September 8th, 2021 | Blog
Unleash the Power of Manufacturing Metrics and KPIs
An industry’s Key Performance Indicator (KPI) or metric is used to gauge the progress of the organization over time. In manufacturing, companies often compare their efficiencies to those of competitors in the same sector, specifically using KPIs to monitor, analyze, and optimize operations. This data gives manufacturers valuable business insights to meet their organizational goals.
Here are 10 of the most powerful KPI’s and Formulas for Manufacturers:
Production Volume: Production volume tracks the total amount your company can produce over a set period of time.
Rolling Throughput Yield: This is arguably one of the most fundamentally important metrics for the manufacturing industry. The Throughput KPI measures the production capabilities of a machine, line, or plant; also known as how much they can produce over a specified time period.
Throughput = # of Units Produced / Time (hour or day)
This KPI can be extremely difficult to track when you are dealing with hundreds or thousands of SKUs. Watch our YouTube video that explains this concept in further detail.
Production Costs: The Production Cost KPI is pretty straightforward. It monitors the costs implied in the production process.
Defect Density: This KPI tracks the damaged items against the total number of units made right away. It can also trace significant benchmarks and the quality of different products to compare with each other.
On-time Delivery: This metric does exactly what it sounds like: ensures your products are delivered on time. Customer retention relies on on-time delivery metrics. On-time deliveries make your customers happy, and they will return to purchase more. If you don’t, they won’t.
Asset Turnover: Acknowledging assets in relation to revenue corresponds to a company’s ability to generate sales. To calculate the asset turnover ratio, divide net sales or revenue by the average total assets.
Asset Turnover = Net Sales / Average Total Assets
Unit Costs: Also known as ‘Cost of Goods Sold’ (COGS), this metric is crucial in the operational analysis of a company. The Unit Costs KPI measures and optimizes your unit costs over time. It includes all fixed and variable costs involved in the production of the good or service.
Return on Assets (ROA): ROA is calculated by dividing net income by average assets and then expressed as a percentage. Your business’ profit margin relative to its assets can be determined through this KPI.
Maintenance Costs: The Production Downtime, Preventative Maintenance, and Maintenance Cost Metrics work very similarly. They evaluate your equipment costs, in the long run, are used to analyze and optimize a business’s maintenance as a whole.
Revenue Per Employee: This KPI is key to measuring the success of your workforce. Revenue per Employee is a measure of the total revenue for the last twelve months (LTM) divided by the current number of Full-Time Equivalent employees. Profit per Employee is similar but measures net income for the past twelve months (LTM) divided by the current number of Full-Time Equivalent employees.
The above KPI’s are just a fraction of Manufacturing Metrics that help a manufacturer run their business efficiently. Specifically, the ones stated above can help you determine these larger KPIs.
- Overall Operations Effectiveness (OOE): Evaluates your operational efficiency
- Overall Equipment Effectiveness (OEE): Assesses the scheduled efficiency
- Total Effective Equipment Performance (TEEP): Tracks overall effectiveness
These KPIs are a great base, but for a company to gain a more complete picture of its production practices, we suggest looking beyond these too. Analytical expertise is key to maintaining momentum and enabling factories and businesses to grow and transition to modern and efficient manufacturing centers.
Start utilizing your manufacturing KPIs to your advantage with Velo and the Profit Velocity software.