The Role of KPIs in Manufacturing Industry: How Manufacturing Professionals Can Use KPIs to Grow Business
- It is important for manufacturing professionals to have KPIs in order to increase transparency, enable sound business decisions while minimize mistakes, and improve customer relations.
- The most important and useful KPIs include the measurement of overall equipment effectiveness (OEE), machine downtime, productivity/cost/throughput tracking, rate of customer rejection, customer lead time, and inventory turnover.
- Good KPIs must be practical and feasible, not unrealistic or unattainable.
Manufacturing is one of the largest industries worldwide. Although the initial industrial revolution has ended, this industry continues to evolve to meet the ever-changing customer demands and the need for new products. As manufacturing industry is the main engine of the economy, competition is fierce, and industrialists are under constant pressure to push out products quickly at competitive prices. Having KPIs to measure success will provide professionals with the necessary insights on the following aspects to grow their business effectively.
Increase transparency. The analysis of key metrics will help prompt when there is a need to increase production and enable workflow visibility, which helps measure the progress of fulfillment for customer demands, record health and safety incidents that have occurred in the factory in the last 30 to 90 days, and provide a forecast of extra staff needed during the holiday season. Being able to answer these and other related questions will help industrialists understand how the company works and resolve any bottlenecks to increase productivity and revenue.
Enable sound business decisions while minimize mistakes. Most of the time, making the right decisions without necessary details is equivalent to looking for a needle in a haystack. However, KPIs can help detect data that might have been missed or completely overlooked. For examples, increasing downtime could unexpectedly come from old machinery, the maintenance cost per unit can inform how frequent particular machines should be repaired, and help industrialists make informed decisions about the best course to proceed.
Improve customer relations. Manufacturing industry is not just about making products and delivering them to customers. Focusing on communication at all stages from the ordering phase to the delivery, and acknowledging customer feedbacks afterward will allow industrialists to maintain a good relationship with customers in the long run.
Among the "must-have", or arguably among the most important and most useful KPIs for the manufacturing industry, is the overall equipment effectiveness (OEE). It is a calculation method for machine’s total operating capacity with regards to various factors involved and then summarized in numbers. This can provide an overview of how the manufacturing process works. If OEE starts to show slightest deviation, it could be an indication of the malfunction in uptime, machine efficiency, and quality of manufactured products (quality vs. waste).
The next KPI is machine downtime because it is the heart of production. When factories have too much downtime, it has a negative effect. Once we understand where and why outages occur, industrialists will be able to solve the problems and plan proactive responses. Tracking productivity and costs is also important in the optimization of factory’s profitability. The same applies to the measurement of throughput or the amount of products made over a period of time, as it will allow us to understand how a particular machine is performing and which machine is underperforming.
Additionally, KPIs that are indispensable are the understanding of how the company's products perform once delivered to customers (or when the customers return them). Accordingly, one of the key metrics is customer rejection. Too frequent rejections indicate a problem in the production process and delivery time to customers. This is calculated from the time it takes to execute an order or the time it takes to fulfill a customer's order and delivery time, or the time for quality control and delivery, whether it is in accordance with the initial agreement with the customers or not.
The last essential KPI is inventory turnover which measures the frequency of inventory turnover. If the inventory is turning faster than the factory can produce, it might be a sign that performance needs to be improved. On the other hand, if the turnover is too low, it may indicate the prolonged stock of products and unnecessary inventory management cost.
At any rate, good manufacturing KPIs need to reflect strategic goals. Therefore, before selecting KPIs, industrialists need to know what goals they are trying to achieve. After setting a goal, KPIs can help measure the progress towards that goal. Moreover, KPIs must be quantitative, measurable, practical and feasible. They should not be unrealistic or unattainable. It is also impractical to pursue nonsensical metrics that do not reflect the company's operational status.
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