The Essential Guide to Manufacturing KPIs

What Defines a Good Manufacturing KPI?

A good manufacturing KPI meets the following criteria:

• Aligns with the company’s goals: The KPI should be directly tied to the organization’s strategic objectives and provide insight into its success in achieving them.
• Specific and measurable: Every KPI should define and measure a tangible element, allowing you to assess your progress toward your goals. To be effective, KPIs must be as specific as possible.
• Provides achievable value: A good KPI should be feasible and within the control of the team or individual responsible for its performance. Unrealistic or unattainable goals can demotivate employees and hinder progress.

Top Manufacturing KPIs

The manufacturing industry has diverse KPIs to help organizations measure and improve performance. Here are some of the top manufacturing KPIs to consider tracking:

Overall Equipment Effectiveness (OEE)

OEE measures how efficiently manufacturing equipment is utilized to produce quality products. It considers the availability, performance, and quality of production processes and provides insight into potential areas for improvement.

Compute the OEE value with the formula: OEE = Availability x Performance x Quality

Work-in-process (WIP) Inventory

WIP inventory measures the amount of unfinished products or materials currently in production. High WIP levels can indicate inefficiencies in the manufacturing process, such as excess downtime or long cycle times.

To calculate how much WIP you have, use this formula: WIP = Manufacturing Lead Time x Production Flow Value

Lead Time (LT)

Lead time, often called order cycle time, is a KPI for businesses that manufacture and sell products. It helps companies understand how they efficiently process orders and meet customer needs.

Long lead times often point to inefficiencies in your business processes, leading to bottlenecks and unnecessary costs. Short lead times are preferable because they indicate a smooth process, allowing you to respond quickly and efficiently to customer needs.

On-time-in-full (OTIF) Delivery

OTIF calculates the percentage of orders delivered to customers on or before the promised delivery date and in full quantity. This KPI is crucial for maintaining customer satisfaction and retention, as late or incomplete deliveries can negatively impact customer relationships.

To measure the OTIF value, you can use this formula: OTIF = Number of perfect orders / Total number of orders

Cost per Unit (CPU)

CPU measures the average cost to produce a single unit of a product. It considers all production costs, including raw materials, labor, and overhead expenses. Monitoring CPU can help manufacturers identify areas where they can reduce costs and improve efficiency in their production processes.

Here’s how to calculate the cost per unit for an item: CPU = Total Production Costs / Number of Units Produced

Total Production Costs include the following:

• Direct material costs
• Direct labor costs
• Manufacturing overhead

Yield or First Time Through

The First-Time Yield (FTY), or First-Time Through (FTT), is a KPI that assesses the efficiency of production processes and the output quality. Also referred to as Yield, FTT represents the number of units produced without defects or the necessity for further enhancements in relation to the total number of items manufactured.

FTT uses the following formula: FTT = (Units Produced-Defective Units) / Units Produced

Production Downtime

Production downtime measures the amount of time that production processes are non-operational. It can include scheduled maintenance, unplanned equipment breakdowns, or any other event that causes a halt in production. Tracking this KPI can help manufacturers identify potential issues and improve operational efficiency.

Inventory Turnover Ratio (ITR)

ITR measures the times a company sells and replaces its inventory within a given period, usually a year. A high ITR generally indicates that products are in demand, while a low ITR may indicate excess inventory or slow-moving products. Tracking this KPI can help organizations optimize their inventory levels and avoid overstocking.

Here’s how to find the value of this manufacturing KPI: ITR = Cost of Goods Sold (COGS) / Average Inventory

Production Schedule Attainment

Production schedule attainment measures the percentage of products produced within a specified time frame compared to the scheduled production plan. It helps organizations understand their ability to meet production targets and identify roadblocks hindering productivity.

