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A local area should be judged against a targeted OE to Throughput generation ratio, which is defined by the relevant range of the TOC economic model demonstrated in Fig. 14-4b. The TOC break-even model is always governed by the impact or lack of impact on the constraint. These local OEs include things like labor, freight, outside processing, contracted or temporary labor, and expedite-related expenses like overtime and premium freight. With regard to this metric, localities will have to balance the level of local OEs with their other critical metrics identified previously. Certainly, a locality should be encouraged to improve flow and velocity with no additional expenditures. Along the same lines, a locality should not be penalized for increases in OE if they improve the ratio (this actually works in concert with its strategic contribution). This hints at a concept called variable budgeting. Variable budgeting allows areas to increase expenditures based on exceeding their relevant range of volume.

Metric 6: Local Improvement/Waste

The objective of this metric is to point out and prioritize lost opportunities. Specifically, it is measuring a locality’s ability to identify an opportunity to move the other local and global metrics in the right direction with minimal or no conflict. Essentially, are we asking the right questions and getting the right answers? One very important aspect of determining this is with reason codes. As described previously in the section on Reliability, a buffer system must collect reasons when work orders enter in the red, late, and early zones.

The required transactional data from the execution of BM can be used to direct improvement efforts including Lean and Six Sigma events and capital application. By forcing reason codes when transactions (receipts) are made in certain key zones (late, expedite, and early) of the buffer and comparing them over time, we can get an amazingly clear picture of how to direct improvement efforts. Figure 14-8a shows an example of what this picture can look like.

Figure 14-8b shows some typical types of reason codes for work orders received in the late, red, and early zone receipt and what some potential recommended actions might be.

FIGURE 14-8a Reason code analysis.

FIGURE 14-8b Zone receipts with reason codes.

FIGURE 14-9 A summary of the six general local measurements.

It is important to note that we are directing improvement to the tails of the buffer zones to capture the largest outliers causing disruption and variation. Too early, our cycle time is too long and excess WIP inventory exists. Too late and we incur overtime and premium freight as well as jeopardize our market promise reliability. By focusing investment/improvement on the tails, we can eliminate the sources of the variation and safely shrink our buffers (time, stock, and capacity).

Figure 14-9 shows a summary of the six general TOC local measurements and their respective objectives as well as some specific examples in Operations.

Feedback and Accountability Systems

Now that we have laid down the foundation for a system of global and local metrics that should point the organization and its localities in the right direction with minimal conflicts, there is still one critical piece of the puzzle left to discuss. The APICS Dictionary (Blackstone, 2008, 97) defines a performance measurement system as, “(a) system for collecting, measuring, and comparing a measure to a standard for a specific criterion for an operation, item, good, service, business, etc. A performance measurement system consists of a criterion, a standard, and a measure” (© APICS 2008, used by permission, all rights reserved.)

The performance standard can be the accepted, targeted, or expected value.

What is not evident in this definition is the need for steady feedback of system performance and regular adjustment to the actions needed to achieve the standard. The only certainty facing most organizations is that conditions do not stay the same. For example, a shift in the constraint due to changing