Dennis J. Dureno, CIRM, CPIM, CSCP

1. “Does Your Company Support World Class Metrics ?" MFG/PRO Midwest User Group March 19, 2007 Dennis J. Dureno, CIRM, CPIM, CSCP DJ Dureno & Associates 2007

2. Overview • Metrics - What Are They? • Your Current Performance Metrics? • Why Measure Performance? • So Why Not? • Characteristics of World Class Companies • Effort and Results • World Class Metrics • Stages of Implementing Metrics • Summary – “Pearls of Wisdom?” DJ Dureno & Associates 2007

3. What Are Metrics? • “A Standard Of Measurement” - dictionary • Statement of Facts • Condition of a Business Process at a Point-in-time • Part of an Operational Definition • It’s News/Surprise – Makes No Judgment • Can Establish Business Priorities Based On Facts • Allows Management to Decide Where to Deploy Limited Resources • States In Numbers How Well a Business Process Is Working vs. an Individual - stats DJ Dureno & Associates 2007

4. Metrics Definition! “A definition isn’t complete until we’ve identified how we’ll measure what we are defining.”

5. Your Current Performance Metrics? • Functional? • Operational? • KPI’s? • Business? • Process? • Financial? • Personal? • How Many? DJ Dureno & Associates 2007

6. Why Measure Performance? DJ Dureno & Associates 2007

7. Planning Organizing Goals Objectives Strategies Plans Structure Human Resource Management Controlling Standards Measurements Comparisons Actions Leading Motivation Leadership Communication Individual and Group Behavior Management Functions Start Need to Monitor Each Stage

8. Reasons for Metrics • Drive Behavior • Establish Priorities • Can validate resources • Channel Creativity • Direct involvement • If Met - Defines “A Good Job” • Can Create Paranoia or Stress • Generally Financially Driven • Part of Management Function Process - Validates Planning DJ Dureno & Associates 2007

9. Controlling Function – 3 Steps • Measure Actual Performance • Compare Actual Performance Against a Standard • Assumes a standard or baseline exists • Take Managerial Action To Correct • Feedback process We Need To: DJ Dureno & Associates 2007

10. The Control Process © Prentice Hall, 2007

11. Types Of Control / Metrics Input Processes Output Feedforward Control Concurrent Control Feedback Control Anticipates problems Corrects problems as they happen Corrects problems after they occur DJ Dureno & Associates 2007

12. Qualities Of An Effective Control System Corrective Action Accuracy Timeliness Multiple Criteria Emphasis on Exceptions Economy Strategic Placement Flexible Reasonable Criteria Understandable EFFECTIVE CONTROL SYSTEM © Prentice Hall, 2007

13. A Reality Check! • All Companies Have Financial Metrics • Only 20% of All Company’s Have Effective Operations Performance Metrics • Metrics Can Account For 25% Improvement in Profitability • Apply a Metric - Can See a 10% Improvement in Performance DJ Dureno & Associates 2007

14. So Why Not? “If metrics are so beneficial, why doesn’t everyone have one?” • Put Your Name Next to a 50% Metric • Tribal Knowledge Establishes - “the way we run the business” • Who Wants to Volunteer To Be Measured? • Process Can Be Cumbersome DJ Dureno & Associates 2007

15. So Why Not? • For That Department • We are, of course, doing a good job • Performance Measurement System Fails - blame people vs. the management process • A “Foxhole Management” culture DJ Dureno & Associates 2007

16. “You will never be successful with performance metrics and achieve World Class performance without trust and collaboration with people and partners.” To Be Successful! DJ Dureno & Associates 2007

17. This Is Not A Technology Issue “It’s a management process of changing from an informal system to a disciplined formal Business Process that produces predictable performance” • For all employees to have one: • common business language • vision • common objectives • communications system • set of numbers • “Business Model” DJ Dureno & Associates 2007

18. of World Class Companies Characteristics World Class! DJ Dureno & Associates 2007

19. Characteristics • Recognize Manufacturing as a • Strategic Weapon • Recognize Your Business Processes as a Strategic Weapon • Create and Sustain Customer Satisfaction Along the Dimensions of: Quality, Cost, Flexibility, Service, Reliability, Innovation DJ Dureno & Associates 2007

20. Characteristics • Relentless Pursuit of Continual Improvements in Resources, Processes and Products • Share Valid Information with Supply Chain Partners – Employees, Suppliers, Customers • Dedication to Developing a Competitive Advantage based upon: Superior Quality of Information, Products, and Service • Reduction in Non-Value Added Operations • Value added driven • Become Lean business DJ Dureno & Associates 2007

