An Overview of Manufacturing KPIs
Manufacturing is a complex process and it must be controlled at all stages. Poor manufacturing practices can lead to poor quality products, which will impact reputation, brand, and revenue.
As this process is at the heart of what your company does, it also represents a significant risk to the investment a company has placed in its production. Not measuring the process will seriously affect your ability to manage it.
There are various manufacturing KPIs that you can track to help you maintain control of your processes. Tracking key performance indicators can support you in delivering consistent quality to your clients, and also ensure you utilize your resources efficiently.
We've been compiling examples of KPIs across industries and departments as part of our KPI examples mini-series - this post provides some of the most common manufacturing KPIs and also includes a brief description of why you may want to use them.
Machines are at the center of the manufacturing process. That’s why it's important to keep an eye on their performance and overall efficiency. There are several KPIs that can effectively track these tools such as:
You invest a lot of money into machinery and production line tools, so it makes sense to utilize them to their maximum potential.
Keep a record of the capacity of your systems and track how much of that capacity you’re utilizing. The higher this number is, the better.
KPI example: Increase capacity utilization to 55% by 01/07/2024
Overall Equipment Efficiency
Is your machine performing to its optimum capacity? It's a good idea to keep track of machine efficiency so you can mark any downward trends or regular issues.
This can help you determine when the system needs maintenance or should be replaced. If you don’t track efficiency, it's much harder to establish areas of waste.
KPI example: Achieve OEE of 100% by 01/10/2024
Track both scheduled and unscheduled downtime to get a clear idea of how often your systems are out of service.
Scheduled downtime and regular maintenance can reduce the number of unscheduled outages, giving you greater control and reliability in your manufacturing process.
KPI example: Reduce unscheduled downtime to 4% by 01/12/2024
Machine Set Up Time
Machine set up can eat into actual production time, which can eventually prove to be costly. It is important to track how much time it takes to set the system up, switch necessary components during production, and perform other configuration activities.
You can reduce setup time by optimizing the process and avoiding shutting down the machines for as long as possible.
KPI example: Reduce machine set up time to 15 minutes or less by 01/06/2024
These are some of the most important machine-related metrics to track. Maintaining peak production line efficiency can significantly reduce operating cost, improve profits, and ensure the end customer receives a good product.
The production line generates inventory and you need to keep track of it. If you produce far more or less than you can sell, it can impact your business and cut into your profits. Here are some inventory-related KPIs to track:
Modern manufacturing trends lean towards smaller and far more optimized inventory turns. This means companies will manufacture the minimum amount of product they need.
This allows them to remain flexible and redirect their resources when and where it's appropriate, and minimize the amount of money sitting in the warehouse.
KPI example: Increase inventory turn to 10 or above by 01/07/2024
The production line relies on a steady supply of raw materials. If the raw material falls short, you might have to halt the manufacturing line, place an order for more raw materials, and restart the process.
This is a waste of time and resources. That’s why tracking inventory accuracy is vital.
KPI example: Maintain inventory accuracy above 90% by 01/12/2024
Raw materials cost money, and it's normal to lose some of that material during the manufacturing process. This loss takes the form of scrap that is either discarded or re-purposed in some way.
The goal is to minimize scrap as much as possible and ensure most of the raw material is utilized in the product. That’s why you need to track the amount of scrap generated as well as the amount of raw material used.
KPI example: Reduce scrap to below 10% by 01/05/2024
Once you have all the information regarding your inventory, it's easier to keep track of your investment and the overall yield from your production line.
Quality is the most important merit to track. An optimized production line is of no use if the products created don’t live up to your company standards. Here’s a look at some of the quality KPIs you need to track:
This is the percentage of products that emerge from the production line with defects. No production line will create 100% perfect products, regardless of how stringent the production methods and quality checks are.
Defects are normal, but they need to be tracked. If there are too many defective products, you might need to look at the production process once again.
KPI example: Reduce the defect rate to below 5% by 01/10/2024
First Pass Yield
This is a metric which tracks the number of successful products that emerge from the production line without issues on their first pass. This is an indication that the design and production process is calibrated properly.
KPI example: Increase first pass yield to 95% or above by 01/04/2024
If the product has to be reworked after it has emerged from the production line, there’s something wrong with the process. Reworking consumes both time and resources and slows down your production line significantly.
KPI example: Reduce rework percentage to 4% by 01/09/2024
Every reliable manufacturer will audit their end product before they send it off for sale. If the product fails during this audit, it can’t be sent to the customer, representing a waste of time and resources.
You should aim for zero failed audits and optimize your system accordingly.
KPI example: Reduce failed audits to 0 by 01/11/2024
Keeping track of quality is essential if you want to keep customers satisfied. The metrics mentioned above give you a clear idea about the quality of products and efficiency of the production line.
It is possible for bad products to slip through all the quality checks and reach the customers. That’s why it is recommended to track the customer KPIs mentioned below:
This helps keep customers happy and ensures that employees remain on schedule. Tracking this metric is especially important if you work with perishable goods.
KPI example: Increase on-time delivery rate to 95% by 01/12/2024
Your goal should be to have zero customer returns, but the reality is that there will always be some.
Tracking customer returns will help you not only see how you measure up to industry standards, but also help you manage the return rate through improving your process.
KPI example: Reduce customer returns to below 7% by 01/06/2024
This is usually a metric tracked by the marketing division of a company, but a manufacturing unit should also consider keeping a track of it.
Sometimes customer reviews might contain important information that will help optimize the production process.
KPI example: Increase average customer review to 4.5 stars by 01/12/2024
You should consider customer satisfaction a priority during the manufacturing process, given that the product has a significant impact on the bottom line.
If the machines are the heart of a production line, the employees are the soul. When the latter perform well, the production line will be effective and efficient, and the quality of the product will benefit. Here are some of the employee-related metrics you need to track:
Companies often invest a substantial amount of money into training their employees. Loss of every employee can be expensive in the long run. Moreover, a higher turnover means you have more new, untrained employees in your workforce.
That can have a big impact on the overall quality of products, end the efficiency of production.
KPI example: Reduce employee turnover rate to 10% by 01/12/2024
Good training can improve overall efficiency, reduce turnover, and have a positive impact on the quality of products. Tracking training hours will help ensure your employees are always ahead of the curve and good at their jobs.
KPI example: Increase average yearly training hours per employee to 15 by 01/12/2024
Revenue Per Employee
Every employee should contribute meaningfully to the production line, and therefore to company revenue. Tracking revenue per employee helps you understand the overall efficiency of the human resources in your production line.
KPI example: Increase revenue per employee to $4600 by 01/08/2024
Profit Per Employee
Tracking profit per employee is also a great way to understand the value of your workforce. The higher the profit per employee the better.
KPI example: Increase profit per employee to $2600 by 01/08/2024
Health and Safety Incidents
Manufacturing processes can carry safety risks, especially if there’s a lot of heavy machinery involved. You should aim for this particular metric to be zero, but accidents can happen.
If you experience too many health and safety incidents, it is time to take another look at your culture and practices. A high number of health and safety incidents can lead to lower morale, staff turnover, poor reputation, and increased expenses.
KPI example: Reduce health and safety incidents to 2 per month by 01/06/2024
All of these KPIs will help you keep an eye on the manufacturing process and ensure it's in line with your goals.
Not all of the metrics mentioned here will be applicable to your particular industry or company, so it's important to consider which KPIs best suit your business objectives.