Performance Measurement for Efficient Lean Management 1

Performance Measurement for Efficient Lean Management

Jiri Tupa

Department of Technologies and Measurement
University of West Bohemia in Pilsen
Univerzitni 8, CZ 306 14 Pilsen, Czech Republic
ABSTRACT
Lean Management is a very broad management method. Many companies try to implement the lean management concept
nowadays. It represents a multifaceted concept based on integration of the methods JIT, total quality management, total
preventative maintenance, human resource management, Six sigma, KAIZEN, KANBAN, productive maintenance and involved
employees etc. The problem in practice is how to monitor the efficiency of the lean management system. The performance
measurement is an important diagnostic tool for management and its implementation may be one solution of the afore mentioned
problem. Design of the performance measurement system should be based on lean metrics and a process controlling system.
Process performance measurement tools and techniques applied to enterprise environments are essential for the enterprise
continuous improvement. Therefore the aim of this paper is to present research study for implementation of the performance
measurement based on the Balanced Scorecard method and the process controlling for the lean management.
1. INTRODUCTION
The way how to improve companies performance and quality on the market is a very real issue nowadays. The
situation on the global market and globalization are the main reasons why companies look for new challenges and
opportunities in how to achieve success on the market. One way is the focus on improvement of performance and
quality. By improving both performance and quality, companies can save costs, get better results and more satisfied
customers. The articles [1] and [2] deal with this issue and have confirmed the mentioned idea.
The application of lean management in relation to the performance management system can be one solution of
the mentioned problems. This fact emphasizes the aim and issue of this contribution. The paper deals with
description of the ideas leading to performance management system in the companies implementing lean
management. The research problem and questions presented in this paper are:
1. How to implement the performance measurement system for the efficiently lean management?
2. How to set-up the strategic performance indicators in relation with metrics for lean management?
This paper is divided into two main sections. The first section provides a description of lean management,
introduces the methods for performance measurement and lean metrics. The second section presents design of the
performance measurement system for lean management.
2. THEORETICAL FRAMEWORK AND LITERATURE REVIEW
Lean Management is a very broad management method. Many companies try to implement lean management
concept nowadays. It represents a multifaceted concept based on integration of the methods JIT, total quality
management, total preventative maintenance, and human resource management, six sigma, KAIZEN, KANBAN,
productive maintenance and involved employees etc.
The lean management is an improvement methodology based on a customer-centric definition of value. Lean
processes provide value in the most effective way possible through a combination of the elimination of waste and a

* Corresponding author: Tel.: (+420) 377634531; Fax: (+420) 377634502; E-mail: tupa@ket.zcu.cz

