organizational performance. To identify key factors associated with the quality-of-care
delivered by hospitals. Discussed the characteristics of a leader responsibility, creativity,
ability to deal with stress, insights, and good communication skills. Selected hospitals and
compared between lean implementing and not following ones and found the difference.
Camacho (2014) did Comprehensive understanding of the empirical findings on LM
implementation in the literature with special attention paid to the way that the outcomes of
this management system are assessed. Found relationship with lean practices with their
Performance Fullerton and William (2013) utilization of non-financial manufacturing
performance (NFMP) measures impacts the lean manufacturing/financial performance
relationship. He used structural equation modelling (SEM) to examine the relationships.
Found Association between lean manufacturing and financial performance. Angel (2014)

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analyzed which lean Production indicators are more used to assess the company's
improvements in their Production systems, and the determinants on the use of these
indicators. In this report first we are going to deal with lean and some of its principles, then
we propose some key point indicators for the administration system of an organization.

2. LEAN

Lean manufacturing often simply "lean", is a systematic method for the elimination of
waste within a manufacturing system. Essentially, lean is centered on making obvious what
adds value by reducing everything else. Lean manufacturing is a management philosophy
derived mostly from the Toyota Production System (TPS) (hence the term Toyotism is also
prevalent) and identified as "lean" only in the 1990s. TPS is renowned for its focus on
reduction of the original Toyota seven wastes to improve overall customer value, but there
are varying perspectives on how this is best achieved. The steady growth of Toyota, from a
small company to the world's largest automaker, has focused attention on how it has achieved
this success.

2.1 Wastes under lean: It is defined as” Something that adds no Value “to the product.as we
are aware that no one is willing to pay for the non-value added work so every organisation
aims at reducing these waste. We are in competitive world, there is lot of risk involved if the
price is high on products developed by our company then customers Shifts Company .thus we
have numerous good reasons for reducing waste in an organisation. We have classified
wastes into categories, they are:
2.1.1 Transport waste: Transporting a product between processes is a non-value work.
There is a possibility of deterioration of the product and for avoiding that to happen we need
to employ equipment’s which also add for the waste. We need to avoid these by proper
planning and ordering of the processes.
2.1.2 Waste of inventory: It includes the raw materials ,products in process and finished
goods which are to be stored .this adds waste because it consumes space and while
transportation there a possibility of its quality getting altered.one of the main cause is
overproduction.
2.1.3 Unnecessary/ excess motion: This is the waste which includes unnecessary motion of
workers as well as products. Excess motion of workers such as twisting, bending and
stretching cause problems to workers health, which is a main concern.it not only affects
health of worker but it also reduces the quality of the product such as wear and tear.

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2.1.4 Waiting waste: This is the time wasted by operator/worker in waiting for his turn.
Whenever there no synchronisation between two processes there is a possibility of waiting.
This is a serious concern for industry because the utilisation of labour hours decreases and
efficiency as well as rated capacity decreases.
2.1.5 Over production: It is nothing but producing something in excess. It contributes a
considerable amount of waste because waste of inventory is followed by excess production.
The company should produce the amount for which there is demand and try to avoid this
waste.
2.1.6 Over processing: It is also known as inappropriate processing. Some companies invest
huge amount and get costly machines. But instead of these machines we could also use
cheaper machines to produce the same product. There are some products where the need of
tolerances are not of importance but companies invest their strength to take care of
accuracy.so these practices such as using mega machines and focussing on unnecessary
points of production falls under these category.
2.1.7 Waste of defects: This is the waste which is having high stake among all other
mentioned wastes. When a manufacturer produces defective products we have lot of work to
do like rework, replacement.it increases the scrap and waste of resources and can contribute
to the organization.it also affects the customers of particular company. For reducing this kind
of waste we need to follow quality management.
2.1.8 Underutilization of employees: Success of every organisation depends on their
employees so, companies should start utilising the talent of employee and it doesn’t mean
that we need work employees to death.
2.1.9 Improper utilization of resources: This is generally related to our human community
and our environment. If the company fails to utilize the provided resources there is problem
of depletion of resources and company’s efficiency also decreases.

2.2 Lean Principles: The five-step thought process for the implementation of lean
techniques is easy to remember, but not always easy to achieve:

1. Specify value from the standpoint of the end customer by product family.

2. Identify all the steps in the value stream for each product family, eliminating whenever
possible those steps that do not create value.

3. Make the value-creating steps occur in tight sequence so the product will flow smoothly
toward the customer.

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4. As flow is introduced, let customers pull value from the next upstream activity.

5. As value is specified, value streams are identified, wasted steps are removed, and flow
and pull are introduced, begin the process again and continue it until a state of perfection
is reached in which perfect value is created with no waste.

