WHITE PAPER

Key performance
indicators in pro-
duct development
Systematically evaluate and continuously
improve innovation productivity

Dr.-Ing. Regine Wolters

Dr.-Ing. Jan Kickstein
Julia Chermette

energizing great minds

All brand names, trademarks, product names, their abbreviations and logos used in this document are the
property of their respective owners and are protected by copyright recognized. All trademarks and brand
names protected by third parties are subject without restriction to the provisions of the applicable trade-
mark law and the ownership rights of the relevant registered owner. The mere naming alone does not lead
to the conclusion that trademarks are not protected by the rights of third parties.

© CONTACT Software GmbH. All rights reserved. After the editorial deadline for this publication
there have been some changes. All information without guarantee.
Contents

1 Preface 4

2 Challenge  6

3 Performance indicator management 8

Product development methods 9
Key performance Indicator 10
Performance measurement systems 11

4 PLM-integrated performance indicator management 13

Integration of external data sources 14

5 CONTACT Metrics & Reporting16

Defining and measuring KPIs 17
KPI-Cockpits: Visualization, evaluation and reporting 18

6 Summary 19

7 Glossary 21

8 List of abbreviations 23

9 References 25
Preface

1
 Preface 5

The continuous improvement of (business) processes If development processes are to be managed more
and products is crucial to the competitiveness of a efficiently and the effectiveness of the R&D organization
company. It is expected that products be developed and improved, meaningful KPIs that identify weak points
improved ever faster and cheaper. That is why KPIs that and potential in the processes are needed. This was the
provide information about a company’s innovation aim of the Process Indicators for Product Engineering
productivity have become increasingly important in (PIPE) initiative launched by the VDMA in cooperation
recent years. These KPIs help decision-makers systemat- with leading PLM software and service providers such as
ically measure, evaluate and manage products and CONTACT Software, Dassault and IBM. Appropriate KPIs
processes. KPIs can be used to make interrelationships for product development and core processes such as
and important information within a company transpar- change, project and configuration management are
ent. available in a VDMA guideline [1].

A wide variety KPIs have long been collected in depart- This white paper describes the requirements relating to
ments like the production department with the aim of performance indicator management in the product
monitoring the quality of the manufactured compo- development process and explains the processes and
nents and the performance of the production processes advantages of the continuous and automated collection
and optimizing them in the context of a continuous of KPIs in operative product lifecycle management
improvement process (CIP). Although universally (PLM) systems.
accepted KPIs for evaluating production processes, such
as those specified by the German Mechanical Engineer-
ing Industry Association (VDMA) (VDMA Standard Sheet
66412-1 MES KPIs) exist, assertions about the effective-
ness and efficiency of product development are gener-
ally not very reliable.
6

Challenge

2
 Challenge 7

The ability to develop innovative products is crucial

to the competitiveness of a company and at the
„ The starting point for project controlling
same time a key driving force behind a more strictly
is a meaningful system of key figures.
systematic approach to product development. If
products are late being launched onto the market or The starting point for efficient performance indicator
fail to meet cost and quality targets, sales and profit management is, on the one hand, establishing a
forecasts will not be met. coherent performance measurement system, i.e. a
manageable and coordinated KPI portfolio whose
Not only products but also development processes elements are organized in an overall context. Crucial
are becoming increasingly complex. Mechatronic in this context is the relevance of the individual KPIs
products contain embedded software and systems as this ensures that irrelevant KPIs and information
that are increasingly being connected to other sys- are ignored. On the other hand, it must be possible to
tems or subsystems. Their development not only continuously collect and consolidate KPIs from
requires more systematic forms of cooperation operative processes and systems automatically in
between the different engineering disciplines within order to minimize the amount of time and effort
a company but also with the supply chain over which involved in calculation.
the development and production of these networked
systems are usually distributed. Performance indicator management can be defined
and integrated into products and processes with the
How can the effectiveness and efficiency of these help of a PLM system. A dashboard that automatical-
processes be measured and evaluated reliably? ly displays generated, current and historical product
and process data provides companies with compre-
Although the original data for products, projects and hensive control and management capabilities.
processes is stored in the PLM systems, it has not yet
been used or has not yet been used systematically.
The reasons for this are a lack of understanding
regarding the systematic controlling of development
processes and the fear that controlling in R&D could
be counterproductive. In recent years, however, there
has been an increasing awareness of the fact that a
company‘s own innovation productivity must also be
the subject of systematic evaluation and continuous
improvement.
8

