Key Performance Indicators (KPIs) are crucial metrics that help businesses measure their success and identify areas for improvement. For a manufacturing company, it's important to track KPIs that reflect the efficiency and effectiveness of their operations.
It’s also important to understand that not all manufacturing companies operate the same. There will be different KPI’s for different types of manufacturers, e.g. machine shops vs 3D printing manufacturers. However, there are some KPIs that are typically helpful to look at for most types of manufacturers and we’ve outlined them below.
- Production Efficiency: This measures the output of products relative to the input of resources such as labor, materials, and time. It's essential to track production efficiency to ensure that the manufacturing process is operating at optimal levels.
- Lead Time: Lead time refers to the time taken from the receipt of an order to the delivery of the final product. Shortening lead time can increase customer satisfaction and reduce the risk of stockouts.
- Equipment Utilization: This measures the extent to which equipment is being used effectively and efficiently. High equipment utilization can reduce the costs associated with idle equipment and increase the overall productivity of the manufacturing process.
- Quality Control: Quality control is a critical aspect of any manufacturing operation. By tracking the number of defects produced and the cost of defects, manufacturers can identify areas for improvement and ensure that their products meet customer expectations.
- Inventory Turns: Inventory turns measure how quickly a company is able to sell its products. This KPI is important for managing inventory levels, reducing waste, and maximizing cash flow.
- Scrap: Material that doesn’t meet quality standards is considered scrap. However, some manufacturers count any raw material that wasn’t used in production as scrap. Keeping track of scrap will help to keep costs down and produce better quality products.
Calculation: Total Scrap ÷ Total Product Run
- Safety: Safety is a key concern for any manufacturing operation. By tracking safety-related incidents and accidents, companies can identify areas for improvement and ensure a safe working environment for employees.
- Employee Turnover: Employee turnover can have a significant impact on a company's bottom line. By tracking the number of employees who leave and the reasons for their departure, companies can identify areas for improvement and retain their best employees.
The most important key to ensure these KPI’s are actionable is to share with key stakeholders. Review and use feedback from stakeholders to make improvements in areas that you see need changes. When KPI’s are tied to your business strategy and goal setting, they can drive massive action that will lead to positive change. If you have any questions, our expert outsourced manufacturing accounting professionals are ready to help!