Figure 2.1 principles of lean

3. Lean Tools:
3.1 5S’s:

One of the most important tools in lean implementation is 5S. 5S stands for five Japanese
words, by following which we would be able to organise our work space in an efficient
manner.

3.1.1 Seiri (sort): This is the first tool among the five defined tools. It says that we need to
remove unwanted materials from our workspace. It not only includes waste but also the
unnecessary items which are having value but not of usage in our zone. The unwanted
equipment’s are removed and put a red tag on it.

The advantages of implementing the first step are:-

 The scrap is removed and can make it useful by selling or placing it for any use.

 We get free space which can be utilised for any productive purpose.

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  It would be quicker to find tools or any equipment, so as to save our time.

3.1.2 Seiton (systematic arrangement): It is the 2nd of the five tools and it means systematic
arrangements of the items that were left after performing the 1 st step. Before placing the
equipment’s in order we classify the items under three categories

Frequently used tools:-these are the tools that workers use much frequently. These should be
placed in such a way that

 Handy

 Visible

 Easy to reach

 Easy to put back when not needed

Daily or monthly tools:- these are not used seldom .these should be kept in a cabinet as we
won’t use them frequently so as to keep them away from dust, but these the cabinet should be
in a reachable range.

Rarely used:-these should be stored in a store room.

The benefits of implementing this tool are:-

 Productivity increases as the time lost in searching for the tool is eliminated.

 We can easily identify if there is any damage of an equipment.

 As the tools are arranged in an ergonomic manner so the injuries caused to workers
would be minimised.

 It would be easy to clean up the workplace.

3.1.3 Seiso (shine): After implementing the first two steps of 5S we introduce the next one
which asks to clean the workspace.it also includes painting the machines. The advantages
are:-

 It will create a healthy atmosphere to work.

 While cleaning we can identify if there is any damage to machine and problems such
as leakage of oil from a machine is identified.

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3.1.4 Seiketsu (standardization): It speaks about the standardization of practices followed
in the organisation.it covers the three tools defined prior to Seiketsu. The advantages are:-

 The staff will be able to get clarity what is going on and it saves time.

 As we use colour codes workers will be able to find tools pretty easier than earlier.

3.1.5 Shitsuke (sustain): As we have already introduced four of the five steps in
implementing 5S tools, this tool emphasises on executing the former four points without any
failure. It includes audits that evaluate the implantation of 5S.it is of more relationship
between managers and workers, managers should remind the staff whenever they deviate
from these principles.at initial stage it would be difficult to comply with these rules but down
the line it gets smoothened.
3.2 Total productive maintenance:
3.2.1 Jishu Hozen (autonomous maintenance):-This pillar aims at empowering the
operators. Normally what happens when a machine stops functioning the operator reports to
the technical staff to repair the machine, by making the operator autonomous we will be able
to save the time of the staff and we can invest his time, where there is much need of him.
Implementing this pillar we can also save the idle time of operator and operator feels proud of
his work.

The advantages are:-

 Proper utilization of the operator.

 Increase in machine life as operator keeps a vigil on machine regularly, performs
small tasks like (oiling, bolt tightening).
3.2.2 Kaizen (continuous improvement): It states that continuous small improvements
leads to a better performance than large improvements seldom. Its objective is to reduce the
losses and make it to zero. The various losses comes under three categories
 Losses that impede equipment efficiency.
 Losses that hurdles human work efficiency.
 Losses affect effective use of the resources.
3.2.3 Planned maintenance: Its aim is to achieve trouble free machines which leads to
defect free products. This breaks maintenance down into 4 "families" or groups which was
defined earlier.

1. Preventive Maintenance

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 2. Breakdown Maintenance

3. Corrective Maintenance

4. Maintenance Prevention

3.2.4 Quality maintenance: It is aimed at delighting customers by producing defect free

products and the product should fit for the use of the customer. It is aimed towards customer
delight through highest quality through defect free manufacturing. Focus is on eliminating
non-conformances in a systematic manner, much like Focused Improvement. We gain
understanding of what parts of the equipment affect product quality and begin to eliminate
current quality concerns, then move to potential quality concerns. Transition is from reactive
to proactive (Quality Control to Quality Assurance).

QM activities is to set equipment conditions that preclude quality defects, based on

the basic concept of maintaining perfect equipment to maintain perfect quality of products.
The condition are checked and measure in time series to very that measure values are within
standard values to prevent defects. The transition of measured values is watched to predict
possibilities of defects occurring and to take counter measures before hand

3.2.5 Training: It is aimed at making employees self-sufficient by providing training. It also

makes employee multi skilled, as well as in creasing their morale.
3.2.6 Office TPM: Office TPM should be started after activating four other pillars of TPM
(JH, KK, QM, and PM). Office TPM must be followed to improve productivity, efficiency in
the administrative functions and identify and eliminate losses. This includes analyzing
processes and procedures towards increased office automation.
3.2.7 Safety, health and environment: In this area focus is on to create a safe workplace
and a surrounding area that is not damaged by our process or procedures. This pillar will play
an active role in each of the other pillars on a regular basis.