Performance indicator
management

3
 Performance indicator management 9

Figure 1:
KPIs and performance

KPIs indicator management

define measure

change evaluate

Products, projects, and processes

KPIs are a tool that can be used for controlling and product development are presented below.
quality assurance purposes. They serve to translate
generally formulated corporate objectives or project Time-to-Market (TtM)
requirements into concrete or measurable targets, If companies use the TtM method, the timing of the
evaluate the results achieved and highlight future market launch is determined before product devel-
developments. opment starts. The aim of TtM management is to
optimize the innovation process in terms of time.
Performance indicator management is crucial to the This means that innovative products – from the
successful handling of KPIs. It integrates multiple initial idea to market launch – are planned in such a
object and process KPIs and provides the following way that they are launched onto the market at the
management tools for work performed in this con- economically optimum time [2].
text: define, measure, evaluate and change.
A company must define a product development Design to X
method before products, projects or processes can A somewhat more comprehensive approach is
be evaluated using KPIs or performance measure- provided by design to X (also design for X), which
ment systems. focuses on the product. Measurable attributes or
target values such as weight or cost are defined for a
product. This assignment makes it possible to moni-
Product development tor the specified targets during development.

methods If only the cost of a product is measured, this is

There is a large number of different product develop- referred to design to cost. The cost is kept as low as
ment methods. The selection of a specific method possible and is determined in the early phase of
determines the goals and criteria according to which development. Cost-conscious design is becoming
the products will be developed. These in turn deter- increasingly important for the success of a product
mine which KPIs need to be collected. Two different [3].
approaches that are particularly relevant to KPIs in
10 Performance indicator management

Table 1:
Overview of KPIs KPI Determination Sample KPIs

Individual numbers, totals, differences Sales, cost of materials, balance

Absolute numbers
and averages sheet total

Structural numbers Partial amount in relation to a total

Equity ratio, share of sales
(relative numbers) amount

Relation Numbers Different variables with a meaningful Unit costs, return on investment,
(relative numbers) connection are correlated throughput time, return on sales

Comparison of factually identical but

Measured Numbers Sales growth, price development,
locally or temporally different character-
(relative numbers) market growth
istic values

Extension of the concept of measure-

Index numbers Price indices, volume indices, value
ment figures by examining the develop-
(relative numbers) indices
ment of several variables over time

Key performance indicators product KPIs in the context of design to X and project
KPIs are defined as highly condensed metrics that KPIs for traditional project controlling is to make the
provide information about a fact that can be ex- handling of routine operational business more
pressed in numbers in a more precise, coordinated efficient.
and documented manner than can be provided by
ratios or absolute numbers, provide information Product attributes and product-specific targets
about developments within a company and consti- include costs, weight, installation space, consump-
tute strategic success factors [4]. In most cases, ratios tion and emissions. For example, the progress of an
provide information about cause-and-effect correla- individual project can be illustrated in the form of an
tions or, as indices, illustrate evolution of a value over earned-value or milestone trend analysis.
time. The following table lists different types of KPIs
[5]: Process KPIs
Process KPIs, on the other hand, describe the attri-
When it comes to controlling product development, butes of a business process and evaluate the attri-
another type of differentiation, namely between butes of several objects accordingly. Process KPIs
object and process-oriented KPIs, makes sense. that look at the performance of the organization or
While object KPIs support controlling for individual certain core processes include, for example, the
products and projects, process-oriented KPIs form throughput times for technical changes or adherence
the basis for continuous process improvements [4]. to schedules when processing orders. They docu-
ment average values from a set of individual values,
Object KPIs such as the throughput times for all the technical
Object KPIs always describe the attributes of exactly changes within a certain period. In addition, they
one object: a product or a project. The purpose of allow comparisons to be made in order to identify
 Performance indicator management 11

