Productivity and Cash Flow – What Metrics Are You Missing?
Whether you have a fully developed Six Sigma-based program in place or are simply keeping an eye on productivity, it’s important to be looking at metrics. Not only do they give an account of your current status, they can help you to identify opportunities for improvement. According to lean expert Larry Fast, manufacturing and distribution firms should also work towards framing how employees view inventory.
In a recent article for Industry Week, Fast explains that manufacturers distributors can improve production and cash flow by watching certain metrics closely, even if you think your processes are well-tuned and efficient. He suggests following these inventory and process metrics:
- First pass yield (FPY)
- Rolled throughput yield (RTY)
- Original equipment effectiveness (OEE)
- Inventory turn for raw materials (RM), work-in-progress (WIP), and finished goods (FG)
- Dollar value for RM, WIP, and FG
While all of these metrics are essential, Fast stresses the importance of using RTY, as many companies do not take the additional step of calculating this metric once FPY is known. As a result, you could miss seeing the total impact of a few percentage points for each FPY measurement.
“Create a bigger awareness that inventory equals cash.”
In addition, Fast recommends ensuring that all employees see the inherent value of inventory in all states (RM, WIP, and FG), providing a detailed account of why valuing inventory is crucial to your operations, even though it’s not a measure of productivity. Finally, he points out that consigned supplier inventory (CSI) should be factored into your inventory turn and valuation calculations. While having a large amount of CSI doesn’t directly impact your cash flow, factoring it into your plans can help improve production at your facility and strengthen your relationship with those suppliers.
Read the full article, which wraps up a three-part series in “Must-Have Metrics.”