Your Key Performance Indicator
Mickey Granot
Quantum Group Founder | Business Mentor & Investor | Creator of the Helix Model
This post is dealing with "for profit" organizations (although may very well appeal to others as well). Top management of these organizations is supposed to be leading them to continuously and consistently increase their revenues, profit and profitability while at the same time ensure their sustainability (thus adding to the profit/profitability commitment, commitments to other "non financial" stakeholders, such as employees, society, suppliers etc.).
As profit is mathematically the result of subtracting cost from revenues, it stands to reason that top management directs its attention in these two avenues. In the first, it is their job to lead the company to continuous growth in revenues. But, as growing revenues is recognized and accepted as being somewhat out of direct control and highly dependent on cost, top management second area of attention is cost, and more so - cost reduction.
Increasing revenues is perceived to be possible result of creation of new opportunities - keep reading
Accounts Payable Clerk
8 年Thanks for the post , well explained.
Deputy VP LRT at Trans Israel Ltd, Light Trains Division
8 年Great material, however there is something basic I don't get - reducing lead time can be reached by adding some resources (additional costs...) or implementing new processes (like lean approach). So the demmand of reducing the lead time must be accomponied with the strict demmand to do it in a same frame of resource allocation which will lead to more effective processes?
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8 年Cant see how reducing lead time to zero or whatever will absolutely do nothing but improve everything. What about reducing standards so lead time is improved etc.?
Good summary thank you. This is in harmony with the best writings I have read on the subject. In each of these the conclusion that cost is a function of flow agrees with every quality, production, and customer satisfaction theory I can bring to mind if the product is legitimate.
consultant in production, supply chain and projects
8 年Mickey, my TOC journey started from the failure of cost down project on one product family that generates approximately 20% of the company's revenue. The main challenge is the majority of products per that category shows negative on the P&L. However, after several months later, even with enormous efforts with several key managers' involvement, there has been little change on the bottom line performance. The direction is to seek the improvement of the production process to shorten the touch time, and also maximum the output based on cost-per-unit. Consequently, lead time is getting longer, WIPs stack up significant, quality problems, variation...etc. The conflict is intepreted to meet two key measurements for production team: reduce the cost vs maintain on-time delivery. There are also other problems caused by other departments if managers are so focused on the cost, which are likely to become obstacle to achieve the goal of proft. Purchasing usually switch to other suppliers when they find lower price of material. It is not uncommon to encounter quality issue due to the change of suppliers even going through the normal process of Engineering Change Notice. On the contrary, because of management attention is limited, if they can focus on the flow, better sync and priority, better quality ,shorter lead time and reliable on-time delivery, less pressure on people to manage production, all these benefits will come to the unavoidable results: lower the operation cost and minimize quality problems, without having to be disrupted by the noise in the system that constantly distract people's attention.