Why use KPIs for manufacturing?
Tracking KPIs) is essential for organizations in the manufacturing industry because it helps them make informed decisions and stay ahead of the competition. By using a manufacturing KPI dashboard, organizations can get a bird's-eye view of their performance, monitor crucial metrics, and make sure they're on track to achieve their goals. Manufacturing KPIs provide the data-driven insights that can be the key to unlocking a company's potential.
Key performance indicators, or KPIs, are metrics that manufacturing companies use to evaluate their success in meeting business objectives. Tracking KPIs provides quantifiable values that can be used to measure progress, identify issues, and drive improvements across all areas of operations. For manufacturers, selecting and monitoring the right KPIs is crucial for maintaining efficiency, quality, profitability, and strategic direction.
This in-depth article will examine why tracking KPIs is vital in the manufacturing sector. It will cover the benefits of using KPIs, the types of KPIs manufacturing companies should focus on, best practices for effective KPI tracking and measurement, and real-world examples of how manufacturers utilize KPIs. With the right KPI program in place, manufacturers can gain valuable insights to enhance decision-making, optimize processes, and achieve both short and long-term goals.
Benefits of Tracking KPIs
There are many critical reasons why manufacturing companies need to establish KPI metrics and track them consistently:
- Monitor progress on goals - KPIs provide a quantifiable way for manufacturers to monitor progress on strategic, operational, and financial goals. Rather than vague objectives, measurable KPIs let companies track advancement toward specific targets.
- Identify problem areas - Declining KPIs can flag issues that need attention like decreased product quality, bottlenecks in production, rising costs, and more. Spotting these problems early allows manufacturers to correct them before they significantly impact operations.
- Inform data-driven decisions - With measurable KPIs available, manufacturers can make strategic decisions backed by hard data vs. hunches andguesswork. KPIs make it possible to weigh options objectively.
- Promote accountability - Linking KPI targets to individual production lines, plant managers, and workers fosters responsibility for meeting objectives. Accountability promotes engagement in the organization.
- Enhance process improvement - Manufacturers can study KPI trends over time to pinpoint processes that need enhancement or redesign. Weak KPIs reveal opportunities for process optimization.
- Benchmark against competitors - Comparing KPIs like revenue per employee, scrap rate, cycle time, and downtime against industry benchmarks helps manufacturers evaluate their competitiveness in the market.
Essential Manufacturing KPIs
Manufacturing is a multifaceted operation with interconnected processes that must run efficiently and harmoniously to create optimal value. There are four overarching areas where manufacturers should focus their KPI tracking efforts:
1. Quality KPIs
Product quality is paramount for manufacturing success. Consistently high quality ensures customer satisfaction, repeat business, and a good reputation in the marketplace. Key quality KPIs include:
- Defect rate - Percentage of units produced that fail quality checks
- Customer reject rate - Percentage of shipped units rejected by customers
- Cost of quality - Expenses related to reworking, repairing, and scrapping defective products
- First pass yield - Percentage of units passing quality tests the first time
- Returns/failed inspections - Number of returned items or items failing incoming inspections
- Accuracy rate - Percentage of orders produced correctly to specifications
Monitoring quality KPIs helps manufacturers pinpoint flaws in processes or raw materials that are leading to product defects. Addressing these issues improves quality and reduces costly wastes.
2. Production KPIs
Efficient production throughput is the engine that powers manufacturing. Optimizing productivity and utilization enables volume production while controlling costs. Key production KPIs include:
- Overall equipment effectiveness (OEE) - Metrics that measure availability, performance, and quality of equipment
- Capacity utilization - Comparison of actual production output vs. maximum potential output
- Cycle time - Total time to manufacture one unit
- Throughput - Number of units produced over a period of time
- Downtime - Time equipment is not operating due to failures, changeovers, etc.
- Scrap rate - Percentage of units discarded due to errors, defects, or quality issues
Tracking production KPIs gives manufacturers insight into bottlenecks, downtime causes, slow processes, and other barriers to efficient throughput. It provides data to make changes that boost production speed and volume.
3. Operational KPIs
Manufacturing operations encompass all the indirect activities that support production like supply chain, inventory management, and plant maintenance. KPIs for these activities include:
- Inventory turnover rate - Times per period that average inventory is sold and replaced
- Fill rate - Percentage of orders fulfilled from current inventory on hand
- Supply chain flexibility - Ability to respond to external disruptions or internal needs
- Total maintenance costs - Expenses related to upkeep of equipment and facilities
- Overtime rate - Percentage of total hours worked that are overtime
- Safety incident rate - Number of employee health and safety incidents
Monitoring operational KPIs helps manufacturers identify issues like excessive inventory holding costs, unreliable suppliers, maintenance problems, and unsafe working conditions. Addressing these operational factors impacts flexibility, responsiveness, and the bottom line.
