Use Leading KPIs to Spot Problems

Does your plant have reliability issues and a hard time meeting production targets? If so, it’s time to listen up! Metrics such as key performance indicators (KPIs), when identified and aligned properly, can save your plant, your job and your career. So grab a pen, open your mind and get ready to learn.

It’s amazing that most companies in North America manage with very few metrics to measure the performance of their maintenance and reliability process. They come to me crying for help, seeking a solution for their lack of management control.

I know the feeling, as I was once one of them. The sad part is, these companies aren’t even aware they need KPIs to know where to focus. They fight reliability, production and quality issues on a daily basis, and seem to be lost in a quagmire. Many are replacing managers so fast, the people on the plant floor aren’t sure who is in charge from one day to the next. They’re crying for help and don’t know which way to go.

It doesn’t have to be that way. “By aligning our KPIs properly and managing the right ones, Carpenter discovered, for the first time, profits in a down market,” says Adonis Campbell, corporate reliability manager for Carpenter, a Richmond, Va.-based manufacturer of polyurethane foam.

“We‘ve seen profits continue to rise as cost continues to drop by simply managing using leading KPIs.”

Measure the right things

Think about driving a car with the windshield painted black. You can’t see where you’re going, but the rear-view mirror gives you a glimpse of where you’ve been. You don’t learn whether you were successful until either it’s too late, or disaster strikes. Your car goes into the ditch (high costs, or worse), or you never reach your destination (business goals arn’t met).

In the famous words of the late, great industrial revolutionary Peter Drucker, “You cannot manage something you cannot control, and you cannot control something you cannot measure.”

Drucker also said, “The problem with management is they’re measuring the wrong things.” If management truly understood the power of KPIs, things would quickly change, but trying to manage without KPIs leaves them feeling lost without hope in a reactive environment. This is a serious problem and it costs companies around the world billions of dollars due to what I consider to be lack of management control.

“The number of companies with adequate, meaningful key performance indicators is extremely low,” says James Nesbitt, reliability practitioner and KPI expert. Managers seeking to measure organizational performance start by measuring too much. Without understanding where the opportunities are in their organization, they’re left trying to translate data from a host of disconnected or misleading indicators, Nesbitt says. “This can lead to poor decisions or wasted effort trying to improve indicators that have marginal or no impact on business improvement.”

Leading versus Lagging

Let’s get down to basics and define KPIs. Within maintenance, we must first define the performance we want to measure.

1. Is it the performance of the equipment? Is it the performance of the spare parts warehouse?
2. Is it the performance of the maintenance function?

These may seem like simple questions, but I often see companies mix their KPIs, as they haven’t defined the specific area of the business for which they are attempting to measure performance.

For example, we want to measure the performance of the maintenance function. There are really two kinds of KPIs for measuring any particular business function: leading indicators and lagging indicators, or leading KPIs and lagging KPIs.

We need leading indicators to manage a part of the business, while lagging indicators tell us how well we have managed. Leading indicators let us directly and immediately respond when a poor result is found. Lagging indicators tell us how well we performed, but they give opportunity to correct underperformance. Instead, when we see an unacceptable lagging indicator, we must drill down to the leading indicators to uncover the cause of the underperformance, and from there we can implement appropriate changes.

Leading KPIs for the maintenance function measure how well we are conducting each of the steps in the maintenance process. For example, a leading KPI for the work planning element of the maintenance process could be “the percentage of planned jobs that were executed using the specified amount of labor.” If the planner is estimating labor correctly, we will see a high percentage of jobs completed using the planned number of hours. The maintenance manager who finds that the value of the KPI is lower than expected, can discuss with the planner how best to immediately improve the results – possibly for the remainder of that day.

With all KPIs, by definition, we’re measuring past performance, so I’m not suggesting that leading indicators can be tweaked to improve upon past performance. But as you can see in this example, if we’re managing by using leading indicators, we can respond immediately when needed.

A lagging indicator measures the results of how well we managed the maintenance function.

For example, when the maintenance function is well managed, we expect an appropriate balance between the cost of maintenance and the plant availability. A lagging indicator could therefore be “the actual maintenance cost for a month as a percentage of the budgeted maintenance cost for that month.”

If the actual maintenance cost for last month is 110% of budget, there’s really very little we can do to influence the performance of this KPI today. Instead, we need to look at the leading indicators, including those that measure the performance of our maintenance process, to determine whether those values give us a signal for managing the problem.

Table 1 lists some KPIs I prefer to use, along with the world-class level where applicable. Leading indicators such as “percent rework” and “percent of PMs executed on time” affect the overall performance of the maintenance process. The corresponding lagging indicators are “maintenance cost as a percent of budget” and “plant availability.” At least one of these lagging indicators will suffer if there’s sufficient underperformance in the leading indicators.

Close the loop Leading indicators for the maintenance process can support capable management (Figure 1).

Dofasco Steel in Hamilton, Ontario, called this feedback loop the Asset Reliability Process (Figure 2).

It represents the tasks required to support the maintenance function. “The Asset Reliability Process is a supply chain,” says Ron Thomas, Dofasco senior reliability specialist and world-class equipment reliability project manager. “Leading metrics presented as KPIs provide a clear indication if the requirements of each element in the proactive asset reliability process are being satisfied.”