trends, for example over specific periods of time. clarify each other. A distinction is made between
Process KPIs make it easier to identify weak points in one- dimensional and multidimensional perfor-
the processes and thus form the basis for continuous mance measurement systems, depending on wheth-
process improvements. er they yield a single monetary KPI or several both
monetary and non-monetary KPIs [4].
The definition of conclusive process KPIs also pro-
vides the basis for determining the maturity of the One-dimensional performance measurement
organization and its business processes. Many com- systems
panies use the Capability Maturity Model Integration The ROI tree, one of the oldest (one-dimensional)
(CMMI) approach to identify potential for rationaliza- performance measurement systems, was developed
tion and implement process improvements. CMMI by DuPont. Only past monetary values are included
provides a variety of reference models for assessing in the ROI tree [7].
the processes and the strengths and weaknesses of
an organization, including companies that develop Multidimensional performance measurement
software, systems or hardware (CMMI-DEV). These systems
reference models combine the best practices from The use of multidimensional performance measure-
certain process areas (e.g. project planning, require- ment systems makes it possible to take a holistic
ments engineering, etc.) but without providing approach. Not only financial KPIs such as sales or
concrete instructions for their implementation [6]. profit but also actors, processes and values like
customer satisfaction are taken into consideration
Interpreting KPIs here. Examples of multidimensional performance
KPIs provide aggregated information. How this measurement systems include the Balanced Score-
information is interpreted and which conclusions are card (BSC) and Total Quality Management (TQM)
drawn or forecasts are made will depend on the approaches.
person analyzing the data[4]. The often high number ■■ BSC: Deriving concrete measures and criteria from
of impacting factors means that care must be taken business practices and quality-related specifica-
when measuring and interpreting key process data in tions for evaluations poses a challenge for many
particular. For example, it may be useful to classify companies. The BSC approach provides assistance
technical changes according to product areas and in this context. The BSC is a systematic concept for
release status (in development, sample/prototype, in measuring, documenting and managing concrete
series production) in order to draw the correct con- activities, such as measures for achieving strategic
clusions about the efficiency of change management goals (e.g. reducing development costs), in a
from the automatically calculated throughput times. company. This involves not only taking a look at
the financial aspects but also the customer‘s point
of view, such as customer satisfaction, process
Performance measurement quality and employee potential as well as long-
term prospects for growth. A performance mea-
systems surement system that is tailored to the organiza-
In many cases, individual KPIs alone do not allow the tion in question is developed on the basis of critical
development of products or the effectiveness of success factors and a cause-and-effect analysis [8].
processes to be assessed accurately. Only in combi- ■■ TQM: The TQM approach is essentially based on a
nation with other indicators, e.g. as part of a more self-assessment of the organization in which the
comprehensive performance measurement system, actors and processes on the one hand and the
do they allow further evaluations such as the reasons results on the other are evaluated and correlated
for success or failure or the potential opportunities with each other [9].
and risks of entrepreneurial activity. A performance
measurement system refers to a set of variables that
are related to each other, complement each other or
12 Performance indicator management

„ A key figure system is a set of variables

that are objectively related,complement
or explain each other.

Interpretation of performance measurement

systems
When developing a performance measurement
system, proven concepts and methods such as BSC
or TQM can serve as guidelines, but ultimately each
company must decide for itself which performance
indicators have predictive value and should be
recorded. If, for example, past experience shows that
satisfied customers buy more products, customer
satisfaction can be measured and used as an early
indicator for sales forecasts. Perhaps, however, there
is a much closer correlation between the satisfaction
of a company’s own employees and sales perfor-
mance

Performance
measurement systems

Multidimensional
One-dimensional performance
performance measurement
measurement systems
systems

Success-oriented
Value-based performance Balanced Scorecard
performance
measurement systems (BSC)
measurement systems
DuPont-Scheme:
Discounted Cash Flow Total Quality Management
Return on Investment
(DCF) (TQM)
(ROI)

