How much of a profit did you make on each item produced yesterday? Last week, month or quarter?

Tracking and evaluating your production costs on a regular basis can help inform everything from your pricing and marketing strategies to sales, staffing, process improvement opportunities, and other factors affecting your profit margin and success.

According to the National Federation of Independent Businesses’ (NFIBs’) April 2022 Optimism Index, business conditions are at their lowest in almost 50 years.  Inflation is a problem for over 30% of respondents. Nearly 50% have job openings they can’t fill. Profits are down thanks to the higher material costs, weaker sales, lower prices, and higher tax and regulatory costs. Pessimism about anything getting better in the second half of 2022 is high.

While it would be understandable to declare your business at the mercy of so many external influences, regularly tracking and evaluating production costs can help you have more control over profits, productivity, efficiency, and more.

Quickbooks Intuit defines production costs as total expenses – like costs for labor, materials, machinery, rent and other overhead – incurred to produce a product or service. They impact pricing, cash flow, and profit or loss.

To calculate total costs, add fixed costs (which are the same regardless of how many products are produced and include things like rent, utilities, insurance, and monthly salaries) to variable costs (which change depending on production volume, raw materials, packaging, shipping, and more). So, if fixed costs are $30,000 a month and variable costs are $70,000, total production costs are $100,000. If you made 10,000 units, the production cost per unit is $10 ($100,000/$10,000).

When you can manage to maintain or even reduce production costs without compromising quality, you can maintain or increase profit margins and business success.

Consider:

• Tracking and analyzing your production numbers regularly. By watching your production costs, you’ll know when expenses change and how they may affect sales and profits, so you can proactively adjust – production, pricing, marketing and more – as needed.
• Negotiating and shopping around for materials and services. With raw material shortages, supply chain issues, and dramatic price swings for fuel, putting extra effort into managing costs can have a big impact on your bottom line. You may find your suppliers will negotiate, especially if you’re a long-term, dependable client. Explore potential discounts that may be available in return for longer contracts, bigger orders, and cash payments.
• Evaluating every step in the process for efficiencies. Eliminate anything that does not add value, including excessive packaging which can drive up shipping costs and waste. Schedule equipment maintenance to reduce issues and downtime.

Perhaps one of the best things you can do is invest in software.

Software can help all your processes and systems talk and feed each other to help with enterprise resource planning (ERP). As an added benefit, you can track productivity by person and align training and incentives accordingly. Yes, it’s a big time and money investment, but when there are so many headwinds, being armed with the type of insights and information an ERP system can provide may just be what you need for long-term success.

There is one other thing you can do to promote success – choose RBT CPAs to handle all your accounting and auditing needs. Contact us to find out why we’re the Hudson Valley’s leading accounting firm and one of the top 250 nationwide.

Why cybersecurity risk is growing in construction.

The war in Ukraine is closer than you think.

Recently, the  White House warned malicious attacks could be just a few keystrokes away, making it critical for local governments and businesses to close their digital doors, put their shields up, and protect people, data, and infrastructure from the disruption a cyberattack can cause.

Cybersecurity managing risk in the information age

By 2027, investments in manufacturing cybersecurity are projected to reach almost $30 billion to protect and ensure the safety of plants, machines, and organizations.

In fact, the U.S. Cybersecurity & Infrastructure Security Agency (CISA) – a component under Department of Homeland Security control – has identified several manufacturing industries “crucial to the economic prosperity and continuity of the United States,” including manufacturing of primary metals; machinery; electrical equipment, appliances and components; and transportation equipment. A cyber attack in any of these could cause disruption at a national level and across other industries.

According to the Association of Equipment Manufacturing, no person or organization is immune to cyber security threats in manufacturing and everyone is responsible for helping prevent them.  2022 cybersecurity risks include some of the more well-known tactics like ransomware (a malicious software that locks and encrypts computer files until a ransom is paid) and phishing (enticing a reader to click a link, download an attachment, or reveal personal information).

Just as technology has become more sophisticated, so have cyberattacks.

