Robust Production Management (RPM) Module 2: Performance Framework

Copyright © 2005 Metrilogics, LLC. All rights reserved.
Robust Production Management
Metrilogics
Front-line controls for bottom-line savings.
TM
SM
Module 2:
Performance Framework
By Lance Latham
Senior Managing Partner

Metrilogics
TM
The Differences Between Direct vs. Indirect Time
Direct Time:
Paid time dedicated to
performing primary or
core customer work.
Indirect Time:
Paid time not dedicated to performing core
customer work. Indirect time can include:
v Project time
v Meetings
v System downtime
v Classroom training
v Sick time
v Vacation
v Holidaysv Equipment changeovers
v Paid breaks
v PTO (if paid)
v STD (if paid)
v LTD (if paid)
Direct time is also the
time over which front-
line team members
have the most control
(i.e., during direct time,
front-line team members
can opt to work in a
high-quality, productive
manner – or not).
Indirect time is the time over which managers
tend to have the most control (i.e., managers
allot, coordinate and schedule indirect time that
front-line team members take).
2
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Metrilogics
TM
Factoring Earned Work Credit Hours by Quality
Earned Work Credit Hours represent “gross” output.
When factored by quality (accuracy and completeness),
Quality Work Credit and Failed Work Hours are the result.
Earned Work Credit
= 5.00 Hrs.
x Quality score of
90%
Failed Work = .50 Hrs.
Quality Work Credit
= 4.50 Hrs.
5

Metrilogics
TM
Performance Framework:
Example of Tracking Hours vs. Percentages vs. Dollars
Total Paid Hrs. = 2,100
Paid Time Off
= 420 Hours
Lost Time
= 420 Hours
Unearned Time
= 378 Hours
Quality Work
= 777 Hours
Failed Work= 105 Hours
Total Paid Hrs. = 100%
Paid Time Off
= 20%
Lost Time
= 20%
Unearned Time
= 18%
Quality Work
= 37%
Failed Work= 5%
Total Paid Hrs. = $50,000
(Loaded)
Paid Time Off
= $10,000
Lost Time
= $10,000
Unearned Time
= $9,000
Quality Work
= $18,500
Failed Work= $2,500
8

Metrilogics
TM
Example of Applying the Performance Framework
Assume a
single team
member’s
typical 8-hour
work day,
including a mix
of completed
primary
customer work,
direct and
indirect time
(and costs)
incurred…
Paid Time
Off
Lost Time
Unearned
Time
Failed
Work
Quality
Work
KEYTotal Paid Hours = 8
8
7
6
5
4
3
2
1
0
#Hours
So…did the team
member have a “good”
day or a “bad” day?
11

Metrilogics
TM
Example of The Real-World Impact of Low Efficiency
Total Paid Hours = $50,000
(Loaded)
Paid Time Off
= $10,000
Lost Time
= $10,000
Unearned Time
= $9,000
Quality Work
= $18,500
Failed Work= $2,500
Quality Work
= $18,500
Non-Value Add Cost
= $31,500
Total Paid Hours = $50,000
(Loaded)
$ Efficiency:
= 37%
$18,500
$50,000
In this example, 37%
efficiency means that
a company paid an
employee total
annual salary +
benefits equal to
$50,000, but the
employee generated
only $18,500 of
quality value add
work.
Restated, 63% of
what the employee
was paid resulted in
no revenue-
generating output for
the company.
14

Metrilogics
TM
Module 2 Summary (cont.)
v Operational savings occur when spare capacity is either:
o Used in a productive manner without increasing other costs
(= cost avoidance scenario), or
o Eliminated along with associated costs (= cost savings scenario).
v There is a direct real-world connection between a company’s
efficiency and the return the company receives on the compensation
paid to its employees. In a nutshell, high efficiency = “more bang for
the buck.”
v Efficiency reflects supervisor and manager performance, based on
Quality Work Credit Hours produced vs. the combination of Direct and
Indirect Hours that they manage.
17

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Robust Production Management (RPM) Module 2: Performance Framework