Selecting Units of Measure

Those of you who have read my columns before are aware that I am a strong advocate of developing and employing meaningful measures to evaluate the effectiveness of an operation. Whether we are looking at the timeliness of shipments to customers, manufacturing throughput time, first-pass yield, equipment downtime, workplace organization effectiveness, or anything else, we need measures that are both realistic and easy to understand. After all, if the measures we adopt are suspect, or cannot be understood at a glance, there is little chance that people will assume ownership and take the actions needed to make things better.

With this in mind, considerable thought must be given to selecting the right units of measure and using them the right way. By using appropriate units of measure, we reduce the risk of focusing on the wrong things, which often leads to bad decisions.

I like to use the topic of inventory as something that can be measured in a number of ways. If inventory is measured strictly in terms of quantity on hand, this may not provide a clear picture of its impact on a company. Clarity comes when some element of time is included in the unit of measure, such as the number of inventory turns (how often a company’s inventory is sold over a given period, calculated by dividing the average cost of goods sold for that period by the average inventory on hand during that same period); the number of sales days of inventory on hand (current inventory divided by the average amount sold per day); or even the average number of days that items sit in inventory, which can be derived from either of the previous time-based measures of inventory. Certainly an inventory unit of measure with a time component can produce a better decision regarding inventory management.

So what are some sensible units of measure that we can employ? Obviously, this varies from industry to industry and may even vary within a company, but the following are some ideas to consider:

• In administrative processes, which generally can be completed before or after manufacturing processes are performed, effective units of measure relate directly to what a customer needs. For example, customers provide orders for products we supply, so a customer order can be a useful unit of measure. If the number of items contained in a customer order varies 
significantly, then the number of line items, or Stock Keeping Units (SKUs), on the order may be a better unit of measure, as it takes into account the extra effort commonly required for multiple items. In other situations, the actual quantity of each SKU ordered may require different levels of planning or documentation, which should be taken for consideration. The sales value of a customer order is another factor that may impact the effort involved in processing the order and could be another unit of measure worthy of consideration. Units of measure such as these provide an objective means of evaluating workloads in administrative processes and enable period-to-period comparisons.

• In manufacturing processes where value is added, the most common unit of measure relates to the item produced. Units such as number of pieces per hour or time per piece are widely employed. However, if items that are produced go into other products made, then the number of assembled products may be more meaningful, and the components contained within the finished product can be measured as portions of an assembly. For example, four components machined could each be represented as 0.25 assembly-equivalent items. Items stored and shipped in standard containers may be more effectively measured as cases, bags or cartons produced. In any type of material converting process, a more appropriate unit of measure could be weights (pounds, kilograms), volumes (gallons, liters) or sizes (linear feet, square meters). In converting processes, such units of measure may provide more insight into what goes into a process and what ultimately comes out of it. Manufacturing-related units of measure of any type will reveal key factors involved in producing the things your customers need.

• In warehousing and some service operations, transactions completed are an effective means of measuring and evaluating activities performed. Warehouse transactions, such as number of material receipts, put-aways, stock picks, counts and shipments can be translated into meaningful units of measure for that area. Material movement for the purpose of delivery or relocation also can be recorded as transactions that can be monitored over time. Processing of returns is another activity that, when properly measured, can provide important information with far-reaching implications for a company. As with administrative and manufacturing units of measure, those that apply to warehousing and service operations can keep us apprised of activities taking place.

In the end, any units of measure you employ will aid in evaluating the effectiveness of your operations and help you make the most informed decisions.