Digital technologies in smart factory initiatives are facilitating more complex cyber threats. In a study of manufacturing industry cybersecurity, Deloitte and the Manufacturers Alliance for Productivity and Innovation (MAPI) uncovered numerous operational, financial, and strategic risks related to Operational Technologies (OT) like logic controllers, distributed control systems, embedded systems, and industrial IoT devices. Manufacturers aren’t prepared for potential cyber threats and need an enterprise program designed to identify, protect against, respond to, and recover from attacks.

Cybersecurity risk aware manufacturers use industrial control systems (ICS) to monitor and control machinery, production lines and other physical processes. To enhance business processes, capabilities, and ability to compete, today’s manufacturers are connecting their operational technology (OT) systems with their information technology (IT) systems to boost productivity and operate more efficiently. While offering many positives, they also attract cyber criminals expert in exploiting vulnerabilities to compromise ICS integrity and data.

The U.S. National Institute of Standards and Technologies National Cybersecurity Center of Excellence (NCCoe) just released a new Cybersecurity Practice Guide, entitled, Protecting Information and System Integrity in Industrial Control System Environments: Cybersecurity for the Manufacturing Sector (Special Publication 1800-10) to help organizations detect and prevent unauthorized software installation; protect ICS networks from harmful applications; detect unauthorized use of systems; monitor network traffic; leverage malware tools; and more.

Stay in the know and help shape the conversation and solutions by joining the NCCoe’s Manufacturing community of interest, where business professionals and advisors meet monthly via teleconference to share insights, technical expertise, challenges, and more. To express your interest in joining, email manufacturing_nccoe@nist.gov.  For additional insights and information about cyber threats, see Why You Need to Update Your Cybersecurity Now.

While you’re focusing on cybersecurity, let RBT CPAs give you peace of mind that your taxes, auditing, and accounting are covered. Give us a call; we’ll do the rest.

If you’re thinking the whole reshore discussion may have been a knee jerk reaction to supply chain issues immediately following the start of COVID, think again.

While you’ll find some sources still questioning whether reshoring is the right move for U.S. manufacturing over the long-term – especially because of our shrinking talent pool and high wages (as compared to some other countries), most of the data and discussion continues to show reshoring picking up momentum in the U.S., including New York.

Right after the start of COVID in 2020, offshoring’s drawbacks became evident – the U.S. had a hard time securing personal protective equipment and ventilators. The supply chain model had a major issue: there were no contingencies for a major issue like a pandemic. A bigger, brighter spotlight highlighted one possible solution: reshoring.

Reshoring is when an organization brings manufacturing and related services back to the U.S. from overseas. (This is a complete 180 from the 1970s, when companies sent U.S. manufacturing offshore in droves to reduce costs and drive profits.) It impacts numerous industries: automotive, aerospace, chemicals, communications, IT hardware, medical devices, pharmaceuticals, semiconductors, and more.

According to the nonprofit Reshoring Initiative, 2021 was on track to show a 38% increase in U.S. reshoring jobs over prior year.  What’s more, more than 1,800 companies reported new reshoring and foreign direct investment (FDI) for the year.

The Future of Commerce report, a commissioned study conducted by Forrester Consulting for Shopify, show manufacturing delays are among the top three supply chain concerns brands expect to deal with in the coming year. So, no one’s expecting the discussion to go away; in fact, it will likely intensify.

In New York (NY), a 2021 survey conducted by the Center for Economic Growth (CEG) and Siena College Research Institute (SCRI) found that 44% of manufacturers in the state are planning to or have already started to reshore supply chains or production operations; the percentage jumps to 59% among Downstate manufacturers (in NYC, Long Island and mid-Hudson).

What about concerns related to talent costs and availability?

They’re legit. We have a shrinking labor pool. There are not enough high-tech workers. And our wages are higher than those of many other countries. Yet, it doesn’t seem to be a dealbreaker.

Overall, the advantages of reshoring – from having a smaller environmental footprint, faster response times, and greater control over the process and products to workforce development and community development and increased ability to innovate and differentiate – seem to outweigh potential hiring and pay challenges. There are also a growing number of solutions to address the skills gap, from building talent pipelines in partnership with local schools to  automation, AI, cloud computing and more. In fact, high-tech solutions not only help businesses work more efficiently, but also create the high-tech environment that attracts top talent with good jobs.