4. Financial KPIs
While manufacturing involves many strategic and operational metrics, financial KPIs determine the viability and profitability of the business. Critical financial KPIs include:
- Profit margin - Profit as a percentage of total sales revenue
- ROA - Return on assets, or profit divided by total assets
- Inventory turnover - Number of times inventory is replaced over a period
- Cash flow - Net cash generated from business operations and activities
- Current ratio - Company’s ability to cover short-term obligations with current assets
- Days sales outstanding - Average number of days to collect payment from customers
Tracking financial KPIs gives manufacturers insight into the effectiveness of production and operations. Poor financial KPIs indicate wastes and inefficiencies that manufacturers can remedy to reduce costs and improve profitability.
Best Practices for Tracking KPIs
Simply selecting relevant KPIs is not enough to realize the full benefits - manufacturers must also implement best practices for monitoring and utilizing KPI data:
- Set targets - KPIs should have measurable, time-specific targets to provide a quantifiable benchmark.
- Keep it simple - Limit KPIs to the most critical metrics to avoid data overload. Too many KPIs dilutes focus.
- Make KPIs visible - Display KPI targets, data, and trends on dashboards, scorecards, and charts on the plant floor and in common areas so everyone can monitor progress.
- Automate tracking - Use meters, sensors, IoT devices, and software to automatically capture and tabulate KPI data in real time. Minimize manual data entry.
- Set schedules and owners - Update KPIs on a set schedule and assign personnel to be responsible for measurement and reporting.
- Link KPIs to incentives - Tie KPI target achievement to bonuses, recognition, and other rewards to drive engagement.
- Analyze trends - Look at KPI trends over weekly, monthly, and yearly time frames to identify issues and opportunities.
- Course correct - When KPIs signal a problem, quickly gather teams to brainstorm solutions and implement countermeasures.
Following best practices for selecting, monitoring, analyzing, and acting on KPI data unlocks the full potential of a KPI program. Ongoing oversight, course correction, and improvement help sustain focus and progress.
Examples of Manufacturing Companies Using KPIs
Let’s look at a few examples of global manufacturing firms effectively employing KPI tracking to refine operations and boost performance:
The automotive giant digitally tracks numerous KPIs at each factory and plant worldwide. By monitoring detailed metrics on model-specific defects, worker productivity, line stoppages, etc., Toyota indentifies inefficiencies and problems while they are still minor. Addressing these issues before they multiply enables smooth, synchronized, high-quality production. according to corporate literature, Toyota’s focus on early problem detection and correction is a key element of the company’s “Built-in Quality” approach.
The German multinational engineering firm established a specialized software system to centralize KPI monitoring across its 300+ global locations. Automated data gathering and reporting provides real-time visibility into metrics like asset utilization, facility energy consumption, and manufacturing cycle times. Bosch leverages this data to improve processes and make faster strategic decisions. The company also benchmarks KPIs among plants to highlight best practices that can be shared across the organization.
The food and beverage corporation analyzes a suite of KPIs to improve sustainability initiatives in its factories. Metrics like greenhouse gas emissions, water withdrawals, and factory waste help Nestle indentify inefficiencies while highlighting positive impacts from programs like energy conservation projects and packaging reductions. Nestle tracks sustainability KPIs down to individual production lines and has realized millions in savings while reducing environmental impact.
This multinational electrical equipment manufacturer analyzes KPI trends on dashboards to identify potential equipment failures before they occur. Metrics like voltage variances, utilization rates, and downtime are monitored in real time. When KPIs signal a problem, Schneider can dispatch preventative maintenance to avoid unplanned downtime. Keeping equipment running smoothly enhances productivity and prevents costly disruptions.
In each example, the manufacturers demonstrate core best practices like establishing automated KPI tracking, setting quantifiable targets, analyzing trends, and taking corrective actions when KPI thresholds are breached. Their disciplined approach to KPIs generates data that reveals opportunities for improvement as well as cost savings.
For manufacturing firms, embracing a culture of measurement and data-driven management is essential for competitive success. Developing a critical set of KPIs across quality, production, operations, and finance provides the metrics needed for data-informed decision making. Tracking KPIs against targets gives manufacturers unmatched visibility into all processes that impact productivity, efficiency, quality, and profitability. When leveraged effectively, KPI data acts like an early warning system, detecting small problems before they disrupt operations. Above all, a focus on continuously monitoring and improving KPIs builds the manufacturing agility and resilience needed to thrive in today's highly volatile world. Manufacturers who fail to adopt KPI tracking and analysis do so at their own peril in modern industrial markets.