Do you know what number you chase? Numbers are a good way to measure things, to put things into perspective. Hours of sleep or REM can tell you how well you might function today (for me, last night’s sleep was a bit light on REM and I was awake for the dog – it’s likely to be a long afternoon). Revenue, net income, and other financial measures are often used for business.
When you consider a number, you also need to think through the difference between leading and lagging indicators. It’s much easier to identify a lagging indicator – revenue as a performance indicator of last year / month. Leading indicators are much more difficult to design, but they are much easier to use for change.
I got curious about whether a lagging indicator in one category could become a leading indicator in another. I’m thinking about Einstein’s witticism that “insanity is doing the same thing over and over and expecting different results.” In the case of manufacturing, is how your shop performed yesterday an indication of how it might perform tomorrow? Perhaps.
A lagging indicator – the total number of jobs done yesterday – may or may not be indicative of your performance today and into the future. Pre-COVID, I could argue that there was a stronger correlation than now, but I still think there’s a link. Why both of those?
If your workforce remains steady (there’s a difference we need to talk through in more depth) and they perform at about the same level daily, I could argue that the measure of yesterday’s activity level is going to give us a good window into which today’s performance is also likely to fall. However, this is still not a leading indicator of today. You measure it at the end of the day and then use it to support a theory you already had going into it.
The interesting thing about manufacturing is that it’s always moving. How many times have you read that in my writing? It’s what makes manufacturing an entirely different animal. It’s what makes ERPs fail to meet the mark when talking about manufacturing performance. Quite simply, you cannot use a financial system to measure a moving metric. Financial systems are used to measure financial performance, and in all cases, financial performance is measured after the completion of a job, a week, a quarter, or a year.
I believe the answer lies in two areas simultaneously – management and control of your inventory levels and management and control of your production schedule. These two areas are the sweet spots – for me, at least – for predictive manufacturing performance. Let’s take these one at a time and dive in a little deeper.
Your financial system probably allows you to track and buy raw materials to make your product(s). It may track the vendors you get these from, how often you purchase them and what you paid. It may (or may not) have an accurate accounting of what you currently have in each area. To get a quick read on this, just ask your team how often they go to the inventory area and find something missing, how many times per week they must do a partial completion of work due to a shortage of something, and how often they perform inventory counts.
Companies that lack true inventory control may find these three performance indicators indicative of how they’re doing, overall, in inventory. Missing and / or short inventory levels can be a result of many things, but they show that there’s a disconnect between the materials that you have currently and those you need. It generally signals to us that your inventory controls are weaker than you need them to be. We find that often comes from a weak inventory management system and, often, that could be the one provided in your financial package.
An aside here – inventory tracking systems are no better. If they do not know what’s to be done today (those that don’t understand, know or track the work on the shop floor), they cannot help you keep the inventory you need to get it done.
Inventory counts, on the other hand, may be required from your internal reviews or end-of-year audits. The number of items you need to count (in accounting terminology – the number of selections they make) can be a direct reflection of how in control you are of the inventory you have.
True inventory management should tell you a few things:
Armed with at least that information, you should be able to dramatically reduce or fully eliminate the number of inventory escapes you have – lack of required inventory, inventory missing, low counts, rush orders for restocking, overstocking, and so on.
Knowing that you have better control over inventory, does that mean that you have a number to chase? Not necessarily but you are getting closer.
Inventory management is, arguably, a lagging number. You are counting what you have after a period of time has passed or after a job has been completed. Knowing what you need for tomorrow might dip your toe into the water of leading. In this case, if I know how much of every raw material or part I need to do the work that I’m going to ask the team to do tomorrow, then the lagging number of current inventory at the end of today can become the leading indicator of how my team might perform tomorrow.
Leading indicators are often cited as the “actions (that) are necessary to achieve your goals with measurable outcomes." (see article link)
In the case of inventory management, knowing what is “promised” for the work to be done today, tomorrow, and, into the future requires a production schedule (more on that next week), and having a list of inventory that will be insufficient to do the work in advance, could really set you up for success. You’re getting ahead of the curve on this by managing closely and knowing your numbers.
Next week, we’ll dive into the Production Schedule a bit and really start to push on what numbers we think you need to know in the coming year to be successful. Don't want to wait? Drop us a note at info@cimx.com. Or better yet, schedule a demo or move even faster towards Complete Production Control with a Process Gap Analysis of your shop. You decide, and we look forward to meeting you.
Contact CIMx Software to see how a Manufacturing Execution System can improve production control for you.