The Production Schedule Attainment can be calculated using this formula: Production Schedule Attainment = (Actual Production / Planned Production) x 100

Supplier OTIF

Supplier OTIF measures the percentage of orders delivered by suppliers on or before the promised delivery date and in full quantity. This KPI is crucial for maintaining an efficient supply chain and minimizing disruptions in production.

Determine the supplier OTIF with the following formula: Supplier OTIF = Number of perfect supplier deliveries / Total number of supplier orders

Return on Assets (ROA)

Return on assets is a financial KPI that measures the profitability of an organization’s assets. It shows how efficiently a company uses its assets to generate profit and can help manufacturers make informed decisions about resource allocation.

Compute how much return on assets you have with this formula: ROA = Net Income / Total Assets

Cost of Goods Manufactured (COGM)

COGM measures all the costs incurred in producing a product, including direct materials, labor, and overhead expenses. Tracking this KPI can help manufacturers understand their production costs and identify areas for improvement.

Measure this manufacturing KPI using this formula: COGM = Beginning Work in Process Inventory (WIP) + Total Manufacturing Cost – Ending Work in Process Inventory (WIP)

Overall Operations Effectiveness (OOE)

OOE is a comprehensive manufacturing KPI that measures the overall efficiency of an organization’s operations. It considers various aspects such as quality, availability, and performance to provide a holistic view of operational effectiveness.

Quantify the effectiveness and efficiency of your operations with this formula: OOE = Availability x Performance x Quality

Production Volume

Production volume quantifies output over a specific period. This metric enables manufacturers to benchmark their performance efficiency, assess total units produced, and evaluate their ability to meet production budgets.

Determine the production volume using this formula: Production Volume = Units Produced / Time Period.

Total Effective Equipment Performance (TEEP)

TEEP is a KPI that measures the overall efficiency of equipment in production processes. It considers all factors, including availability, performance, and quality. TEEP helps manufacturers identify bottlenecks and optimize equipment usage to improve productivity.

To set the benchmarks for TEEP, use this formula: TEEP = Availability x Performance x Quality.

Examples of Manufacturing Companies Using KPIs

Many manufacturing companies use KPIs to monitor and improve their performance. Some examples include:

Schindler

Schindler, a Swiss multinational company that manufactures escalators, moving walkways, and elevators worldwide, employs a sophisticated software system to monitor KPIs, including good observations, risks, issues, and near misses.

This system helps Schindler gather more data to improve safety standards and operational efficiency across its facilities.

Toyota

Toyota monitors various KPIs at its factories and plants worldwide. By monitoring specific metrics like model defects, worker productivity, and line stoppages, Toyota can spot inefficiencies and problems while they are still small.

Tackling these issues helps ensure smooth, coordinated, and high-quality production. Toyota’s emphasis on early problem detection and resolution is vital to its “Built-in Quality” approach.

Bosch

The German multinational engineering firm uses KPIs to monitor the quality and efficiency of its production processes across its 300+ global locations. Bosch has a specialized system to automate data collection and reporting, offering real-time insights into quality metrics such as asset utilization, facility energy use, and manufacturing cycle times.

The company also benchmarks KPIs across its plants to identify and share best practices throughout the organization.

How to Use Manufacturing KPIs

KPIs aim to improve manufacturing operations, not just measure them. Here are some steps organizations can follow to use KPIs effectively:

• Measure the KPI: The first step is to define the KPI and establish a baseline. It will serve as a starting point for measuring progress.
• Identify where performance losses happen over time: Monitoring the KPI will reveal where and when performance issues occur, enabling manufacturers to identify and address them promptly.
• Identify the root cause of the problem: Once the performance issues have been identified, manufacturers can dig deeper to find the cause. It will help them implement effective solutions and prevent future issues.
• Address the issue: Based on the root cause analysis, manufacturers can implement corrective actions to address the performance issues and drive improvement.
• Re-measure the KPI: After implementing solutions, it is essential to re-measure the KPI to evaluate the effectiveness of the corrective actions. It will also help track progress and determine if further improvement is needed.