Manufacturers Can Focus on Key Performance Indicators to Help Evaluate Performance

When evaluating the performance of your manufacturing operations, there’s virtually no limit to the number of metrics you can use. Metrics are quantifiable measures used to track, monitor and assess the performance of various business or production processes. But not all metrics are created equal, so it’s better to focus on key performance indicators (KPIs). KPIs are metrics tied to specific company goals and, therefore, have a significant impact on a company’s success or failure.

KPI Examples

Below are five examples of manufacturing-specific KPIs to consider. However, keep in mind that the right KPIs depend on the nature of your business and your company’s current goals.

1. Overall equipment effectiveness (OEE). This KPI, which measures the productivity of a machine or production line, may be calculated as availability times performance times quality. Suppose, for example, that a production line is available for 7.5 hours per day (taking into account planned maintenance) and produces 100 units per hour when running at full capacity. Assume that on a given day, the line experiences 30 minutes of downtime and produces a total of 600 units, 570 of which meet quality standards. In this case, availability is 7/7.5 or 93%, performance is 600/700 or 86%, and quality is 570/600 or 95%. The OEE equals 93% times 86% times 95%, which equals 76%.

Monitoring OEE can help a manufacturer identify areas where equipment downtime, slower performance or quality issues are affecting the efficiency of its operations. Armed with this information, the manufacturer can make improvements, such as fine tuning or replacing machinery that’s underperforming.

2. Defect rate. This is an important indicator of product quality. The defect rate is simply the percentage of products a manufacturer produces that fail to meet minimum quality standards. To address a high or increasing defect rate, a manufacturer may need to repair or replace machinery that’s producing defective products or components — or redesign faulty production processes.

3. Downtime. This refers to the total time during a specified time period that a machine or production line isn’t operating — whether planned or unplanned. For example, if on a given day a machine breaks down and is nonoperational for two hours and has 30 minutes of scheduled maintenance, total downtime is 2.5 hours. To minimize downtime, manufacturers may need to repair or replace machinery with frequent breakdowns or adjust maintenance schedules to improve productivity.

4. Overtime rate. This KPI measures overtime as a percentage of total labor hours. Excessive overtime may reveal scheduling issues. It may also indicate a need to hire more workers or to consider adding a work shift.

5. Reportable safety and health incidents. Tracking the number of incidents that are reported to the Occupational Safety and Health Administration (OSHA) is critical to maintaining a safe work environment.

Be Strategic

The measures described above are just a few examples of the dozens of valuable KPIs for manufacturers. It’s important to avoid tracking too many KPIs because it can generate an overwhelming amount of data and cause you to lose focus. It’s better to zero in on a handful of KPIs that are tailored to your company’s goals and strategies. For example, if customer satisfaction is a top priority, you may want to focus on defect rates and other quality-related KPIs, or on customer-centric metrics, such as lead times, customer fill rates, customer return rates, on-time delivery rates or customer satisfaction scores.

On the other hand, if you’re more concerned with efficiency, productivity and cost control, you may want to focus on a different set of metrics, such as OEE, downtime, production volume, production costs and inventory turns.

Beyond the Numbers

Monitoring KPIs can be a great way to track and evaluate your company’s performance in various areas. But it’s important to avoid achieving performance targets for their own sake. Rather, you should look beyond the numbers to understand how measuring the right KPIs can help your company thrive.

Copyright 2024

This article appeared in Walz Group’s May 28, 2024 issue of The Bottom Line e-newsletter, produced by TopLine Content Marketing. This content is for informational purposes only.