2 Flexible Automation and Intelligent Manufacturing, FAIM2013

motivated and engaged workforce. Combining BPM and Lean (BPM /Lean) an enterprise has the ability to optimize
processes and the ability to take the journey through the continuous improvement life cycle all the way to
automating solutions with process control and governance. [1]
The article [2] mentioned interaction between performance and lean management. The paper presents the
following important results:
1. The lean practices such as reduced setup time, pull production system, and shorter lead time have strong
positive structural contributions toward performance.
2. The statistically significant but relatively moderate direct link between lean production (independent
construct) and business performance (second dependent construct), thus indicating instead a significant indirect
effect of lean production on business performance.
3. The significant critical values indicate that product conformance, product performance, product reliability,
product feature, and product durability have positive and direct effects on business performance.
These presented results from article [2] are very important for the proposal of the performance measurement
system in practice. The results indicate the important critical metrics which should be added in the performance
strategy framework. The literature presented in the previous review deals with theory of lean management and the
performance measurement. On the other hand the problem is how to implement the presented theory, namely how to
monitor the efficiency of the lean management system in practice. This paper tries to present one way leading to the
problem solution. Finally, I would like to emphasise the fact that the performance measurement is the important
diagnostic tool and the lean metrics should be integrated to the company performance measurement. The
performance measurement gives feedback to managers and has presents the information for the planning, monitoring
and improvement of a business strategy.
2.1. METHODS FOR PERFORMANCE MANAGEMENT
David A. J. Axson in the book [3] defines performance management as a management encompassing all
processes, information and systems used by managers to set the strategy, develop plans, monitor execution, forecast
performance, report results and make decision. The current literature presents different methods for the process
performance management. Firstly, they are methods based on financial analysis of basic enterprise economic
indicators (e.g. Economic Added Value measurement, DuPont analysis) [4]. Secondly, they are management
methods using financial and non-financial indicators (typically represented by Balanced Scorecard method,
European Foundation for Quality Management model, Six Sigma, Value Based Management).
The Balanced Scorecard method (BSC) presents the way how to define and implement the key process indicators
and metrics for performance evaluation in relation to the processes and a global business strategy. This method
supplements traditional financial measures with three additional perspectives: the customers, the internal business
process and the learning and growth perspective. It is supposed to be a tool describing an organizations overall
performance across a number of measures on a regular basis. [5]
Many companies have adopted the Balanced Scorecard as a way of evaluating managerial performance. The
basic idea is very straight forward. Kaplan and Norton began by arguing that "What you measure is what you get"
and that "an organization's measurement system strongly affects the behaviour of managers and employees." They
went on to say that "traditional financial accounting measures, like return-on-investment and earning-per-share,
can give misleading signals for continuous improvement and innovation." To counter the tendency to rely too
heavily on financial accounting measures, Kaplan and Norton argued that senior executives should establish a
scorecard that takes multiple measures into account. They proposed a Balanced Scorecard that considered four types
of measures [5]:
1. Financial Measures: How do we look to shareholders?
2. Internal Business Measures: What must we excel at?
3. Innovation and Learning Measures: Can we continue to improve and create value?
4. Customer Measures: How do customers see us?
The BSC method implements the strategy map. The strategy map is a visual map for how an organization will
execute its strategy [5]. This strategic management approach has the following goals:
- to clarify and translate vision and strategy,
Performance Measurement for Efficient Lean Management 3

- to translate strategy into action and executing it,
- to communicate and link strategic objectives and measures,
- to plan, set goals and align strategic initiatives,
- to enhance strategic feedback and learning.
The concept of the Balanced Scorecard can be used for the performance measurement according to the needs of
the lean management if the metrics indicate the lean strategy. It means that the metrics and key processes indicators
should be established in four perspectives according to the philosophy of lean management.
2.2. LEAN METRICS
Metrics can be defined as an indicator of the performance. These indicators are determined from the strategy
goals and they are used for the measurement of the strategy fulfilment. The issue of the lean metrics, their definition
and description is mentioned in the related articles [6-8]. The lean metrics should be based on lean production
strategy:
- reduced setup time,
- continuous improvement programs,
- pull production system,
- shorter lead time,
- small lot sizes.
The paper [6] mentions several facts, that most of the existing metrics have poor links to production issues and
better links to financial and accounting ones. The definition of effective performance metrics is a key to how to
achieve defined goals. The metrics should be defined according to the S.M.A.R.T.E.R.S approach (it is means -
Specific, Measurable, Attainable, Relevant, Timely, Evaluate, Reevaluate, Satisfactory goals and their metrics). Not
only performance metrics but the performance measurement system is the key element for how to manage a
company based on the lean idea. The aim of the performance measurement system should be definition and
execution of the lean metrics. Table 1 presents an example of the suitable metrics.
Table 1: The examples of the lean metrics [7]
Safety
Reportable Incidents
Days worked without a lost time accident
Ergonomic Management
People
Targeted Training Hours
Voluntary Turnover
Production to Skilled Trades Ratio
Quality
Delivered Quality
Rework / Repair Cost
Customer Complaints
Responsiveness
On Time Delivery
Manufacturing Lead Time
Inventory Turns
Financial
Margin $
Manufacturing Space Used
Conversion Cost (Labor $ / Unit)

3. DESIGN OF THE PERFORMANCE MEASUREMENT SYSTEM FOR LEAN MANAGEMENT
The idea is the application of the Balanced Scorecard method for lean management. The aim is to set a
performance measurement system. It means the integration of the lean metrics into the BSC perspectives and
establishes the lean strategy as part of a company strategy. The lean strategy can be declared as a sequence of if
then in this case. The next example presents the application of metrics determined according to the BSC method for
Printed Circuit Board (PCB) manufacturing, especially for the process PCB assembly. The chain of causation
between improving of training of staff and cost reducing has been formulated as follows:
4 Flexible Automation and Intelligent Manufacturing, FAIM2013