Residual Income Economic Value Added

Ratios au Tableau de Bord
(RI) (EVA)
Figure 2:
Overview of performance
measurement systems
... ... ...
(based on [5])
PLM-integrated performance
indicator management

4
14 PLM-integrated performance indicator management

The development of performance indicator manage- The integration of performance indicator manage-
ment capability not only determines which KPIs are ment, which supports both case-by-case analysis
to be evaluated but also the IT solution that will pro- and process analysis, makes certain demands on the
vide performance indicator management support. architecture of the PLM solution with regard to the
The architecture of powerful PLM solutions makes definition of object classes and KPI types. Useful in
it possible for them to prepare and make available this context is a framework that makes it possible to
both object-oriented and process-oriented KPIs. This define KPIs for both objects and object classes, auto-
means that they can provide simultaneous support matically calculate the actual values of KPIs at freely
for different performance indicator management selectable intervals, automatically aggregate actual
applications and create synergies between them, i.e. values via object structures, record their history and
allow KPIs that have already been determined to be define targets for certain KPIs using formulas. In addi-
used in different forms for different roles and tasks – tion, comprehensive performance indicator manage-
from product management to project management ment requires tools for an appropriate representation
and process development through to corporate of all the elements comprising a KPI and of the full
management. set of KPIs defined and available in the system. It
must be able to display all parameter values defined
One particular performance feature of PLM-inte- for an object or class together with the associated
grated performance indicator management is the target values and levels of fulfillment.
possibility of defining actions if recorded values
deviate from the target specifications and to track Performance indicator management in PLM systems
them in the PLM context. This means that the actions can also be linked to other functional areas such as
are recorded together with the (estimated) impact on requirements management, for example to define
the desired target or target value and the associated KPIs for continuous monitoring of critical require-
costs so that product developers or quality assurance ments.
staff can assess, on the basis of a graphical presen-
tation, which combination of actions will enable the Product-oriented performance indicator
target to be achieved at the lowest possible cost. At management
the same time, the impact of the actions taken are in the PLM context allows developers to take account
monitored with the aid of automatically recorded of a number of different criteria. Product properties
KPIs so that additional action can be taken if there is can be evaluated continuously by automatically
still a gap between target and actual values. deriving certain parameters from the CAD system or
the calculation tool and aggregating them if neces-
Users are provided with the following management sary (e.g. the weight of the individual parts). Similarly,
tools (see Figure 1): the KPIs for project controlling can be aggregated at
different levels of detail in order to obtain an ongoing
1. Define KPIs view of the current project status.
2. Measure processes and products using KPIs
3. Display and evaluate information Process-oriented key indicator management
4. Change or improve processes and products simplifies the task of identifying potential improve-

„
ments in the development organization based on
KPIs that provide information on the performance
A special feature of a PLM integrated of certain core processes such as change, project or
configuration management. The corresponding KPIs
key figure management is the possibility can be tracked over time. This allows the benefits of
to check for deviations from the targets certain organizational changes or the introduction of
new PLM tools to be assessed.
define corrective actions and track
them in the PLM context
 PLM-integrated performance indicator management 15

Integration of external data Integration in the PLM system is, however, even more
important when it comes to the process KPIs as they
sources often involve automatically recorded and/or aggre-
There is a wide variety of IT solutions for the different gated data. The process data comes from MES or ERP
application areas within the value chain. Far-sighted, systems and can be transferred to the PLM system
cross-system analysis can only be carried out using a and updated automatically via interfaces. This allows
central performance indicator management solution interactions to be mapped within a system using
[10]. KPIs.

Production process data is usually generated in

manufacturing execution systems (MES) or a combi-
nation of MES and ERP systems. In many companies,
PLM systems are the most important source of
product, project and process-relevant data. There-
fore, a central performance indicator management
solution should be integrated in the PLM system to
improve both the product and the product develop-
ment process.

In case of product and project KPIs, it is reasonable

that the solution should be embedded in the PLM
context because the values need to be recorded and
analyzed during development and project work.

