In order to increase profitability, manufacturers aim to improve plant operations every day. How can you tell if you are improving or not? To understand precisely how your operation is performing, you have to measure it — with the help of Key Performance Indicators (KPIs).
Fortunately, the manufacturing process lends itself to measurement. There are orders to fulfill, based on the quantity customers ordered, quality, timeline, and cost. You can set goals for each of these manufacturing aspects and track them.
Let us review the concept and lay out some typical KPIs used in manufacturing.
What are KPIs?
A KPI is a quantifiable and understood measure that an operator uses to gauge its performance over time. Manufacturing companies use KPIs to understand their performance with precision, as well as benchmark versus the industry.
With quantifiable KPIs established, each facet of a manufacturing business can understand its goals — this helps everyone know their part in the process and check whether they are doing well.
With that laid out, let’s get into aspects of valuable KPIs.
The Characteristics of Good KPIs
When establishing KPIs, you want to be careful: if you set up KPIs that are confusing or not actionable, they could become meaningless and even spread apathy across your workforce. Here are the characteristics of good KPIs:
Clearly defined and easily understood — everyone should be able to quickly understand what the KPI is measuring. The KPI should have clear targets in a specified time frame. For example, it is more intuitive (to most people) to have a KPI defined as “Make X Widgets Per Day” instead of something like “Profit Margin X”.
Relevant — each KPI should be linked to overarching business goals so that the employees can play their part. If a business has a goal of achieving a certain profitability by the end of a year, it should be broken down into more manageable chunks — like certain areas of the factory, each playing its own part in producing quality products per day.
Comparable — KPIs should be set up so that similar processes or sister facilities can be compared with each other. Comparisons are rarely perfect, but they can highlight processes that are best in class and lead to learnings being spread across the business.
Verifiable, attributable, and responsive — each KPI measured should be verified and stored in a database, able to be queried. This builds trust as anyone can check their history. Additionally, a person or team should “own” each KPI and ultimately be responsible for its success. Of course, this person or team should be able to directly impact the KPI or they will be discouraged (i.e. the KPI is “responsive” to change). If no person is put in charge, the KPI could fail.
Timely — The KPIs should be measured on a realistic time scale. Many of them are tracked and reported daily, especially front-line operation-related measures. Thus, it’s clear to all if the day was a “win” or a “loss”.
KPIs To Consider
Despite the variety of manufacturing operations, there are many KPIs common to the industry. Consider adopting these as part of your factory metrics.
Overall Equipment Effectiveness (OEE)
OEE is one metric many businesses use for a comprehensive measure of the operation. Put simply, this measure is calculated by multiplying availability (inverse of downtime), performance (how much output versus target), and quality (yield of good output). So, OEE is taking a view of each major impact on the operation.
OEE is perhaps best used in comparison — both with past performance and across separate process lines and/or locations. By tracking OEE you can find the outlier processes and adjust appropriately.
This KPI is simple to understand — how well did you do in delivering orders to customers on time? A customer makes an order and expects to receive it within a specified time frame.
Just because it is simple, does not mean it is easy — tons of reasons can cause delays in fulfilling orders on time. By tracking this KPI, you can start to uncover why there might be delays, which can lead to loss of customers.
Inventory turns are a measure of how quickly your inventory turns over — i.e. when you make something, how long does it sit on your shelf before it is sold to a customer?
A quick turn rate is ideal so that money is not tied up in inventory, but you don’t want to be too quick. If you cannot replenish inventory quickly enough, you may risk late deliveries and loss of customer trust.
Tracking inventory turns can show you if you need to adjust productivity up or down.
Downtime: the bane of operations managers everywhere.
There are many reasons that a process might experience downtime — labor shortages, equipment failures, material shortages, and quality issues, just to name a few. Downtime can be extremely costly to a business. For example, automotive manufacturers can lose up to $22,000 per minute of downtime.
Tracking downtime is essential to almost every manufacturing business. Once it is understood, you can make effective plans to reduce it, which will undoubtedly help the bottom line.
Planned Maintenance Percentage
Planned Maintenance Percentage (PMP) is the amount of maintenance time being spent on preventive maintenance versus reactive maintenance. A maintenance staff that spends more time on preventive tasks generally has a better handle on overall equipment health, because they are spending time preventing machine failures.
A best-in-class operation will spend 90% of the time on preventive tasks. By tracking this maintenance KPI, you can start to understand if maintenance activities can become more optimized, which can reduce downtime.
Collection and Analysis of KPIs
As stated, one of the characteristics of good KPIs is that they are verifiable, attributable, and responsive. Everyone in the operation should be able to view KPIs and analyze the underlying factors contributing to their performance. Thus, you should have the tools available for your staff to make these determinations.
Once you begin to measure and track data, you can visualize it. This is where employees can notice trends and dig deeper into the information, and really make big strides in improvements.
KPI measurement is the one key to unlocking the true potential of your operation. They can show you where to improve the business —, often with little capital required, KPIs tell you if you are on pace to meet your goals. Also, they can help you find problems quickly so that you can adjust and get back on track if needed. Without KPIs, measuring performance is difficult, and improvement is even harder.
Author: Bryan Christiansen is the founder and CEO of Limble CMMS. Limble is a modern, easy-to-use mobile CMMS software that takes the stress and chaos out of maintenance by helping managers organize, automate, and streamline their maintenance operations.