6 Production Performance Management Controls

The purpose of these controls is to define performance management for production systems and present measures and methods that may be used to manage and improve production performance for your company.

Performance Management Approach

Performance Management is usually defined as:

  1. The calculation of achievement used to measure and manage quality of products and services,
  2. The level of attainment of an objective in comparison to a given effort, and
  3. The act of measuring or the process of being measured.

Production performance management is part of your company’s overall performance management that contains performance measures to manage and improve governance, risk, compliance, strategic, operational and production aspects of your company.

Performance measures, via the performance management system:

  1. Monitor the implementation and effectiveness of an organization’s strategies (overall business as well as functional, such as sales, production, IT, etc.).
  2. Determine the gap between actual and targeted performance.
  3. Determine organization effectiveness, quality of products and services, and operational efficiency.

Performance Management in practical purposes for the production function includes the following parts:

Part A: The performance goals at the divisional, departmental and individual level set by the higher level managers of your company;

Part B: The production performance measures to monitor and evaluate the performance of your production function; and

Part C: A system to manage, measure and improve your production performance.

These are detailed next.

6.1 Part A: Corporate Performance Goals

While financial measures are an important part of the classical performance management measurement approach, it is also necessary to develop goals and controls that tell managers how well their strategies are creating a competitive advantage and building distinctive competences and capabilities that will lead to future success. This is the role of corporate performance goals.

By the use of this system senior managers estimate or forecast appropriate performance goals for each division, department, and employee and then measure actual performance relative to these goals.

Divisional Performance Goals. This is the first activity in corporate performance goals setting. Divisional goals state corporate managers’ expectations for each division concerning performance on such dimensions as efficiency, quality, innovation, and responsiveness to customers. For example the business goals for a large manufacturing division with many plants and products could be: Increase market share in each of our markets.

Departmental Goals. This is the second activity in corporate performance goals setting. Corporate performance goals control, at the functional and individual levels, is a continuation of control at the divisional level. For example the business objectives for a production unit producing one or more products could be: Increase customer base by 3% in each year for the next 4 years.

Individual Goals. This is the third activity in corporate performance goals setting. Finally, departmental (functional) managers establish performance goals that individual employees are expected to achieve to allow the function to achieve its goals.

For example the individual performance measures for each person in the production function could be set on the basis of: Number of new products developed.

Once you have set up goals and targets at all levels you need performance measures to track and review the achievement or not of the specified business goals and objectives for your production function. This is discussed next.

6.3 Part B: Production Performance Measures

The most crucial aspects of your production that need to be monitored, according to consulting and management experience, relate to performance measures of the following seven areas: Inventory Control; Manufacturing; Production Cost; Service Productivity; Supply Chain; Quality; and Innovation.

Examples are:

  1. Inventory holding costs
  2. Production rate (number of units completed per unit of time)
  3. Productivity (‘outputs’ divided by ‘inputs’)

6.4 Part C: Managing and Measuring Production Performance

How are all these performance measures tie in to your production and business operations?

My consulting and management experience has shown me that you need an integrated performance system made up of two major components: A standard ready-made framework and a methodology.

First Component-Performance Frameworks: First of all you need a framework if you want to be serious about performance.

Different standard ready-made frameworks for managing and measuring business and production performance have evolved from a variety of origins. Some very-well known frameworks are:

Balanced Scorecard (BSC), Economic Value Added, Activity-based costing, and Total Quality Management (TQM).

The BSC framework (detailed in Appendix 9 of Part 2) is the most well-known with thousands of applications to various companies and public organizations across the whole world. Selecting and using a standard framework will make your job easier as you do not have to experiment.

Second Component-Performance Methodology: Second of all you need a methodology if you want to implement a performance system and improve your corporate and production performance.

This methodology consists of the following steps:

Step 1. Connect your production mission and goals

Step 2. Ensure your production strategy and structure

Step 3. Create Production Management Control Systems

Step 4. Manage Production Performance

Step 5. Use the Corporate Business Dashboard System

Step 6. Link Production to your Business Management Reporting Procedure

Step 7. Improve Production Performance

Will you improve your production performance with these?

My experience is that you will. You will know how things are going for your production before you undertake initiatives to improve your production setbacks and performance and therefore ensure your company’s long-term survival.

In conclusion, when you think of the production performance management controls presented in this lesson (Setting of Performance Goals, Production Performance Measures, Methodology, etc.) and what they may mean to you and your corporate organization, consider the following quotation by Socrates, the ancient Greek philosopher:

‘Employ your time in improving yourself by other men’s writings, so that you shall gain what others have labored hard for.’

Recommendation 6: Implement a small and manageable set of production performance measures that make sense in your production and business environment. Enable, motivate, engage and train your people in their best use. Link your production performance not only to money but also to other non-monetary awards, benefits and promotional opportunities.