So, where to next? Here are some options:

• Stress test to identify supply chain vulnerabilities and alternatives.
• Take advantage of free resources specifically designed to help manufacturing companies in New York.
• Stay in the know with information and tools to help you make smart decisions.
• Reach out to local colleges and universities to explore developing talent pipelines.
• Watch for legislative changes that can impact funding (i.e., the CHIP Act).

Of course, RBT CPAs is always here to help you with everything accounting- and tax-related. Give us a call.

A committed and productive labor force is essential to any industrial operation yet the manufacturing industry, typically employing between 10-499 employees each, has been understaffed in their factories.

Ironically, while unemployment is in the millions so are job openings. Manufacturers have been operating with these job gaps while meeting customer demand, amounting to millions of U.S. dollars annually. An analysis of The U.S. Bureau of Labor Statistics (BLS) Monthly Labor Review demonstrates this contrary state of affairs: while there is depletion in growth and an overall decrease in labor force participation rates, simultaneously, they project total employment rate growth in 2024 will reach 160.3 million. Economists predict that today’s substantial labor force shortages are a long-term economic trend they must overcome to attract and retain workers to meet demands.

The on-going waves of the Covid-19 pandemic are easy to blame for labor market interruptions.

According to Reuters, “Lack of affordable child-care, fears of contracting the coronavirus, generous unemployment benefits funded by the federal government as well as pandemic-related retirements and career changes have been blamed for the disconnect.” Further, the pandemic has accelerated changes to technology and the way work gets done. However, the workforce shortage and talent gap did not begin with the pandemic–it already existed and will continue to do so.  Before the pandemic, in February 2000, reportedly, there were 82 unemployed workers per 100 job openings; currently, there are roughly 65 unemployed workers for every 100 job openings.

Specifically, in manufacturing, the largest sector in the goods-producing field, less people are going into the profession as it’s been a struggle to attract workers as well as retain workers.

Manufacturing jobs fell from 10.7% in 2004 to just 8.6% in 2014 and is projected to fall even further, to 7.6%, by 2024. This decrease is by far the largest over the 2014–24 period. BLS’s 2018 Monthly Labor Review attributes the decline of manufacturing employment to “A skills mismatch—the gap between the skills workers have and the skills employers need….” The change in skills required to perform new tasks in manufacturing contributes to the persistent decline in the manufacturing industry since 2000. In 2015, BLS also said, “In the past, many manufacturing jobs were considered low skill and had fewer educational requirements than other types of jobs. Over the last few decades, manufacturing plants have become more automated, thus requiring skills that are more technical.” For example, engineers, computer programmers, and software developers are more sought after by manufacturers, as are people to design and run the machines. These jobs require different manufacturing skills and usually require a higher level of education.

Most importantly, higher productivity output is predicted and requires less employees, yet recruiting and retaining employees remains critical.

Manufacturing production output, according to BLS’s 2015 report is “…expected to grow 1.9% annually to reach almost $6.6 billion in 2024, up from over $5.4 billion in 2014. The negative impacts on existing employees due to staffing shortages will impact the positive outcomes predicted. CNBC notes that workers left positions for better positions in a tight job market. Workers opt to shift into positions with higher pay and better working conditions to increase their work-life balance. Thus, maximizing and supporting the existing workforce and attracting new talent is necessary in 2022.

Manufacturers must not surrender to these inconsistent forces impacting their business. Consider adjusting to the current conditions to attract and retain top talent with these tips:

• Offer premium pay and hiring bonuses
• Give shift-work choice options using a mobile app
• Incentivize with more time off
• Consider knocking down hiring barriers such as drug tests or criminal records
• Support the amendment to the Pell Grant program to expand eligibility to training
• Invest high-school-level technical programs as a pipeline system
• Optimize technological tools to track operations and automate
• Create virtual tours and escape rooms to demonstrate some of the skills needed for modern manufacturing

RBT hopes businesses can adapt and regain control. If you’d like to know more, our dedicated team is here to help develop a personalized long-term strategy for you. Additionally, if you would like to submit topic ideas for future articles our team produces, please feel free to contact us at TLideas@rbtcpas.com

Source Links:  Source Links: Reuters, Thomas Net, BLS, BLS, BLS, CNBC, Ogletree, Bloomberg

Ongoing pandemic-related shortages mean labor and material costs are rising, and so is customer demand. Facing long finished products and raw materials delays, small to medium-sized manufacturers are being forced to adapt quickly. In fact, here’s a Reuters list of comments from U.S. companies describing their efforts to counter this inflationary environment. The good news? While manufacturers face intense cost pressure, many customers have been willing to accept higher prices. But regardless of the circumstances, communicating price increase is no easy task. While consumers understand the challenges industries are up against, it won’t make the idea of spending more money any more fun or appealing.

So as we head into 2022, what are the most effective ways to communicate price hikes without damaging your customer relationships – and is that even possible? We’re relaying tried and true research-backed methods released by Harvard Business Review to paint a clear picture of the message your customers need to hear.

Call the action what it is: a price increase.

Don’t label it a price adjustment, a price change, or other jargon. Rather than tiptoeing around the inevitable – be direct. Your current circumstance means your customer will need to pay more out of pocket. Decades of consumer psychology research has found that complicating bad news rarely pays off for companies. Customers know that brands are trying to influence their opinions and behavior and appreciate it when they use helpful, transparent, and informative communication methods. When a brand uses a code word to convey a price increase, it does not distract customers or dilute the negative impact of the news. It tends to make recipients more cautious and critical of the announcement.

Clearly explain the price increase.

The realities of inflation, widespread material and labor shortages, rising input costs, and the return to “normalcy” are on everyone’s mind. Under such circumstances, when customers learn that a brand’s price is increasing, it simply confirms what they’ve been expecting. Don’t overcomplicate your message, be straightforward and honest. Research shows that the perceived fairness of a price increase is the second-biggest driver of how customers react.

Link the price increase to a customer-centric value narrative.

When communicating a price increase, provide a value narrative — a compelling story for why the price is increasing that focuses on customer value. A value narrative can be effective even when the price increase is predominantly due to input cost increases. Communicate to customers that the brand can only continue to provide the current level of benefits if it raises the price. It’s powerful to let customers know that your company is committed to excellence and opting not to degrade the product’s quality. Remember: customers are more willing to accept a price increase if it’s accompanied by improvements to your product or service. Better quality fabric in the clothing you manufacture, or even new packaging for your product can help justify a price increase.

Is there a best time of year to raise prices?

That’s a tricky question, and the answer is there is no one size fits all date or time of year that will work for everyone. Whatever time of year you decide you need to make the change, ensuring that your customers have ample time to come to terms with the price increase is key. They may need to re-assess their budget or consider alternative options, so you should keep them in the loop with advance notice. It should also go without saying, but make sure everyone on your team is aware of the price adjustments and that you help your team navigate any questions they may have, too. Our Manufacturing Services Group works with businesses in diverse industries, from building materials to food processing, specialty sporting goods, commercial lighting, health, beauty, pharmaceuticals, and more. Whatever the size of your venture, we can help you meet your goals now and in the future. Contact our RBT team of professionals to review your specific manufacturing needs. Additionally, if you would like to submit feedback or topic ideas for future articles our team produces, please feel free to contact us at TLideas@rbtcpas.com.

Sources: HBR, Reuters

Despite modern progress, women are still struggling to break through the manufacturing sector’s glass ceiling.

According to the U.S. Bureau of Labor Statistics, 47% of the entire workforce and 52% of all professionals and managers are women, yet they represent less than 30% of manufacturing workers. New York manufacturers have a lot of room for improvement when it comes to women in leadership positions. A 2020 women in manufacturing study found Pennsylvania, Colorado, and Connecticut to have the highest percentage of women in leadership positions. New York ranks 10^th.

The reality is manufacturing job openings currently outnumber qualified job applicants. From technicians, and machinists, to programmers and assemblers, as well as marketing, sales, finance, and even cybersecurity professionals, manufacturers are hiring. But are you doing your part to stay competitive and attract top talent? Your team needs to determine:

• What steps your company can take to help bridge the current gender gap
• Whether or not your company is financially competitive

The latest data from the U.S. Department of Commerce finds that on average, manufacturing workers earn 21% more than the median income for all workers, and women in manufacturing earn 16% more than the median income for all workers. Unfortunately, however, women in manufacturing still earn only 71% of the median income for men in manufacturing. Attracting and retaining more women for skilled positions in manufacturing means offering competitive, fair salaries, and other incentives. The following five best practices, generally advocated by the Manufacturing Institute, may help. We’ve also included some real examples of unique ways manufacturing companies around the country are promoting equal gender advancement, generated from the 2020 Women in Manufacturing study respondents:

Start at the top: Senior team members need to prioritize workplace diversity and communicate benefits to their teams. Some organizations have even tied executive incentives to diversity and inclusion goals. Progress should be monitored and communicated throughout the organization.

“We have a women’s resource group that was started in 2019 that promotes networking, STEM, and advancement of women in the manufacturing world.”

Prioritize flexibility: Women typically value flexible work options. Consider shifting from a presence-driven culture to one that is more results-oriented. Enable employees to balance their work and personal lives. Increasing flexibility can go a long way towards retaining skilled workers and ultimately trickles down to the bottom line.

Reassess the culture:  Gender discrimination — specifically the perception that men should be in charge — remains problematic in the manufacturing world. Address this bias through awareness training and other educational tools.

“Started men as diversity partners program to educate and share about unconscious bias and support/promote female colleagues.”

Become a sponsor: Corporate sponsorships help women succeed. Sponsors serve as mentors, coaches, and advocates. They can encourage an individual’s progress and provide a clear understanding of the leadership qualities and technical skills required for specific positions.

“[We have a] professional development program for women in manufacturing, designed to support women early in their manufacturing careers to encourage them to stay in manufacturing and/or within the company. The program provides a supportive environment for the women, and also supplies each woman with another female mentor within the company.”

Target your audience: When recruiting prospective employees, it’s important to zero in on specific groups. For example, your company might partner with vocational schools and K-12 schools that offer Science, Technology, Engineering and Math (STEM) programs. Incentivize your female employees to take an active role in the recruitment process or apprenticeship programs and to become role models for younger women that are hired.

“We have an Engineering Ladies Lunch and Learn (E3L) once a month to go over topics, training, [and] skills development for women at the company. This was developed by female engineers taking the initiative and it took a while for the leadership team to appreciate it.”

Contact your financial advisors to evaluate whether your company’s current compensation, training, and recruiting practices are gender inclusive. In addition to an array of financial reporting (Audit and Accounting Services) and tax compliance services (Tax Services), our RBT Manufacturing Group offers personalized, innovative strategies to help clients increase profitability. Contact us today to set up a consultation and develop strategies to become a more diverse workplace.

Sources: © 2020, Powered by Thomson Reuters Checkpoint, WiM

It’s not tax season just yet. But since it’s basically as American to search for sound ways to lower your taxes as it is to pay them, it’s never too early to have taxes on your radar and get prepared. As you know, you can claim deductions to reduce the amount you owe, but too often, manufacturers forget about the incredible opportunities that tax credits provide. In many ways, credits are an even more exciting way to save money because they can directly reduce the taxes you owe and in some cases, produce a refund. In order to simplify the process for you, we’re breaking down various manufacturing-specific incentives that are unique to New York State manufacturers.

Investment tax credit (ITC)

If you or your business placed a qualified property into service during the tax year, you may be entitled to this credit, up to 5% on your investment.

The ITC is a percentage of the investment credit base of qualified property placed into service during the tax year. Unused credits can be carried forward for 15 years (10 years for personal income taxpayers). A business that qualifies as a new business can also elect to receive a refund of unused credit instead of carrying it forward. See Investment tax credit (ITC) to learn more.

Manufacturer’s real property tax credit

You may be eligible to receive a credit equal to 20% of the real property taxes paid during the tax year on your New York State business property!

To be eligible, you must use your property principally for manufacturing, processing, assembling, refining, mining, extracting, farming, agriculture, horticulture, floriculture, viticulture, or commercial fishing. For more information about eligibility requirements, see Manufacturer’s real property tax credit.

