Learn what Key Performance Indicators (KPIs) you need to know to optimize your manufacturing processes.
In the business of manufacturing, little things matter. When you can save a penny for every widget you make, or shave a second off your production time, the savings are enormous. To identify these opportunities, manufacturers turn to analytics, but analytics are only as smart as the questions you ask. Even with great analytics tools, you need to know what to analyze.
In order to find out what KPIs matter most to manufacturers, we talked to Daniel Webb, Senior Consultant at the Vested Group, a consulting company that specializes in manufacturing and distribution solutions for NetSuite customers. After decades of experience working with dozens of manufacturers, they’ve become experts on the KPIs manufacturers need to flourish. While every organization is different, here are some KPIs that Daniel deems essential to manufacturers.
What KPIs matter to Production Staff?
You might not see your factory workers as data analysts, but they are. Sure, they’re not sitting at a computer all day crunching numbers, but they still need up to the minute data to do their jobs well. The right information helps manage expectations, prevent downtime, and ensure everyone does their part.
The great thing about these KPIs is that you can deliver them passively. The worker can get all the information they need in a single glance, without even touching a mouse.
Open Work Orders
The first step to meeting expectations is knowing what those expectations are. When you can see open work orders, you know what’s coming. The last person on an assembly line shouldn’t be the last person to know about a big order.
Work Order Status vs. Due Date
Knowing your deadline is the first step to managing your time. With a firm idea of when an order is due, and where that order stands, it’s much easier to plan your time.
Material/Component Inventory Levels (By item, by project, by date range)
Nothing is made in a vacuum. Before you can start building something, you need its pieces in front of you. If you’re making toothbrushes, for example, you need to know how many bristles you have on site. If a certain component is running low, you can adjust your priorities.
Expected Receipt Dates (planned work orders)
If you’re out of a certain material or component, production can grind to a halt. However, that doesn’t mean work has to grind to a halt. When everyone knows when an important shipment of materials is expected to arrive, they can plan their time accordingly, and work on something else in the meantime.
What KPIs Matter for Floor Managers?
Floor managers are an important part of the manufacturing process. A worker on an assembly line can’t know specific details and figures about yields and efficiency. At the same time, an executive can’t be aware of what’s happening on every last production line.
The right information in the hands of a floor manager can improve efficiency on a production line while informing the bigger picture of c-level discussions.
Yield (by item, by time, by production line)
How much stuff do you make? It’s a simple question with complicated answers. Do you measure how many items you make in a day? In a week? What if you want to compare your production line to another one? If another production line makes more items, or does it in less time, there’s probably room for improvement on your own.
Manufacturing Throughput (By machine, production line, department, product line)
How much stuff is going out the door? With a closer look at each element of the production line, you can examine each step. Maybe a certain machine is acting up. Measuring manufacturing throughput by machine can show you that. At first glance, this may seem like the same metric as yield, but as anyone in warehousing can tell you, there’s a big difference between how much you make and how much you move.
Cycle Time (time between receiving and completing the order)
Work comes in, and work goes out, but the time in between is always changing. Depending on demand, you may want to shift your priorities, and it helps to know how long it takes to make something.
Capacity (Planned vs. Actual)
How much stuff can you make if you’re running at full capacity? Furthermore, what’s the difference between how much you think you can make versus how much you’ve actually made? An idea of these figures will prepare you for times when your production is slammed. It’ll also help you manage expectations when a big order comes in.
Primary Item Inventory Levels
What are your most popular items? When you know ahead of time, you can prioritize them over less popular items. For example, you might dedicate more production resources towards a certain item, or stock them closer to your pickers in the warehouse. You can also expand this metric to item type or category.
Safety Stock Reporting
How many items do you need to get through the month without running out? If your projected production is below this number, you know you need to ramp up production. With close eyes on this metric, you can avoid backorders and delays.
What KPIs Matter to C-Level Employees?
For CEOs, COOs, and everyone else with a “C” in their title, there’s rarely time to focus on the nitty gritty. At the same time, employees at this level have the power to create change with little improvements. With a global, holistic view of your manufacturing processes, you can identify tremendous opportunities to save money, improve efficiency, and increase your production capacity.
Expected Cost vs Actual Cost on a Specific Item
How much does it really cost to make this thing? When you’re looking at costs in a spreadsheet, it’s easy to forget that things go wrong. Sometimes, these things go wrong too often. By comparing the expected costs versus the actual costs, you can identify room for improvement. If you’re a toothbrush company, maybe your bristle supplier is inconsistent, leading to differences in expected vs. actual costs. By measuring this metric, you’ll know about it, and you can think about finding a new supplier.
Total Dollar Variance Per Item?
What items aren’t being costed accurately? If a certain item is consistently costing more than it should, maybe it’s not the production that’s flawed, maybe it’s the cost estimates. This metric will shed some light on that. You can also measure this by account, or by manufacturer, so you can know whether it’s a constant problem, or just a rough patch.
Manufacturing or Plant Capacity
Your production capacity is already an important metric, but what if you have multiple factories? With this metric, you’ll know how much each plant can make of a given product in a given amount of time. With this information, you can plan your production to meet demand.
Inventory Turnover Ratio
How many times have you gone through your entire inventory? If your ratio is 10 to 1, that means you’ve turned over your inventory ten times within the time frame. This ratio is important when deciding how much inventory you should stock. It will also help you ensure you’re making and selling items at a good pace.
How much does each part of your business contribute to your overall success? By measuring the profit margins of each business unit, plant, sales department, or product line, you’ll know what’s pulling its weight, and what isn’t. Get a better idea of what you should focus on, and where you need to improve.
Cost of production by unit or item category
Know the total cost of each thing you make. With this metric, you can identify costly components, and search for ways to save money. You can also identify which components get used the most, so little changes can make a big impact.
To learn more about using analytics to improve your manufacturing processes, check out our Manufacturing Analytics page: