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Every manufacturing business has one goal – to be as efficient and productive as possible. Enhanced efficiency and productivity demand nothing but your ability to identify where you stand and what goals you need to set. This is where you need manufacturing KPIs (Key performance indicators).
What are KPIs and Metrics?
There is a difference between KPIs and Metrics. All KPIs are metrics but all metrics are not KPIs. Both of them are quantifiable estimates of the overall performance of the business. Metric shares are used to measure every single value you can measure. KPIs on the other hand, are related to the set business goals to wanting to achieve in the long term and no business is complete without goals and objectives.
Selecting Precise Manufacturing KPIs
KPIs matter the most when it comes to analyzing any kind of performance in business. The main function of KPIs is to provide targets and tasks for the team to work on, milestones to gauge improvement, and activities that benefit people across the business to make better decisions.
Normally, a business needs to track at least ten manufacturing KPIs and not more than that in order not to overly complicate things for the business. These ten manufacturing KPIs should then contemplate different areas of the business which includes manufacturing efficiency, productivity, customer satisfaction, lead times, business progress, etc.
A good manufacturing KPI needs to have the following features:
- Reflect Strategic Objectives and Goals.
Before selecting a KPI, you first need to have a clear idea of what you wish to achieve and what results you want. Set a strategy. Then you can let the KPI help measure your advancement toward that goal or strategy.
- KPI needs to be quantifiable and measurable
You can not make improvements in your manufacturing strategies when there is no substantial way to estimate them. If you want KPIs to enhance your business and to meet all the goals, you need to ensure that the objectives are as detailed as possible.
- Needs to be attainable and actionable.
Unattainable goals need to be avoided as much as possible. There is no explanation in chasing conceit metrics that do not consider the state of your business.
Why Your Business Should Use Manufacturing-Specific KPIs to Stay Competitive
The manufacturing businesses represent a huge part of the world economy; more than 10 percent of the US economy and more than 15 percent of the global GDP. No doubt, it is a very competitive field, and staying ahead in this fiercely competitive industry is the top priority of every business. This is possible only through the execution of manufacturing KPIs and metrics.
Every business aspires to be in the top line of business, tries to gain more market share, and wants to generate more profits. While this is essential, what if you could rise and grow your bottom line without having to face expansion risks? This is where manufacturing KPIs become a necessity rather than an option to go for.
How to make good use of Manufacturing KPIs in a business?
When you make good use of manufacturing KPIs in the business, you are guaranteed to enhance the productivity and efficiency of your team. You can make better use of production capacity and enhance the quality of the product. In addition to that, you can also make delivery times better, minimize the production of waste, and control the overall costs of production.
KPIs need to be constantly changed according to the demands of the business. So periodical reviewing of the manufacturing KPIs is necessary to ensure advancements are made where they are most needed.
Every manufacturing KPI follows an iterative method to enhance and reach business goals, as follows:
- Measure the KPI
- Categorize the KPI
- Sort the categories with an elevated percentage of losses
- Find out what causes the problem
- Enforce countermeasures for problem-solving
- Re-measure the KPI as an iterative process.
Top 10 most important Manufacturing KPIs
Let’s now talk about the most important manufacturing KOIs used in tracking businesses. Here we mention some of the most important manufacturing KPIs used by businesses these days.
Overall Equipment Effectiveness (OEE)
The Overall Equipment Effectiveness or OEE is an essential performance indicator used in business. This encourages and enables the production centers to closely analyze and make products even better. OEE can be determined by the following formula:
OEE = Availability x Performance x Quality
This formula shows that OEE estimates the percentage of time that a machine produces good quality products within the scheduled time.
If the business activity does not add value to the product, losses can then be clarified. Losses in a business can be classified into the following classifications:
- Machine breakdown
- Setup time
- Speed losses
- Scrap or quality defect
Cycle Time
Cycle time is the measure of the speed or time it takes to finish manufacturing a product from the beginning to its completion. In other words, it tracks the time required to prepare a product from the time an order is placed to the time it is ready to be delivered. The primary function of cycle time is to tell if the production process is efficient or not.
The formula for cycle time is
Cycle time = Production End Time – Production Start Time.
Throughput Rate
Throughput rate in simple words measures the production capabilities of a machine, line, or plant. Throughout rates can help you in determining whether you can meet the demand for the product in the market or not.
The formula for calculating the throughput rate is
Throughput Rate = Number of Units Produced / Time.
Machine Uptime Rate
Machine Uptime rate is the measure of the efficiency and availability of the company’s manufacturing machinery for a particular task. In the manufacturing industries, machinery plays a pivotal role. It is involved in the most essential process of industries which is production, and also helps in monitoring the uptime of these machines which is vital for the efficiency of such industries. Unsatisfactory performance in this setup can expect poor supervision, slow difference overtimes, or machinery flaws that must be addressed.
The formula for machine uptime rate is (Total Time Machine used / Available Production Time) * 100.
Unit Maintenance Cost
Unit maintenance cost can give you an idea of the number of units that are produced. These units affect your maintenance costs. Unit maintenance cost can be applied to an individual machine or several machines which are all producing the same unit. This KPI can provide you with an understanding of the effect of the units on the costs.
The Formula for unit maintenance cost is:
Total Maintenance Cost / Number of Units Produced.
Unused capacity Costs
Manufacturing companies may face the problem of additional costs in cases when the machines and the staff are not utilized properly, or materials used for production are not available. This is where unused capacity costs come into play. They track a combination of these unplanned additional costs into a single value.
The formula for unused capacity costs is the Percentage of available unused capacity × Total Manufacturing Cost.
Capacity Utilization
Capacity utilization is a manufacturing KPI that can assess the pace at which output rates are met. This allows manufacturing businesses to align the number of units created with a percentage of potential that can be estimated.
The formula for capacity utilization is:
Number of Units produced / Potential Number of units that can be made *100.
Takt Time
Takt Time is another very important KPI that improves the efficiency of the process. It authorizes you to guarantee efficient production strategy. This strategy needs to be followed right from the time an order is placed by the customer to the final delivery. The purpose of Takt Time is to optimize the capacity of a business whenever the demand for a certain product fluctuates like in the automotive industry.
The formula for Takt time is:
Available Production Time / Average Customer Demand.
Products in Process / Work in Progress
Products in Process, also known as Work-in-Process, is a manufacturing KPI that assists manufacturing businesses to estimate the value of products in the process of production. This KPI can be utilized for both monitoring and accounting purposes.
The formula for calculating the products in process or work in process is: Products in Process + Production Costs – Cost of Produced Units
Planned Maintenance Percentage (PMP)
Planned Maintenance Percentage helps businesses maintain the assets of the business. This specific KPI is used to evaluate and optimize the existing maintenance method.
The formula of Planned Maintenance Percentage (PMP) is
Scheduled Maintenance Hours / Total Number of Maintenance Hours * 100.
KPI Dashboard
Businesses need to know where they stand, who they are, and where they want to be in a couple of years. Tracking your overall performance can be beneficial for you to monitor the journey and plan your future goals.
A KPI dashboard can help you a lot in organizing everything. It can provide your business with a platform where you can analyze and monitor everything. In addition to that, it can allow businesses to track the performance of individuals in their team, their departments, or the entire organization. KPI Dashboards allow you to evaluate the management and see the trends quickly and easily.
Dynamics 365 can help you a lot in managing all these things effectively and efficiently. Goal management in dynamics 365 can allow you to manage all the manufacturing KPIs in just a few clicks. You can incorporate dynamics 365 in the KPI dashboard because
- It can help you understand how goals work
- You can identify the rollup fields. These rollup fields will be used to track against the metric.
- Increase the productivity and efficiency of the company
FAQs
What are key performance indicators?
Key performance indicators are quantifiable measures that are utilized to assess the progress of an organization, employee, etc. These are targets which can help you estimate your overall progress against your most strategic objectives.
Why are key performance indicators important?
KPIs are critical because they provide you with a value to compare against your existing performance. KPIs clearly demonstrate whether or not you are achieving your goals. Implementing KPIs in your business gives you the ability to set goals, develop a smart strategy to achieve your objectives, and consider your performance along the way.
What is a good KPI?
A good manufacturing KPI provides objective evidence of the overall team’s progress towards accomplishing a desired result. It helps you measure what is planned to be measured to help you make better decisions.