Excelsior jobs program tax credit

Your company may be eligible to receive up to four fully refundable tax credit components:

• excelsior jobs tax credit,
• excelsior investment tax credit,
• excelsior research and development tax credit, and
• excelsior real property tax credit

If your business participates in the Excelsior Jobs Program and has received a certificate of tax credit from Empire State Development, you will be allowed to claim the credit. The amount of each credit component allowed is determined by Empire State Development. For more information about the Excelsior Jobs Program application and approval process, visit Empire State Development.

Alcoholic beverage production credit

If you are a registered distributor under Article 18 of the Tax Law (taxes on alcoholic beverages), you may be entitled to a tax credit.

If you produce 60,000,000 or fewer gallons of beer or cider, 20,000,000 or fewer gallons of wine, or 800,000 or fewer gallons of liquor within a tax year, you could receive a credit equal to 14 cents per gallon for the first 500,000 gallons that you produce in New York State.

You may also qualify to receive 4.5 cents per gallon for each additional gallon over 500,000 produced in New York State (up to 15,000,000 additional gallons for beer, cider or wine or up to 300,000 additional gallons for liquor). To learn more, see Alcoholic beverage production credit.

Don’t qualify for any of the credits we’ve mentioned?

Not to worry. Oftentimes, having an in-depth conversation with a tax professional about your unique business financials can save you a lot of time, frustration, and yes, money. For a complete list of credits and their requirements, see General business corporation (Article 9-A) tax credits and Business tax credits (Article 22). Or, to set up a brief consultative call with one of our RBT professionals who specialize in assisting manufacturing clients, don’t hesitate to contact our team, here.

As we’ve entered the digital age, we’ve all become increasingly accustomed to one-click culture.

Even if you’re used to New York traffic, or tend to be a traditional in-store shopper, you’re probably guilty of a thinner patience level. As you’re well aware, manufacturing shutdowns that resulted from the COVID-19 pandemic created unprecedented backlogs across industries. This new delayed-delivery world is a stark contrast for a society that’s used to getting our goods and services on demand. While the U.S. economic recovery we are currently experiencing is no doubt a huge relief and a sign of positive things to come, it’s recovering so rapidly from the coronavirus pandemic that it’s putting a big strain on many companies. The manufacturing industry is having a harder time finding materials or workers to fill a record number of open jobs. Experts explain that the shortages have triggered a sharp increase in inflation and in some cases have forced companies to scale back production. Most surprising of all? The shortage of labor, even as national unemployment still remains quite high. So, where are the workers the industry so desperately needs, and what is impacting New York manufacturing companies?

About 5 million fewer Americans are employed in manufacturing today compared to 20 years ago.

Employers hope to slow or reverse that trend in part by reaching out to groups traditionally underrepresented in the industry, and they’re under pressure to do that quickly. The median age of an American working in manufacturing is 44 years old according to the U.S. Bureau of Labor Statistics, and older workers are retiring faster than they are being replaced. Consider your own team for a moment. Have you evaluated the average age of your employees in the past year? It’s critical to have a replacement plan in place, and the reality is the competition is fierce, particularly in the Hudson Valley Region. Regional manufacturers are not only dealing with a retiring population but additional local competition. Consider the newly opened Amazon Distribution Center in the Town of Montgomery. Amazon employees at the more than one-million-square-foot fulfillment center will work alongside innovative technology to pick, pack and ship large customer items and household goods. In addition, Amazon will continue to hire for roles in human resources, operations management, safety, security, finance, and information technology. Meanwhile, site work has commenced on the $120-million, 1.2-million-square-foot Medline Pharmaceutical Warehouse in Montgomery which is being developed on 118 acres on the Aden Brook Farm site. Medline will relocate its current facility workforce of 340 in Wawaynada and plans to add 150 to 200 new positions in the coming years. And don’t forget the new $120 million dollar Amy’s Kitchen Factory plant set to open in Goshen in 2022, which is expected to employ 680 people at its massive 389,000-square-foot facility.

Given the reality local manufacturers face, it’s important to sit down with decision-makers and employees alike and determine what does and doesn’t work within your current business model.