A committee is constituted for this pillar which comprises representative of officers as

well as workers. The committee is headed by senior vice President (Technical). Utmost
importance to Safety is given in the plant. Manager (Safety) is looking after functions related
to safety. To create awareness among employees various competitions like safety slogans,
Quiz, Drama, Posters, etc. related to safety can be organized at regular intervals.

4. Key performance indicators:

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We now shift our attention towards identifying KPI (key point indicators).for finding the
indicators of administrative aspects we went through 15 research papers published by
different authors, which are based on lean management.

4.1 Customer satisfaction:

If we take a look at any manufacturing company it is producing some kind or the other
kind of products, which are opened up in market for sale to customers. Here comes the
importance of the customer without customer there is not even a company producing
products, so customer is very important to an organization and their retention is daunting task
for many organizations as there is cut throat competition in existing world. This current
scenario makes it to the point that we need to satisfy customer in order to retain them.so now
we propose indicators for measuring level of satisfactoriness of a customer. After going
through many papers we found that the most important characteristic of a product is its
Quality we considered this indicator for evaluation because in the world of competition if are
to withstand only way is having good quality of the product. A customer is going to look at
the product if it satisfies this criteria of quality. This is why industries have quality engineers.
The units of measurements are indicated in this report later. The second aspect of a product
every buyer focusses is the Cost only if it fulfill the required aspect of quality. Cost is the
major deciding factor when a customer is going to buy the product. The next aspect to which
many customer are intolerant is the lateness of Delivery of the product. Speaking technically
many manufacturing industries are customers to the suppliers who provide them with raw
materials or else, so they are product suppliers to customers who buy their product.as no one
can afford to lose the customers so on time delivery has got its own importance. Finally to
judge whether a company is able or not able to fulfill the above mentioned needs of a
customer we indicate it with Complaints received by the customers.

4.2 Inventory management:

From the day of inception of lean people started being very cautious regarding non value
added activities, and one important measure taken by many industries is to avoid inventory.
This is one of the activity which adds cost but not value to the product so this is the one
related to the cost of product and there is a chance of losing customers.as part of this
inventory we have different kinds of inventories firstly it is Raw material inventory this is
generated as a part of negligence of administration. This could be reduced by planning the
events of production meticulously and also we need co-operation of supplier to overcome this

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inventory. After starting the processing the raw materials there is a chance of Work in
progress inventory piling up if the operations are not scheduled in a wise manner. Here are
many reasons for generation of this kind of inventory and some are failure of machines,
insufficient staff, and excess production of products. This is also associated with proper
planning. After finishing of processing the goods it is termed as a finished goods and its stock
is called as Finished goods inventory. This is the result violating pull production and also
errors in demand forecasting.one of major reasons organizations produce more number of
products than required is a fear of defects, so by improving the quality we can easily avoid
this category of inventory.

4.3 Supplier integration:

We have already seen the role of a supplier in reducing the raw material inventory.
Suppliers play pivotal role in producing products of acceptable quality this gives the
integration of supplier an upper hand in order to measure the level of integration of a supplier
we are going to propose a couple of indicators. First one is Level of integration this can be
attributed to the number of parts co-designed by supplier. This falls under the category of
outsourcing. This is helpful for an organization if there is excess demand and lack of capacity
to satisfy the demand. The other one is Supplier participation for the improvement of the
organizations performance. These can be evaluated by the number of ideas given by supplier
and the frequency of visits by supplier to have a glance at what is going on in the
organization.

4.4 Management role:

Management is main player in shaping up of the organizaiotn.it is management which

decide the strategy of the company and allocates rsources.it holds main position of an
organization.as part of measuring the performance the management we propose some
indicators. We start with Employee skill development. This takes the driver’s seat in all the
indicators because it helps in providing defect free items and helps in problem solving.
Skilled workers also help in supplying innovative ideas as well as product development. Next
we find Motivation of employee as one of the indicators because it boosts the confidence of
the employee and improves his morale. When an employee does exemplary job company
needs to apprise him so as he gets enough motivation and it also increases his responsibility
towards company. Decentralization of power is also a crucial factor affecting the
performance of an employee. Many studies have proved that more the number of hierarchical

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orders more the performance and less mis-understandings.it makes the employees
responsible. Here comes Technology used by that organization.one of the best way to reduce
the number of defects and simultaneously increase the quality of products manufactured is
follow the latest technology.it is also going to reduce the cost of the product in long run
employing of technology is only possible through management of the organization only
penultimate indicator is Problem solving, it is nothing but creation of cross functional groups
so as to identify the cause of problem and propose solution to the corresponding problem.
This helps in identification of the problem immediately and also increases the communication
between employees. Final indicator is Innovation, it is not possible in short time but once it
is achieved the cost of the product drastically reduces and helps in increasing profit of the
organization. This also takes lot investment and needs much patience it is not a one night
achievement but takes years, so it is in hands of management to decide whether to take such
step.

