How to design a KPI tree for effective performance management

Key Performance Indicators (KPI's) are central for checking how your operation is doing, and designing a good KPI system is an art onto itself.
This video discusses how to structure your KPI-tree to match with management layers, how to link those management layers by using linking pins between your (daily) performance meetings and how to deal with the fact that lower levels in the tree won't fully cover the main KPI's anymore.
Let's improve the effectiveness of your performance control and make sure your daily standups and shop floor meetings don't double performance discussions.
#operationsmanagement #performancemanagement #continuousimprovement

[@rowlandmcdonald2795]

Thank you for an informative & understandable video!! Good man

[@TomMentink]

Happy to see you liked it, thanks for sharing that. If you’d like me to cover a certain topic in a future video, feel free to request 😉

[@dirkkuster4137]

I love your channel, really great stuff. Helped me a lot. Didn't find anyone on KZbin who explains it as clearly as you.

[@TomMentink]

Thanks for your kinds words, Dirk. That was my goal when I set out to create this channel so I’m happy that my videos add value for you. By the way: check out Paul Allen’s channel too, I love his clear cut style a lot.

[@johanbroersma1959]

Hi Tom! I was wondering if you could go through the KPI tree with an example to help understand how to set up a KPI tree.

[@TomMentink]

Hi Johan, my apologies for the late reply. Since it will be quite a bit of text and some sketches would also help, I'd better make a video to show how I'd build up a KPI tree for an example KPI. I think output/OEE makes a good example to show the different principle for KPI tree design, but since I haven't made the video yet, I'd be happy to use another example if that would be more interesting or relevant to you... Any specific KPI on your wish list?

[@domenicoscarpino3715]

Hi Tom, as always your lessons are brilliant. Please allow me to ask you 2 questions to clarify couple of doubts I have. 1) KPI and specification limits seem so similar to me. What is concretely the difference between the two? For instance, if we set a maximum cycle time of 20 days, that would be both a KPI and specification limit...I don't quite grasp the difference between the two. 2) This second question is about voice of custumer, voice of business, VOE related to KPI and spec limits. Cycle time for example seems more of a CTQ coming from VOB than VOC. I'm pretty sure that custumer doesn't always have much to do with performance metrics, but I'm not sure how to think about this. Defects for example would probably come from VOC...

[@TomMentink]

Thanks for your praise, Dom, appreciated. Specifications are quality characteristics that a PRODUCT has to be within. They either come from customers/customer expectations/legal requirements, or they are mid-process specs that the company itself (usually the quality department) set up to ensure that the end product will meet ‘the real specifications’. Performance is a PROCESS metric that describes how effective and efficient a process makes products (that are within specs). If a carton of milk has to have at least 1 liter in it (specification), any carton under 1 liter is a defect and should be scrapped. This company probably has a KPI “scrap level” that shows part of the performance of that process. Now they could just fill cartons up around 1,2 liter and never have out of specs, but that will be very expensive - they probably also have a KPI “overfill” that measures how much milk was used on average per carton, which will be another great indicator of the material efficiency of this process. Cycle time is not a specification - you cannot see this in the end product (unless it’s a 12-year-old whisky, I which case you actually pay for taste and uniqueness, so that promise that it’s at least 12 years aged is a proxy for a product characteristic that they can hardly express). Cycle time can be a KPI if it’s important for production costs, which it often is. It can also be a process standard if it’s important for the product quality, e.g. that milk will have been at 72*C for 15 seconds (pasteurization). All these voices… I’m not a big fan of this language, as it’s often poorly explained before people use it. The idea is that your information comes from different sources: VOC are all those things that the customer is telling you, like how they want the product to look and feel (become specifications), how quickly they want it delivered (service level expectations), etc. VOP is the process telling you what’s really happening, like what the variation in filling weight of this line is (which together with the specs will cause some defect level), or what the most stable process settings are for a certain product. VOB is the business telling you what’s important to make a profit now and long-term. Defects are a result of process mean and variation (voice of process) exceeding specs (coming from voice of customer), so it’s not really either of them. Customers generally do not care about performance metrics (like cycle time) - they just want a good product. They might place additional limitations on the production process (e.g. no animal testing, be carbon neutral, etc.).

[@domenicoscarpino3715]

@@TomMentink thank you so much, you absolutely explaned it all. I got it conceptually. Pratically, if for example I consider cycle time as a KPI, I'm wondering what the spec limit tied to this KPI could be, so that it could be possible to check for capability. Same issue about recruitment time (as a KPI) for instance... I struggle to think of any spec limit in the outcome tied up to something like that in a way that makes process capability easy to be found. Can you give a quick example of that to fully close the topic? Thank you immensely.

[@TomMentink]

@@domenicoscarpino3715 there simply are no specs for these examples. There are many more factors of production than product quality specifications.

[@domenicoscarpino3715]

​@@TomMentink I just watched your video about efficiency vs efficacy. I think that gives the perfect idea. Thank you so much Tom. Your channel is pure gold!

[@linkxue201]

Thank you Tom for the great stuff you always share with us

[@TomMentink]

Thanks for the compliment - I'm happy to hear that you like my videos.