Can you restructure your budget to accommodate an increase in pay and benefits to remain competitive? How do your core employees feel about your work culture? Do your team members feel valued and heard? As of July 6, 2021, the average annual pay for a factory worker in New York is $28,692 a year which works out to be approximately $13.79 an hour. Breaking this number down further, this is equivalent to $552/week or $2,391/month. According to ZipRecruiter’s current data, top earners (90th percentile) make $35,648 annually in New York. Because the average pay range for a factory worker in New York varies little (under $5,000), it suggests that regardless of location, there are not many opportunities for increased pay or advancement, even with several years of experience. This troubling statistic likely contributes to the mounting challenge in the road to re-staff and expand operations. Consider this information when you sit down to make transformative adjustments with your team. For more insight on how to help your business thrive and adapt, contact our Manufacturing Services Group today to schedule a brief conversation. Whatever the size of your venture, we can help you meet your immediate and long-term goals.

Sources: Wbur, U.S. Bureau of Labor Statistics, CNN, Real Estate In Depth

Struggling to stay competitive in today’s ever-evolving business world?

Product availability and dependable distribution are critical components your team needs to master. If your team isn’t aligned with your mission, setting attainable goals, or delivering in-demand products, it’s time to press pause. Having a quality product won’t get your company very far if it doesn’t get to your customer. With decades of experience working with manufacturing industry leaders, we’ve established that the best practice you can adopt is to assess your key performance indicators (KPIs) every three to six months to ensure your methods are useful and complete. Read on for a refresher to pass along to your team if it’s about that time to reevaluate progress and meet goals before 2021 ends.

KPIs measure key activities within a company to ensure it is operating with optimum success.

It is important to distinguish between a performance metric (which also measures activity), and a KPI.  A performance metric can be used to measure a variety of activities ranging from the number of staff meetings employees attend, to the amount of product that is available to meet customers’ needs. A key performance indicator measures activity that is critical to the success or failure of a company. While measuring the number of staff meetings employees attend won’t make or break the company, tracking the amount of product available for customers is a key indicator of a company’s ability to successfully compete in the marketplace.

KPIs are typically limited in number because they track only critical business aspects.

A company may have three or four KPIs; each department may also have three or four. If a KPI is put in place, management must commit to having someone log the activity and monitor the activity. Management must also define a clear course of action it will follow once the results of the KPI are known. In addition to evaluating critical activity, a KPI must:

• Be realistic – a KPI to eliminate downtime is not realistic. An effective KPI would be “to reduce downtime by 5% through scheduled maintenance days”
• Be specific to meet goals: “delivered on time” is not specific. A better KPI is “to complete delivery within three days of receiving the customer’s order”
• Be quantifiable, such as tracking the rate of returned product
• Highlight areas where increased efficiency/decrease in use of resources can be achieved
• Illustrate the progress toward attaining a goal by presenting data in a chart or graph
• Help identify seasonal trends

Implementing and tracking key performance indicators provides management with reliable data to streamline decision-making.

KPIs encourage a team effort by promoting inter-departmental cooperation and offer clarity for workers in terms of performance expectations. Individual departments will have key performance indicators that further the company goal of providing superior service by reducing the lead time. A KPI for the manufacturing division might be to track the cycle time, while the distribution division might track the on-time and complete shipping rates, and the customer service department might track the rate of returned products.

Here is an example of a good manufacturing facility KPI:

Company goal: To provide superior customer service through quick delivery.

Key performance indicator: Lead time

Definition: Lead time is the length of time it takes from the beginning of the
manufacturing process to the time the final product is delivered to the customer.

How it will be measured: Tracking the customer waiting time, which is the length of
time between when a customer places an order and the customer receives the product.

Target: To reduce lead time by 2 percent.

Implementing KPIs can increase the entire organization’s efficiency and production capability.

An added benefit? KPIs can generate a positive attitude among team members by letting individuals know how they contribute to a company’s overall success. Taking simple, cohesive steps like these can reenergize your team and ensure all departments are synchronized in their daily, monthly, and quarterly objectives. For more ideas to help your business thrive in these challenging times, contact our Manufacturing Services Group today. Whatever the size of your venture, we can help you meet your goals, now and for the future.