KPIs on shaky ground. The typical weaknesses of key performance indicators in manufacturing

… und wie sie zu umgehen sind

The purpose of KPIs is to show the extent to which the shop floor succeeds in meeting set targets. In doing so, it is not just about achieving overall results. Every shift supervisor and foreman needs a tool for evaluating whether his team and employees are achieving the set standards. This alone demonstrates that KPIs are tricky. KPIs can be extremely powerful, but they can also be virtually meaningless. They can provide certainty, but they can also obscure reality beyond recognition. It is no wonder that a critical understanding of KPIs is considered key to success.

KPIs condense reality. They show "what is happening" on a monthly, weekly, or daily basis using measurable facts and figures. Set-up time, cycle time, adherence to schedules, scrap rate, productivity, complaint rate, lead time, sickness rate, etc. KPIs provide continuous feedback and therefore enable you to (1) identify deviations, (2) discover the reasons for the deviations, and (3) take appropriate action. These actions can be reactive, to respond to urgent problems, or proactive, to prevent deviations in the long term.

"You can't manage what you can't measure" is a popular maxim in business administration. However, in view of the numerous perils that lurk in the waters of KPIs, the maxim should emphasize that: You can only effectively manage what is sensibly measured and correctly interpreted. For every KPI is only a quantitative indicator – which requires qualitative evaluation and interpretation. Which brings us to the traps that must be avoided. In his book entitled "Shopfloor Management und seine digitale Transformation", Jörg Brenner differentiates between six typical weaknesses when dealing with KPIs.

Too many KPIs are collected

KPIs not only document work; they also make work. If KPIs are collected randomly, the effort required to evaluate, track, interpret, and develop/implement measures is too overwhelming for the persons responsible. Or the effort is not proportionate to the added value of this effort. Thus, KPIs quickly become data garbage. The focus is lost and there is a risk that even the really important KPIs will not be used.

KPIs are too complex

KPIs are often treated with skepticism by the workforce. KPIs can be (mis)understood as a control instrument. Additional skepticism is caused by KPIs that are so complex that they cannot be understood outside a small circle. For those who do not understand a KPI, it is also unclear how they can positively influence its value through their actions. This means that an important function of the KPI is lost: The feedback on your own performance in order to maintain or improve this performance.

KPIs stay on higher levels

A similar problem arises here as with overly complex KPIs. If KPIs reflect the performance of an entire department or division, it becomes difficult for individual divisions and employees to identify with this figure. Even at the risk of KPIs being perceived as a control instrument: KPIs must be designed in such a way that the contribution of each individual also counts. To this end, the contribution must be recognizable (skepticism of key figures as a control instrument must be countered by a corresponding corporate culture).

KPIs are not coordinated

All processes that are controlled and regulated by KPIs and KPI systems "pay into one account": the company's success. All processes are interlinked. If one division optimizes its KPIs without checking that it does not do so at the expense of another division, this can have unintended – and in some cases fatal – consequences. A holistic view and regulation from a higher perspective is required. To achieve this, divisions and departments need to communicate with each other and design their KPIs with the appropriate vision. Only with this holistic view and vision can KPIs actually act as a tool for securing the company's success.

KPIs lead to misconduct

KPIs have consequences, that's what they are there for. Yet the real crux of the matter is that KPIs can also have undesirable effects, which can be fatal if they are not considered or discovered. Those who focus primarily on the figures that provide information about a (quantitatively measurable) minor part of their performance will divert this attention elsewhere. It is no longer "about the thing itself", about the superordinate whole, but only about achieving a certain value – and perhaps with unsuitable means.

KPIs paint a false picture of reality

KPIs are like all data: They are only the basis of knowledge. They must be collected and interpreted in a valid manner. Of course, this is a major source of error, for example, if data is not available for the entire shop floor because not all machines and systems are integrated into a data collection system. This means that there is no overall picture to adequately reflect reality. Another false picture is painted by KPIs that are not (often enough) fine-tuned. For example, if cycle times are used to calculate efficiency in the context of the OEE (Overall Equipment Effectiveness) KPI, they will change if improvements are achieved in relevant processes. If the target KPI is not reviewed and adjusted in appropriate cycles (which usually does not happen), a distorted picture emerges unnoticed.

Solutions to these sources of error arise from a suitably critical and keen awareness of KPIs. All companies are faced with the task of developing their KPI system themselves and, above all, evaluating and adapting it on an ongoing basis. This, in turn, can only be achieved if the KPIs are systematically derived from the company's objectives – and by making use of the wealth of knowledge and experience of all those who can contribute to it. In doing so, it helps to concentrate (for the time being) on a few core KPIs. It is important for the workforce to be able to identify with the KPIs that have been collected and that they are understandable and meaningful to them. It is also important that each individual is aware of the personal commitment with which he/she can contribute to the positive development of the KPI. Only if everyone knows AND feels that critical feedback and suggestions for improvement are welcome in order to continually improve the value of the data can a dynamic KPI system be created that can fully exploit and fulfill its potential as a reliable internal company monitoring system. How we approach this topic: As machine connectivity experts, we make sure that KPIs can be digitally recorded on all machines and equipment – even where this was previously not possible due to heterogeneous systems, manufacturers, and generations. We also make sure that the KPIs are valid, meaningfully sorted, and optimally prepared. In short: We solve your connectivity problem and enable end-to-end collection, storage, and analysis of your meaningful data. If we can support you in any way, just let us know. We are always happy to help.

Recommended reading (German only): Jörg Brenner, Shopfloor Management und seine digitale Transformation. Die besten Werkzeuge in 45 Beispielen. Carl Hanser Verlag Munich 2019