4.5 Employee involvement:

For any organization to progress in right direction we need efficient employees and
they play important role in success of that organization. An organization moves on high when
there are useful inputs from their employees. Here we propose some indicators for measuring
the employee role in an organization .first comes Employee participation it is one of the key
component because it indicates the eagerness of the employee to work for the company and
also indicates the responsibility of employees towards the organization. The second one is
Independency of an employee and it can directly related to jishu hozan (autonomous
maintenance) one of the pillars of the total productive maintenance. Her are problems faced
by a shop floor worker while operating a machine and if the operator keeps on complaining to
foreman each and every time the machine troubles it would become cumbersome to control
every employee, so making him self-sufficient so as he can manage small technical problems
helps in reducing the delay times. Now comes Creativity of employee, this is crucial for an
organization as innovative ideas are generated and gives an edge over the competitors of that
particular company.as we have already discussed in innovation all the points are applicable in
this case. Employee involvement is going to be the last indicator we discuss it deals with the
rate of attendance by employees and the number of reduction in mistakes by employees. This
also going to fall under the category of employee responsibility.

Below we present some of identified indicators and their frequencies.

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 Table 1: Key performance indicators with classification
S. No Performance Indicators Unit of measurement
dimensions
1 Delivery of product # of late deliveries
Customer satisfaction

2 Cost Likert scale

3 Quality defects rate

4 Complaint # of complaints

5 Employee Participation # of suggestions given by employees

Employee role

6 Creativity # of new ideas

7 Independency # of independent decisions taken

8 Employee involvement absenteeism

9 Problem solving # of cross functional teams

10 Innovation # of new kinds of products
Management role

11 Technology Used IT systems

12 Centralization # of hierarchical orders

13 Motivation # of appraisals
14 Employee Skill training

15 Supplier participation. # of ideas shared

Supplier integration

16 Level of integration # of parts co designed

17 Raw material inventory # of parts

Inventory management

18 Work in progress # of parts

inventory

19 Finished goods # of parts

inventory

Table 2: Frequency of indicators

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S. Key
N performance

Shah & Shrivastava (2013)

Fullerton& Wempe (2009)
o indicators of

Harald & Joosten(2014)

Sanchez & Perez(2014)

Goodridge et al. (2015)
Pakdil&leonard(2014)

Pakdil&leonard(2015)

Camacho et al. (2013)

administrative

Rahmana et al.(2013)

Koeijera et al. (2014)

Kristoffersen(2013)
aspects of a

Fullertona(2014)
lean

Kennedy (2013)

Bhasin (2012)
organization

OECD, 2001

Turcu 2012

Frequency
1 Delivery of √ √ √ √ √ √ √ 7
product
2 Cost √ √ √ √ √ √ 6
3 Quality √ √ √ √ √ √ √ 7
4 Complaint √ √ √ √ √ 5
5 Employee √ √ √ √ √ √ 6
participation
6 Creativity √ √ √ √ 4
7 Independency √ √ √ √ √ 5
8 Employee √ √ √ √ √ √ √ √ √ 9
involvement
9 Problem √ √ √ √ 4
solving
10 Innovation √ √ √ √ √ 5
11 Technology √ √ √ √ √ 5
12 Centralization √ √ √ √ √ √ 6
13 Motivation √ √ √ √ √ 5
14 Employee √ √ √ √ √ √ √ √ 8
Skill
15 Supplier √ √ √ √ √ 5
participation.
16 Level of √ √ √ 3
integration
17 Raw material √ √ √ √ √ 5
inventory
18 Work in √ √ √ √ √ 5
progress
inventory
19 Finished √ √ √ √ √ 5
goods
inventory
Total 11 6 10 11 5 3 9 4 3 4 4 12 5 3 6 9
indicators

5. Conclusion :

After going through 15 papers we mentioned we found that cost and quality are found to
be most important aspects of a product. This can be easily supplemented by saying that

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customers are not willing to pay for non-value added activities, this is what the motive behind
lean implementation. We also found that employee involvement plays a crucial role in an
organizations success. It is a known fact that management is a pivot for the organization.as
many decisions are dependent on management like technology, implementation of new idea
and what not, it is the management which decides strategy of a company.so much work is to
be done in this field.

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