If you improve quality of training on problems of a manufacturing printed circuit board (PCB), then the staff
will be able to understand more about the problems in the process manufacturing. If they understand more about the
problems of manufacturing, then the quantity of correct PCBs will be higher. If the quantity of correct PCBs is
higher, then the customers will be satisfied. If the customers are satisfied, then the profit will be higher and the cost
will be reduced. The example of the causes and results chain is illustrated in Figure 1.
Figure 1: Example of BSC Method Application
Recommended steps leading to the implementation of the performance measurement system based on BSC are:
1) Analysis of processes and their modelling.
2) Design of a performance measurement framework in four perspectives.
The aim of the first step is the description and visualization of the current problems, identification and
description of all process attributes and activities during this process. The Value Stream Mapping and Current
Reality Tree, identification of process attributes, Strengths, Weaknesses, Opportunities and Threats analysis
(SWOT) are suitable tools for these process analyses. The results may be described in the structured table (Figure 2)
or Value Added Chain diagram (Figure 3). This diagram is used to identify the processes that are directly involved
in the creation of the added value in companies. The results of analysis are used for definition of the strategic goals
that are established according to the lean strategy and quality policy.

Figure 2: Structured table for quick process analysis
Financial
perspective
Profit
Key indicators
Process time
Skills and knowledge of
operators
Cost of process
Customer
satisfaction
Quality of process
Customer
perspective
Internal process
Learning and growth
perspective
Process identification map record
M
a
i
n
S
u
p
p
o
r
t
i
v
e
C
o
n
t
r
o
l
K
e
y
H
a
r
d
S
o
f
t
Material Cutting X X
Requirements
Material on required
dimension Process time
Drilling PCB
Drilling
X X X
Material on required
dimension
Drilled PCB
Process Time, Failure
drilled PCB Number,
Quality
Inspection X X Drilled PCB Tested PCB Process Time, Cost
Diagnostic Planning X X Testing requirements Diagnostic Plan Process Time
Diagnostic Process X X Diagnostic Plan Diagnosis Process Time, Cost
Plating Preparing X X
Drilled PCB Prepared PCB Process Time, Failure
PCB number, Quality
Plating PCB X X X
Prepared PCB Plated PCB Process Time, Failure
PCB number, Quality
PCB Printed Circuit Board
Output
Key process
measured parametrs
Processes Sub processes
Process Type
Input
Performance Measurement for Efficient Lean Management 5

PCB production
Contract Distribution
Product 1
Manufacturing key process
Product 2
Marketing Business Unit
Administration process Quality management
Service
Infrastructure maintenance IT process
Figure 3: Value added chain diagram of PCB production
The construction of the BSC framework is the aim of the second step. Firstly, the measurable goals of the lean
strategy should be linked to one of the chain of causes and results between all perspectives (figure 1). The examples
of goals and metrics (indicators) are shown in the Table 2. The Table 2 contains the planned and the real values. The
real values are results of the process measurement. The important part of the process measurement method is to set-
up the number of metrics or indicators and period of measurement in relation with total costs of production.
Conditions and parameters for the measurement should be comparable at all times. The results of the process
measurement have to be comparable with planned value and the difference out of tolerance area should be identified
and analysed - application of the Plan Do Control Act (PDCA) methodology. Results of the company performance
measurement are input for the process benchmarking. The benchmarking is one of the tools for comparison of the
performance between industrial companies from the same sector.
Table 2: Example of application BSC for Printed Circuit Board manufacturing
Perspective Goals Metrics (indicators) Planned Values
per quarter
Real Values
per quarter
Financial
Increase of return on
investment
Internal return on investment
[%]
5 3,5
Profit Internal productivity
(Earnings/Costs) [%]
2 4 0,8
Customers High customer satisfaction Internal sales return [Number] 10 12
Internal
Business
process
High quality of products Failure [Number] 50 75
Increase of production
capacity
Process time [hour] 2 2,5
Costs of process [EUR] 50 45
Learning
and Growth
Development of skills and
experience
Training course
[Number]
2 1
Development of firms
environment
Satisfaction of staffs [Score] 1 1,5 4,5
6 Flexible Automation and Intelligent Manufacturing, FAIM2013