21. Characteristics • Empowered Employees • Extensive Training and Education • Constant Human Resources Development - take advantage of the synergy of people, process and technology • World Class Integrated Business Information System • Support people and business processes • Meaningful Performance Metrics DJ Dureno & Associates 2007

22. World Class Metrics DJ Dureno & Associates 2007

23. World Class • Focus on Continuous Improvements • Metrics Need to Activate Improvements • Management Evaluates the Metric Process Based on Rate of Improvement DJ Dureno & Associates 2007

24. World Class • Metrics Drive the Improvement Process • Critical Elements: • Quality • Cost • Flexibility • Reliability • Innovation DJ Dureno & Associates 2007

25. World Class Quality Metrics DJ Dureno & Associates 2007

26. World Class Cost Metrics DJ Dureno & Associates 2007

27. World Class Flexibility Metrics DJ Dureno & Associates 2007

28. World Class Reliability Metrics DJ Dureno & Associates 2007

29. World Class Innovation Metrics DJ Dureno & Associates 2007

30. Stages of Implementation How Do We Get There?

31. Stages of Implementation • Avoidance • Rationalization • Finger Pointing • Acceptance DJ Dureno & Associates 2007

32. Stages of ImplementationStage I – Avoidance • Measure this or……. • It’s unmeasurable • Data not in formal system • wait for the new system • It’s not my responsibility • I can’t be held accountable • Too much effort to track Wrong measurement - DJ Dureno & Associates 2007

33. Stages of ImplementationStage II – Rationalization • Lunar eclipse • Economy • They’re not doing their job • Lousy metric • Customers unreasonable • System is at fault • Not my metric, came from Corporate The performance is poor due to: DJ Dureno & Associates 2007

34. Stages of ImplementationStage III – Finger Pointing • Attack people, not the processes • Foxhole vs. Handshake Management • Blame the system • your data is bad • business system is possessed • It’s their fault! Making it personal - DJ Dureno & Associates 2007

35. Stages of ImplementationStage IV – Acceptance • Attack processes, not people • Develop and improve plans, not rationalize • Accept accountability • Teamwork/Handshake - continuous improvement culture • Reward risk takers • It’s just “the news” • Manage the number of metrics Pulse of the business, a tool to manage resources - DJ Dureno & Associates 2007

36. Performance Metrics - Summary • Take Advantage of Your Most Important Asset – People • Establish a Culture of Continuous Improvement • Establish a Continuity of Purpose • Allow for Profitable Growth • Proactive vs. Reactive Management Processes • Ability To Allocate Resources • Be Strategic! DJ Dureno & Associates 2007

37. Performance Metrics - Summary How? • Start Out Fast, Pick Your Targets Carefully – operational vs. financial metrics • Keep Trying to Pick Up Speed, Leave Skid Marks • You Need Radicals, Rebels, Revolutionaries, People Who Howl at the Moon – with the right attitude • Establish or Validate Your Business Model • Check Data Sources and Integrity • Plow Through The Stages of Implementation Quickly • Don’t Settle For 5-10% Improvement – 30-75% is the goal of World Class DJ Dureno & Associates 2007

38. Performance Metrics - Summary • Measure Performance With Right Metrics and Goals • Manage the Process and Meet Regularly • Establish One Person Accountability • Instill A Continuous Improvement Culture • High Visibility - support Account For 25% Improvement in Profitability If: DJ Dureno & Associates 2007

39. Performance Metrics - Summary • Operations Excellence = Financial Excellence + Predictable Performance + Data Integrity and Facts DJ Dureno & Associates 2007

40. Continuous ImprovementBEATSPostponed Perfection… So Start Measuring the Right Things Now! Make It Happen! DJ Dureno & Associates 2007

41. Make It Happen and Then Manage! “You can’t manage what you don’t measure. But what is worse? Measuring – and then not managing. Metrics can only inform. You still must act!” Source: Baseline September 2004 DJ Dureno & Associates 2007

42. What Should You Start Measuring? • ???????????? NOW! DJ Dureno & Associates 2007

43. Thank You! Questions? Dennis J. Dureno, CPIM, CIRM, CSCP djdusa@quixnet.net • ERP/WMS Software Selection • Team Building Adventure Simulation Workshops • Enterprise and Lean Management Consulting • ERP/SCM and Inventory Management Education • ERP/Class A Operational Performance Assessments “Process Improvements Through Technology and Education” DJ Dureno & Associates 2007