Performance Measurement Systems: Transparency
TRANSPARENCY IN THE CO-DEVELOPMENT PROCESS
The consistency, reliability and credibility of the VM’s development process is fundamental for effective co-development to begin to take place. The VM’s development process must be understood and consistent for alignment by the development processes of suppliers. The mutual level of understanding that the VM’s engineers and their corresponding suppliers’ engineers have of the why and what the co-development PMS is trying to achieve is critical to the overall effectiveness of the PMS and the co-development process itself. How the system has been designed and the way in which it is presented are fundamental. The transparency of the system greatly affects the usability of the performance information that the system holds. The level and effect of the system transparency has been carefully considered in the design and operation of the co-development performance measurement system. The effects of increasing the transparency in assessing the co-development performance of its European supply base were considered not only within the development function of the VM but from a perspective of the overall effectiveness of the supplier appraisal and improvement system.
Referring to the Transparency Model (Fig. 2) the VM took route ‘A’ to increase the transparency of the co-development PMS. This choice was based on a strong history of general openness and information sharing plus the suppliers own identification that understandable information was a key concern (See Johnson and Evans, 1998 for more discussion on this process). It was observed that the VM’s holistic approach to how the co-development PMS was designed was key to enabling the PMS transparency to be fully realised. Very early in the system design the VM had to decide how to clearly describe what their own development process was and what and where the critical supplier inputs were to this process. This was a key stage in the system design focusing the VM to ask “can we effectively communicate this to our suppliers and internally within the organisation?” The resulting system is made up of several layers of increasing detail. At the highest layer a simple single score is given for suppliers co-development performance. This
is mapped over time and compared to targets and to the supplier base mean performance. At the second level a clear 3x3 matrix enables a quick and easy understanding of where scores relate to which stage of the co-development process. At the lowest layer a highly detailed system exists where specific changes in performance can be clearly identified and their origin understood. It is at this level of the system where the change in the balance of objective and subjective measures became important allowing a predominately objective analysis of suppliers co-development performance to made.
To give an example of a highly transparent co-development PMS a measure of
‘on-time prototype parts’ is shown in Table 1. The system is easy to understand and easy to see through.
Initial findings from 25 interviews conducted in 9 of the suppliers gave a strong indication that those suppliers who have received not only the new PMS system but also education about the co-development PMS had an increased level of understanding of the system. Their understanding had also improved their ability to effectively use the system to identify improvements and directly relate these improvements to corresponding changes in their scores. This is in comparison to suppliers who had received minimal education about the system this affected their understanding of the system and dramatically limited their ability to identify improvements.
The education process involved a combination of formal presentations and on-the-job/face-to-face discussion between VM’s and supplier’s engineers, showed the suppliers that the VM was willing to divulge and share previously hidden information about how suppliers performance is assessed. This ‘openness’ in the relationship can be compared to that seen in the use of cost transparency in the industry which also requires the sharing of information between VMs and suppliers (Lamming, 1996). Co-development PMS transparency can be described as a derivative of cost transparency where “.. information must be shared, but that the process is two-way:…in order to develop ways (either process or product) in which cost can be removed, quality improved etc.” (Lamming, 1994).
Table 1 An example of a highly transparent co-development PMS
CONCLUSIONS
Co-development is referred to as a future order winning criteria for UK first tier automotive component supplier who want to compete in the global market and has been defined as “the ability of vehicle manufacturers and their suppliers to develop competitive products together”. This paper has described how a vehicle manufacture is effectively measuring the co-development performance of over 300 of its suppliers. It has been identified through the authors participation and a series of interviews that the effective measurement of co-development requires a high level of PMS transparency.
The current practice is that very few organisations effectively communicate the understanding and logic of how they measure suppliers’ co-development capability and that the level of PMS transparency can dramatically affect a VMs and suppliers co-development performance. Measuring product development is a challenge to both industry and academics. The amount of time and effort required to pioneer in a “difficult” area is high and the uncertainty of whether or not the benefits are greater than the input effort may cause concern amongst practitioners.
The lack of widespread working examples and of the benefits of effectively measuring the product development process also plays a part.
Previous research has identified that the level of transparency of performance information presented within and between organisation is critical to achieving targets. This research has established that when effectively measuring a supplier’s co-development performance a PMS should have a high level of transparency. The authors have shown that a transparent PMS will be both easy to understand and easy to see through. These simple but important concepts have been illustrated through examples from a co-development PMS now being used by 350 companies and which following its introduction, has assisted in an eight-fold increase in the rate of improvement.
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