Project Product

MES PLM ERP

Key Indicator Management Figure 3:

Integration of external
data sources for
calculating KPIs
CONTACT Metrics & Reporting

5
 CONTACT Metrics & Reporting 17

CONTACT Software‘s Metrics & Reporting module Application of object KPIs

takes a holistic approach to performance indicator Individual objects such as products and projects can
management in product development and allows be examined.
consideration to be given to the relevant objects, i.e. ■■ Project controlling: One project management ap-
products and projects, as well as processes. plication is KPI-based controlling, e.g. using earned
value KPIs such as planned and actual values or
cost and time efficiency.
■■ Product tracking: Another application is product
Defining and measuring KPIs tracking. Here the product is placed on focus (de-
KPIs can be easily defined for any PLM business sign to X). Attributes such as the weight of a prod-
object (product, project, etc.) and process (ECM, uct are defined with target values and monitored
RQM, etc.). Their development can be tracked over during development using target tracking.
time and performance can be improved by taking
appropriate action. This enables the user to control Application of process KPIs
and intervene in good time by means of KPIs. One example application for evaluating a process
When defining a KPI, users can decide whether the is the implementation of technical changes (en-
actual KPI values are to be entered manually, wheth- gineering change ( EC)). The crucial PLM value is
er and how they are to be aggregated automatically the monitoring and improvement of the lead time
using object structures, or whether they are to be for individual ECs. KPIs can be used to answer the
calculated automatically by the system. Different following questions:
options are available where the rules for automatic
calculation are concerned. These include logical ■■ How many ECs are active?
expressions, SQL statements and Python code. If ■■ How many new ECs are there?
users obtain important data from other systems such ■■ How many ECs have been rejected?
as an ERP system, this data can be imported via an ■■ How long does it take on average to process an EC?
interface and thus evaluated in the PLM system. ■■ How many ECs have been corrected?

Product attributes and target ranges

Once a KPI has been defined, formulas can be used
to define discrete or continuous target ranges within
which the actual KPI should lie and to monitor their
achievement accordingly. The target ranges can
Kennzahl Regel
be defined for specific product attributes, such as
weight or limit values for emissions.
# active active = …

Action management
Another potential application is integrated action # new New=…
management in which actions to be taken in the
… total and after ECR, ECO phase in
event of discrepancies in the target ranges are %-set discarded relation to total ECs started and ended
defined. The predicted effect on the achievement of in the reference period
the target and the costs associated with them can be Ø throughput … activation to completion, total and
stored here. This allows a comprehensive analysis of time after ECR, ECO, ECN phase
which combination of actions will enable the target … total and after ECR, ECO phase in
%-set with
to be achieved at the lowest possible cost to be per- relation to total ECs started and com-
correction
pleted in the reference period
formed. The success of the actions can be monitored
continuously. This is where values such as material Table 2:
costs, for example, are specified. Example Engineering Change
18 CONTACT Metrics & Reporting

KPI cockpits: visualization, The following figure shows an example of the display
of a process-related KPI in the KPI cockpit. The visual
evaluation and reporting display of the KPI cockpit is divided into two parts. At
KPI cockpits are intuitive, integrated web applica- the top, there is a chart showing the development of
tions in which achievement of the target, history and the KPI over time on the left and a diagram of the
actions defined for the individual KPIs are displayed. measures initiated on the right. The individual KPIs
The actual KPI values are automatically recorded in for projects are listed below the process view.
the history so that trend recognition is possible for
each KPI. Target ranges, actual values and actions
can also be entered and edited directly here.
The reporting mechanism provides users with a
variety of different display options: display of the
evolution of the value over time, evaluation of the
relationships between different parameters and the
comparison of objects and processes. The key fea-
tures of the KPI cockpit include

■ role and person-specific KPIs,

■ visualization of the current extent to which the
target has been achieved,
■ direct entry of planned target ranges,
■ cost fluctuations associated with the actions taken
and
■ simple sorting and filtering options.