4. ADVANCED METHODS
Advanced methods are based on the Corporate Performance Management concept and the process execution and
automatization. The Corporate Performance Management (CPM) concept was coined by Gartner Group with the aim
of how to describe the combination of processes, methodologies, metrics and technologies to measure, monitor and
manage the performance of the business. CPM is thus directed at continuous monitoring of the effectiveness of the
results of all company processes and the constant optimization thereof, i.e. its objective is a monitoring system that
monitors the business performance of all pertinent business processes all the time, detects and reports weaknesses
and problem situations, ideally even suggests optimization of the option and evaluates the success of improvement
measures. Process Performance Management may be regarded as the heart of CPM [9-10]. The present trends based
on Corporate Performance Management implementation are:
- Process mining for automated weak point analysis.
- Right time monitoring.
- Dynamic organizational analysis.
- Linking performance and risk management.
The performance management principles are integrated to the information system used. The Business
Intelligence application usage of the management dashboards and multidimensional databases are the core of the
information systems today. This system has the following important functions:
- Visualizing real process structure.
- Key performance indicators and their analyses.
- Process documents.
- Weak point analysis.
- Process mining.
- Management views.
- Offline reports.
The described system can be applied for the process controlling. The process controlling is a very useful tool for
the lean approach. The basis for the process controlling is a process-oriented key performance indicator system that
links the process perspective to the essential controlling aspects for business.
The key performance indicators must enable conclusions to be drawn regarding the effectiveness of the
processes (e.g. customer satisfaction) and their efficiency (e.g. processing time, delivery reliability, process quality
and costs). In addition, the process-oriented key performance indicator system is configured so that it would be
possible to make statements about the actual course of the process. Pre-configured process key performance
indicators are calculated and aggregated for each imported process stage. Controlling platform includes a core set of
key performance indicators, and these are set as default. The key lean performance indicator types can be divided
into three groups:
- time-related key performance indicators (e.g. throughput times, processing times, frequencies),
- cost-related key performance indicators (e.g. process costs/rates on the basis of the performance standard),
- quality-related key performance indicators (e.g. number of processors, error rates, deadline reliability).
The process owner can use the controlling platform for monitoring the optimum balance of the magic triangle
Time-Quality-Cost. The controlling platform may be used for Value Stream Mapping too.
The setting of key performance indicators have to be calculated and defined flexibly and in such a way that it can
be expanded based on the need of changing requirements. Besides calculating key performance indicators, it is also
necessary to be able to visualize the structure of actual processes since. It is the only way how to obtain generalized
explanations for their performance behavior. This solution may be very important for the process improvement.
Performance Measurement for Efficient Lean Management 7

5. CONCLUSION
The implementation of the process performance measurement is one key process for the establishing of the lean
management system. The setting of the lean metrics should be part of the process performance system and based on
usage of the nonfinancial indicators. This paper presents methods for performance measuring for the lean
management. The Balanced Scorecard method has been evaluated as one effective method for this solution. The
benefit of the BSC application is the building an effective system for the performance measurement and diagnostic
processes. The example of the application was given in the practical example. This paper has mentioned the
advanced method for the performance measuring. The process performance controlling based on Corporate
Performance Management implementation in combination with BSC method makes a powerful tool for the
measurement and evaluation of the performance. This approach comprises the following components:
- Evaluation of the efficiency of business processes based on key performance indicators.
- Transparent representation of procedures actually performed for cause analysis.
- Deduction of optimization measures.
- Continuous monitoring of success developments.
- Multi-criterial view to reality and performance.
This solution corresponds with the new trend in process management and lean management implementation of
the Corporate Performance Management. The first experience of the presented solution confirms that designed
solution helps to achieve the aim of lean management approach - reduction of process time, process improvement
and control of quality. The development of the Process Performance Management based on the lean management
principles is prospective and interesting direction of the research today.
ACKNOWLEDGEMENTS
This research has been is supported by the research European Development Fund and the Ministry of Education,
Youth and Sports of the Czech Republic under the Regional Innovation Centre for Electrical Engineering (RICE),
project No. CZ1.05./2.100/03.94.
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