If a step in the process is skipped, or performed at a substandard level, the process generates defects. “If those elements aren’t satisfied, leading KPIs also will determine what action should be taken to correct the lack of maintenance process adherence,”

Thomas stated. “The output of a healthy reliability process is optimal asset reliability at optimal cost.” We can use KPIs in other areas of the business as well. This approach is particularly interesting when multiple functional areas play a role in a given goal, such as plant reliability.

We can use KPIs in other areas of the business as well. This approach is particularly interesting when multiple functional areas play a role in a given goal, such as plant reliability.

Plant reliability is a shared responsibility of the maintenance, production and engineering functions.

Leading indicators for each departmental process feed the lagging indicators for the department function, which then summarize to the plant level (Figure 3).

It’s really a simple concept, but most plants don’t get it. “In studies, more than 90% of companies don’t have corporate support for an enterprise level KPI program for maintenance and reliability,” says Terry Wireman, partner, Vesta Partners (www.vestapartners.com). Wireman is an accomplished expert in maintenance/reliability and author of the book, “Developing Performance Indicators for Managing Maintenance.” He says, “Even at the plant level, maintenance and reliability KPIs aren’t clearly defined and hence aren’t used effectively.

In most companies, KPIs have just become a numbers game.” Using my earlier analogy, these companies are driving their cars with the windshields painted black.

According to Wireman, “The pitfall people encounter is they are trying to manage using too many lagging metrics, so they don’t have sufficient resources to manage the business process metrics. These companies never achieve the target business results and never will as long as they are sub-optimizing their measurement system.”

Get serious

The problem is management must learn to manage operations through KPIs (both leading and lagging).

In my 30-year-plus career, I’ve seen many plants shut their doors forever. They blamed the closing on many reasons, but the one thing they had in common was that none had properly managed with leading KPIs.

The metrics or indicators they manage with were ones like cost, asset availability, equipment downtime and OEE. These metrics or indicators, while useful for measuring performance, cannot be used to manage the maintenance and reliability process. They are simply the results of all the actions that have taken place in the maintenance and reliability process.

Again, you cannot manage results. You can only manage the processes leading to the results. If your company uses any of the above metrics to manage their operation, without using leading indicators, you should work to correct the situation.

Ask some very basic questions:

1. Do we differentiate between those KPIs that can be used to manage (leading indicators) from those company’s managers are able to review their KPIs and monitor trends from corporate headquarters. As they see negative trends develop in their corporate KPIs, they are able to drill down to the plant causing the trend. They can then examine their plant level KPIs and find the trend driver.
2. Do we measure performance of the maintenance process, where you can easily intervene when needed? If leading indicators show underperformance, the underperformance will affect the lagging indicator, which could be reliability, cost and capacity.

People must understand the relationship between a leading and lagging indicator and their effects on the maintenance and reliability function.

Wireman described a recent client that had a completely integrated, enterprise-level KPI system. This company’s managers are able to review their KPIs and monitor trends from corporate headquarters. As they see negative trends develop in their corporate KPIs, they are able to drill down to the plant causing the trend.

They can then examine their plant level KPIs and find the trend driver. This is usually a process indicator, such as PM compliance.

“One example clearly showed PM compliance was so low that it caused reactive work to increase,” Wireman says. “This, in turn, generated more maintenance overtime and affected production schedule compliance. This increased the maintenance costs (per unit produced), and also the total cost per unit for the plant. These cost drivers cascaded upward, increasing the overall corporate costs.”

An integrated view of its plant and departmental performance allowed this corporation to monitor its business performance and immediately take steps (manage) to improve the underlying process that would result in the desired increased profitability.

Most maintenance managers are told to control cost, improve reliability and increase asset availability with no idea where the problem may be in their maintenance process. Unfortunately, many lose their job as a result.

The fact is you can’t control cost, reliability or availability without managing the maintenance process.

Step-by-step

Step 1: Educate management, from the executive level to floor-level supervisors, on KPIs and how leading and lagging indicators should be aligned to meet business goals. You then must provide a similar education to the maintainers and operators.

Step 2: Define and assess your maintenance and reliability process against a future state consisting of known maintenance and reliability best practices. As part of this assessment, develop a business case with financial opportunities and cost of change. This step continues the education process and makes one aware of the opportunity at-hand.

Step 3: Develop a plan based on the assessment, with financial opportunities and cost on a timeline. This plan must include:

a) Definition of the elements of your maintenance and reliability process (work identification, planning, scheduling, work execution, etc.);

b) Definition of leading and lagging KPIs in each element of your maintenance

and reliability process;

c) Definition of roles and responsibilities for each task; and World-class benchmarks established against the defined KPIs.

Step 4: Implement the process.

I would begin measuring only a few KPIs. Then allow people at the lowest levels to make the decisions required to ensure your maintenance and reliability process is proactive and effective.

Using leading KPIs is a great awareness tool and brings everyone into the decision-making process.

Remove the black windshield and manage with leading indicators, not with lagging indicators. Use leading KPIs should be used to drive your decision-making process. Remember, leading indicators are manageable, while lagging indicators just tell us how well we managed. If you want to be the best in your business, step up to the plate and manage in the most efficient manner by following my recommendations.

Checkout how John Day, retired Engineering Maintenance Manager at Alcoa Mt Holly (World Class Maintenance Model) and how he managed with KPIs. I worked for John for 3 years where I learned a lot about how to manage Maintenance.

If you would like additional information on KPIs, attend one of my workshops designed specifically to solve this problem. Send me an email at [email protected] and I’ll send you a schedule and locations. You can also contact me if you have problems with or questions about your KPIs.