In most cases, the two biggest expenses in your manufacturing business are labor and raw materials. In today’s business world, time is money and we understand the pandemic has created many unforeseen obstacles concerning product availability and dependable distribution. To stay competitive a company must define its mission, set attainable goals, and deliver a product that customers demand. If you’re not taking time to review key performance indicator (KPI) basics, you may be wasting valuable time, energy, and money. Reassessing your KPIs can improve workflow and fix the issues that are compromising the quality of your product, service, and reputation.
KPIs measure key company activities to ensure your team is operating efficiently.
While performance metrics also measure activity, don’t mistake these for KPIs. 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 available product. Meanwhile, a KPI measures activities that are critical to the success or failure of your company. Measuring the number of staff meetings employees attend won’t make or break a company. But measuring the amount of product available for customers is a key indicator of your company’s ability to compete successfully.
One way to evaluate if a measurement is a key performance indicator or simply a performance metric is whether management will take action if the KPI is not met.
If management ignores the results of the KPI, it isn’t important enough to the success of your company, and it shouldn’t be considered a key performance indicator. If a KPI is put in place, management must have someone log and monitor activity. Management must also define a clear course of action to follow once the KPI results are known.
In addition to evaluating a critical activity, a KPI must be:
- Realistic: Eliminating downtime isn’t a realistic KPI. An effective KPI would be “to reduce downtime by 5% through scheduled maintenance days.”
- Specific: “Delivered on time” is not specific. A better KPI is “to complete delivery within three days of receiving the customer’s order.”
- Measurable: The activity or performance must be quantifiable, such as tracking the rate of returned product.
Key performance indicators also:
- Highlight areas where increased efficiency or a decrease in resources can be achieved.
- Provide a progress illustration by presenting data in a chart or graphic.
- Help identify seasonal trends.
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.
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. The distribution division might track the finished goods inventory or the on-time and complete shipping rates. A KPI for the customer service department might be to track the rate of returned products. Implementing and tracking key performance indicators provides management with solid data to help make informed decisions. KPIs encourage a team effort toward achieving the company’s goals by promoting cooperation and clarity for workers. 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 2021, contact our Manufacturing Services Group today. We work with businesses in diverse industries including building materials, 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 for the future.