Manufacturing Metrics that Matter Most
In today’s manufacturing enterprise, executives and line of business managers are constantly bombarded with information, making it difficult to weed through it all to figure out what business issues need to be addressed.
This has prompted many companies to rely more heavily on their BI software applications to track the Key Performance Indicators (or KPIs) of their organizations. KPIs are financial and non-financial measures that help decision makers pinpoint the strengths and weaknesses of their businesses and show whether they are in line with their strategic objectives.
Each year, the MESA organization (Manufacturing Enterprise Solutions Association) sponsors research to help the manufacturing marketplace identify the most important metrics, and help decision makers understand metrics improvements and their relationships to metrics programs and the use of software solutions. As part of a recent survey, MESA identified the following manufacturing metrics as being the most utilized by discrete, process, and hybrid/batch manufacturers.
I thought I’d share these metrics with those of you who may not have seen the published results of this research. From Silvon’s perspective, it further validates many of the core measures that are included in the Stratum BI solution suite for manufacturers.
Customer Experience & Responsiveness
- On-Time Delivery to Commit – The percentage of time that manufacturing delivers a completed product on the schedule that was committed to customers.
- Manufacturing Cycle Time – The speed or time it takes for manufacturing to produce a given product from the time the order is released to production, to finished goods.
- Time to Make Changeovers – The speed or time it takes to switch a manufacturing line or plant from making one product over to making a different product.
- Yield – The percentage of products that are manufactured correctly and to specifications the first time through the manufacturing process without scrap or rework.
- Customer Rejects/Return Material Authorizations/Returns – A measure of how many times customers reject products or request returns of products based on receipt of a bad or out of specification product.
- Supplier’s Quality Incoming – The percentage of good quality materials coming into the manufacturing process from a given supplier.
- Throughput – Measures how much product is being produced on a machine, line, unit, or plant over a specified period of time.
- Capacity Utilization – Indicates how much of the total manufacturing output capacity is being utilized at a given point in time.
- Overall Equipment Effectiveness (OEE) – A multiplier of Availability x Performance x Quality that’s used to indicate the overall effectiveness of a piece of production equipment, or an entire production line.
- Schedule or Production Attainment – A percentage of time a target level of production is attained within a specified schedule of time.
- WIP Inventory/Turns – Measures the efficient use of inventory materials and is calculated by dividing the cost of goods sold by the average inventory used to produce those goods.
- Reportable Health and Safety Incidents – The number of health and safety incidents that were either actual incidents or near misses that were recorded as occurring over a period of time.
- Reportable Environmental Incidents – The number of health and safety incidents that were recorded as occurring over a period of time.
- Number of Non-Compliance Events / Year – The number of times a plant or facility operated outside the guidelines of normal regulatory compliance rules over a one-year period.
- Percentage Planned vs. Emergency Maintenance Work Orders – How often scheduled maintenance takes place, versus more disruptive/un-planned maintenance.
- Downtime in Proportion to Operating Time – Ratio of downtime to operating time – a direct indicator of asset availability for production.
Flexibility & Innovation
- Rate of New Product Introduction – How rapidly new products can be introduced to the marketplace based on design, development and manufacturing ramp up times.
- Engineering Change Order Cycle Time – How rapidly design changes or modifications to existing products can be implemented all the way through documentation processes and volume production.
Costs & Profitability
- Total Manufacturing Cost per Unit Excluding Materials – A measure of all potentially controllable manufacturing costs that go into the production of a given manufactured unit, item or volume.
- Manufacturing Cost as a Percentage of Revenue – A ratio of total manufacturing costs to the overall revenues produced by a manufacturing plant or business unit.
- Net Operating Profit – The financial profitability for all investors/shareholders/debt holders, either before or after taxes, for a manufacturing plant or business unit.
- Productivity in Revenue per Employee – Amount of revenue generated by a plant, business unit or company, divided by the number of employees.
- Average Unit Contribution Margin – A ratio of the profit margin that is generated by a manufacturing plant or business unit, divided into a given unit or volume of production.
- Return on Assets/Return on Net Assets – A measure of financial performance calculated by dividing the net income from a manufacturing plant or business unit by the value of fixed assets and working capital deployed.
- Energy Cost per Unit – The cost of energy (electricity, steam, oil, gas, etc.) required to produce a specific unit or volume of production.
- Cash-to-Cash Cycle Time – The duration between the purchase of a manufacturing plant or business unit’s inventory, and the collection of payments/accounts receivable for the sale of products that utilize that inventory – typically measured in days.
- EBITDA – A calculation of a business unit or company’s earnings, prior to having any interest payments, tax, depreciation, and amortization subtracted for any final accounting of income and expenses. EBITDA is typically used as top-level indication of the current operational profitability of a business.
- Customer Fill Rate/On-Time delivery/Perfect Order Percentage – The percentage of times that customers receive the entirety of their ordered manufactured goods, to the correct specifications, and delivered at the expected time.