Targets and indicators as a tool to help improve profits and performance

19 November 2012 Ze'ev Ronen Business Excellence M: +972.52.4767531 1

Targets and indicators as a tool to help improve

profits and performance

Lecture for Meeting of CEO's – "Bar Lev Forum"

Bar Lev Industrial Park

1 February 2012

Quick and continuous improvement process

with employees

Lecturer: Ze'ev Ronen

Objective: improving company profits and strength

2

19 November 2012 Ze'ev Ronen Business Excellence M: +972.52.4767531

CEO

Marketing and Sales Operations Finance

Secretary

• In every company, Management is the

forum that copes with emerging market

challenges and opportunities.

• On one end of the spectrum, Management is

a limited body, and its members are

overloaded,

• on the other end of the spectrum, their

capacity and creativity are limited and not

boundless.

Connecting employees to company objectives

and getting them involved

3


CEO

Marketing and Sales

Operations Finance

Secretary

• However that same component which is not

handled by management enables the collection

of a lot of money from the floor.

• And at the same time, as an after

effect, to connect the employees

to the company objectives,

enhance motivation and breathe

new spirit at all levels.

• There is a huge treasure of

hidden knowledge and force

of thought at the levels below

management who do not take

part in the thinking processes and

coping with challenges.

Measurement

4

In order to improve, one must measure.

You cannot gain improvement without

measurement - otherwise you will

achieve random and marginal

improvement.


If the aim is to improve:

How will we select the areas for improvement?

Areas for improvement must reflect company objectives

Adapt to given priorities

Respective of certain criteria that are to be defined.

Or in other words, it is worthwhile to select profit

leverages,

Profit leverages may be used as a criterion for selecting

areas for improvement.


How shall we define and select the areas for improvement?

Identifying profit leverages and setting priorities

• Profit leverage indicates any small improvement in results

in any subject or field, which will in turn lead to a large

improvement in profits or in another objective which the

organization would like to improve.

• It is well known, that every NIS 1,000 that we save on

expenditures goes to profits.

• Or alternately, if we save 10% on Operations expenditures,

we will add about 5% from sales to profits, and that is a lot

(assuming a 50% net profit).

• When initiating an improvement program in a company,

the first task is to identify and agree upon profit leverages

according to priorities. 19 November 2012 Ze'ev Ronen Business Excellence M: +972.52.4767531 6

Handling profit leverages: performance indicators


7

• Profit leverages are handled via two corresponding routes:

• In the first route, quantitative and measureable performance

indicators are selected; on the one hand, the use of these

indicators may help obtain data to work on improvement,

and, on the other hand, may monitor improvement

processes.

• It is advisable to utilize performance indicators that are the

norm in international industry, with the necessary adaptions

for each company.

• Performance indicators are measured and handled on a

daily, weekly, or at least monthly basis.

Handling profit leverages: performance process


8

• Via the second route, we shall improve the results of

performance indicators.

• The process is based on work in small teams of employees

and on existing knowledge, both revealed and hidden.

• This is how we expand the group that copes with challenges

facing the company as well as increase the quantity of

knowledge that is incorporated within the existing knowledge

reservoir.

• A significant portion of both acquired and created knowledge

among employees remains hidden. The employees do not

share it with each other and do not pass it on to

management.

Improvement process with employees:


• In team work, when suggestions for improvement and

corrective action come from the employees, several

advantages are obtained:

• Employees spread the knowledge that was hidden, and

the company benefits from a wealth of untapped

information.

• Employees feel committed to implementing the steps

they themselves proposed.

• Employees' motivation is enhanced.

• You can work according to the aforementioned

methods in small teams and small companies as well.

The CEO's pivotal role in this process:


CEO – improving company

profits

Engineering

Finance

Operations

Marketing and Sales

Human Resources

Quality Manager

We do not forget the

objective and the means

throughout the entire

process.

The various targets and

indicators create a balance

in favor of the main

objective.

Work is done in

collaboration, while

maintaining a balance, and

not through struggles.

CEO's pivotal role in the process


Above 98% of target

98% - 92% of

target Under 92% of target

2011 Sales

2011

Sales

target

Wage as

percentage

of sales

Target

wage

percentag

e

Cash

flow

target

Meeting

supply

dates

Target for

meeting

supply

dates

Issuing an

order

according to

original

Target

Machine

effectivenes

s

Target

Down time

percentage

due to

malfunction

Target

JAN 73% 100% 131% 100% -8% 100% 90%

FEB 112% 100% 89% 100% 46% 100% 90% 45% 100%

MARCH 91% 100% 100% 100% -63% 100% 90% 33% 100%

APRIL 58% 100% 174% 100% 355% 100% 69% 90% 48% 100%

MAY 102% 100% 106% 100% 109% 100% 71% 90% 48% 100%

JUNE 87% 100% 129% 100% 147% 100% 66% 90% 55% 100% 12% 2%

JULY 93% 100% 126% 100% 3% 100% 68% 90% 97% 99% 49% 100% 14% 2%

AUG 95% 100% 123% 100% 162% 100% 75% 90% 84% 99% 57% 100% 13% 2%

SEP 107% 100% 98% 100% 100% 100% 73% 90% 88% 99% 62% 100% 10% 2%

OCT 97% 100% 118% 100% 142% 100% 92% 90% 82% 99% 63% 100% 10% 2%

NOV 122% 100% 92% 100% 52% 100% 90% 90% 91% 99% 66% 100% 8% 2%

DEC 107% 100% 118% 100% 60% 100% 95% 90% 93% 99% 72% 100% 2% 2%

Average 95% 100% 117% 100% 92% 100% 78% 90% 89% 99% 54% 100% 10% 2%

Once a month, the Management discusses meeting of targets, and each

manager presents his/her results and how he/she plans to improve results.

Feedback, evaluation and control


Energy and focus of the team work evolves

through dialogue with CEO.

CEO monitors meeting of targets and team work.

CEO's involvement connects the entire company

to the improvement process and underscores the

importance of team work.

• Examples of working with targets, indicators and task teams:


Example of company indicators - Finance


14

Monthly dashboard Money wise:

Operating profit

Net profit

Cash flow

Incomes and Expenditures

Market share

Collection


profits

Engineering

Finance

Operations

Marketing and Sales

Human Resources

Quality Manager

Control and handling of customers' debt in a small team


Graphic display of the data facilitates monitoring trends and provides clear feedback on

corrective activity, sharing the results with everyone and providing energy to continue.

significant decrease in debt, and improvement in cash flow.

• Each week the customers' debt is reviewed.

• Problematic debts are identified, and tasks are distributed, with implementation monitored.

Customers' debt exceeding

current month or in arrears, for a

period not exceeding one month

Improvement gained:

Examples of indicators – Operations



profits

Engineering

Finance

Operations

Marketing and Sales

Human Resources

Quality Manager


Improvement machine performance in plant with 20 CNC machines

Machine effectiveness (producing good parts in gross hours that the machine works in comparison to the quantity that may be theoretically produced) was reviewed during daily morning meetings and once a week in the task team; the result is presented to Management every month. Changes at the beginning were more essential and created the infrastructure upon

which improvement was made later on.

40.2

29.9 42.8

43.6

49.9 44.4

51.5 55.9 56.6

59.7 64.9

0

10

20

30

40

50

60

70

80

90

100

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Machine monthly efficiency

Target

Actual


Improving maintenance and reducing down time due to malfunctions

12

14 13

10 10

8

2

0

2

4

6

8

10

12

14

16

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Machine down-time percentage due to malfunction.

Actual

Target

During the machine performance improvement process, it emerged that the low output was significantly influenced by various types of down times (preparations and start-ups, malfunctions, lack of operators, quality problems, and others). Here we have an example of handling malfunctions. Great commitment on the part of the entire system has been developed; each malfunction has been immediately forwarded to the person in charge of maintenance, preventative maintenance, inspections, rethinking of parts inventory and more. All the changes were a result of work at daily and weekly meetings.


% 2

Example of quick improvement with the help of two task teams consisting of employees.

Result: annual savings amounting to NIS 2 million.

57% 56.7%

56%

52%

49%

50%

51%

52%

53%

54%

55%

56%

57%

58%

I-08 II-08 I-09 II-09

Percentage of raw materials and packaging

After very slow progress, without a breakthrough, we implemented two task in June 2009 teams and headquarter work. Savings in half a year: NIS 1 million, The investment: NIS 90,000

54%

65.0%

80.5%

91.7%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Materials inventory reliability


Inventory Management Accuracy

Example of a measurement process and presentation of results for analysis and improvement process

Sep Aug Jul Jun

-54%

-16.0%

-4.7% -3.7%

-60%

-50%

-40%

-30%

-20%

-10%

0%

Sesame: difference between the inventory in the books and the actual inventory as a percentage of monthly use.

Sep Aug Jul Jun


Handling deviations that emerged in the inventory inspection

Example of the inventory count results analysis process and implementation of corrective measures. The result: annual savings of NIS 170,000.

Example of indicators – Marketing and Sales



profits

Engineering

Finance

Operations

Marketing and Sales

Human Resources

Quality Manager

23

% 2

Tri-annual sales plan: selecting a target for the third

year and retroactively, up to next year


After a drop in sales for 3 years, some of the customers disappeared, or transferred to imports, target set for 2012 to achieve 80% above the best year in 2007.

• Challenging tri-annual budget established.

• From which the 2010 budget was derived.

0%

20%

40%

60%

80%

100%

120%

140%

160%

180%

200%

2007 2008 2009 2010 2011 2012

Annual sales: history and tri-annual plan

• A designated team headed by the CEO in collaboration with various employees held a strategic meeting about new sales niches and targets.


% 2

2010 sales in comparison to the budget and in comparison with 2009 (in K NIS)

The target was to sell 27% more than last year. In reality, they reached 42% extra compared with the previous year.

The 2010 budget was converted into a monthly budget and a marketing strategy and work plan were determined. The team monitors orders and sales on a weekly basis.

2010 Budget

0

200

400

600

800

1,000

1,200

2010ביצוע 2009

The team reviews monthly sales targets, undertakes tasks and implements a

weekly follow-up.


הצוותים בפעולה

26 19 November 2012 Ze'ev Ronen Business Excellence M: +972.52.4767531

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Targets and indicators as a tool to help improve profits and performance