Figure 4:
Example of process KPIs
Summary

6
20 Summary

„ PLM-integrated key figure management Software applications like Metrics & Reporting from
CONTACT Software offer an approach that enables
visualization contributes to the as well as the entire innovation process to be managed and
dashboard and reporting functions more evaluated using defined KPIs.

transparency in the company.. The key synergy effect of PLM integration is the ability
to define uniform procedures that can be controlled
centrally for all processes, record critical values auto-
The continuous improvement of (business) processes matically and continuously and display them in real
and products is crucial to the competitiveness of a time with the help of powerful dashboard and report-
company. It is expected that products be developed ing functions. PLM-integrated performance indicator
and improved ever faster and cheaper. management thus makes a significant contribution
to increasing transparency within a company.
The developers and design engineers in companies The translation of corporate objectives into corre-
are facing a host of challenges when it comes to sponding metrics and their ultimate evaluation is a
product development. In addition to target costs, matter for the companies themselves and requires
they have to comply with increasingly strict statutory employees with the requisite skills.
requirements regarding safety, environmental com-
patibility, energy consumption, etc. as they work and
they need to clearly document their compliance. The
number of critical requirements or product attributes
that have to be monitored during development is
steadily growing. Compliance management is an
integral part of controlling development processes
today.

That is why key performance indicators (KPIs) that

provide information about a company‘s innovation
productivity have become increasingly important in
recent years. The processes involved in innovative
product development need to be systematically eval-
uated and controlled. PLM systems offer an IT-based
approach and are ideal for making it possible to eval-
uate and control product development using KPIs.
Existing products and processes can be influenced
and improved in a targeted manner.
Glossary

7
22 Glossary

Balanced Scorecard (BSC) Product Lifecycle Management (PLM)

BSC is a systematic concept for measuring, docu- PLM is a management approach and includes the
menting and controlling concrete activities in the holistic management of all data and information that
company, such as measures to achieve strategic is processed and distributed when developing new
goals. products or updating existing ones. PLM also inclu-
des the ability to control and monitor the process
Design to X of processing and distribution across companies. A
Design to X is a product development method. Mea- PLM solution results from the interaction of people,
surable attributes such as weight or cost are defined working methods, models and IT tools.
for a product so that the targets set can be monitored
during development. Product life cycle
The product life cycle refers to all phases that a pro-
Key Performance Indicator (KPI) duct passes through over time.
KPIs are highly condensed metrics that provide
information about a fact that can be expressed in Time-to-Market
numbers in a coordinated and documented manner. TtM is a method of product development. The aim
of TtM management is to optimize the innovation
Performance measurement system process in terms of time.
A performance measurement system is a set of varia-
bles that are related to each other, complement each Total Quality Management (TQM)
other or clarify each other. The TQM approach is essentially based on a self-as-
sessment of the organization in which the actors and
Performance indicator management processes on the one hand and the results on the
Performance indicator management integrates se- other are evaluated and correlated. Here, too, the
veral object and process KPIs and provides manage- valuation is based on certain KPIs that are collected
ment tools for defining, measuring, evaluating and and aggregated.
changing when working in this context

Process Indicators for Product Engineering

(PIPE)
PIPE is an initiative launched by the VDMA in coope-
ration with well-known PLM software and service
providers to determine suitable KPIs in product
development.
List of abbreviations

8
24 List of abbreviations

Abbreviation Explanation
BSC Balanced Scorecard
CAD Computer-Aided Design
CIP Continuous Improvement Process
CMMI Capability Maturity Model Integration
CMMI DEV Capability Maturity Model Integration Development
EC Engineering Change
ERP Enterprise Resource Planning
R&D Research & Development
KPI Key Performance Indicator
MES Manufacturing Execution Systems
PDM Product data management
PIPE Process Indicators for Product Engineering
PLM Product Lifecycle Management
ROI Return on Investment
RQM Requirements Management
TQM Total Quality Management
TtM Time-to-Market
VDMA Verband Deutscher Maschinen- und Anlagenbau
References

9
26 References

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com/d/du-pont-kennzahlensystem/du-pont-kennzahlensystem.htm [Accessed: 16.07.2018].

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[9] European Foundation of Quality Management. EFQM. Available at: http://www.efqm.org/ [Accessed:
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[10] it-production. Wechselwirkungen von ERP- und MES-Kennzahlen - Stellschrauben für die Wertschöpfungs-
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contact-software.com