With the various technological advancements that have taken place in recent years, manufacturers have access to an abundance of data generated at every step of their operations. As a result, businesses are better equipped to identify areas of inefficiency and make informed decisions to drive continuous improvement initiatives and stay ahead of the competition.
In this post, we'll discuss the importance of identifying and tracking manufacturing KPIs and provide an overview of the most important metrics you can measure to help transform your operations.
What is a Manufacturing KPI?
Key performance indicators (KPIs) are calculations that help someone answer the question “How is X doing?”. Manufacturing KPIs can highlight progress towards goals set at various levels of a company. Together, the sum of these KPIs tells a story about the performance of the line, plant, and/or company. Additionally, these metrics help businesses make data-driven decisions to enhance productivity, quality, and profitability.
The importance of Key Performance Indicators in manufacturing
Key performance indicators (KPIs) are calculations that help someone answer the question “How is X doing?”. Manufacturing KPIs can highlight progress towards goals set at various levels of a company. Together, the sum of these KPIs tells a story about the performance of the line, plant, and/or company.
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KPIs you should be tracking on your shop floor
1. Asset utilization is a metric used to understand efficiency. To complete this calculation, you’ll need to know both actual output and maximum capacity. Divide actual output by maximum capacity and multiply the result by 100 to calculate asset utilization.
Asset Utilization = (Actual Output/Maximum Capacity) x 100
2. Opportunity gap is a metric related to asset utilization. The opportunity gap is, “the difference between what an asset is capable of producing and what it actually produces.” To calculate the opportunity gap KPI, subtract the maximum capacity from the actual output.
Maximum capacity – Actual Output = Opportunity Gap
3. Avoided cost is an estimated saving based on preventative measures. This metric calculates how much you’ve saved by spending. “[T]he result is cost avoidance—if and only if it is reasonably sure that the charge will arrive, absent the action.” Using machine breakdowns as an example, the avoided cost KPI could be calculated by subtracting preventative maintenance costs from an assumed repair cost plus productivity losses connected to downtime.
Assumed Repair Cost + Production Losses – Preventative maintenance cost = Avoided Cost
A related calculation is the ratio of unscheduled to scheduled maintenance. This helps you identify how often you are missing necessary maintenance. Calculate this KPI by dividing the number of planned maintenance events against emergency maintenance events.
# of emergency maintenance events / planned maintenance events = Ratio of unscheduled maintenance
4. Capacity utilization measures how much a line, plant, or factory uses its total production capacity. For example, if you have the potential to significantly expand orders, you should check your capacity utilization before agreeing to deliver the product. This will help you understand whether you could fulfill an expansion with existing capacity, or if you need to adjust your production.
Calculate factory utilization by dividing actual factory utilization by your total productive capacity.
Actual Factory Utilization/Total Productive Capacity = Capacity utilization
5. Cycle time is the average time between process completions. Manufacturing Cycle Time is a related metric that measures the speed or time it takes to manufacture a given product. Calculate this metric by subtracting the process start time from the process end time.
Cycle time = Process End Time – Process Start Time
6. Demand forecasting is a metric that helps manufacturers understand the amount of raw material they need to fulfill their expected customer demand.
Projected Customer Demand = Raw materials * Production Rate
7. Plant uptime and plant downtime measure production performance at the plant level. There’s some controversy around which measure is more valuable. However, we’ll cover how to calculate each. You can divide the total number of units produced by plant operating time to calculate the average production rate. Use this value to multiply by total downtime and find the total number of units you failed to produce during planned production hours.
Plant Uptime = plant run time (production) / Total available time to run or produce
Plant run time = Total available time to run – scheduled and unscheduled downtime/stoppages.
Plant downtime = 1 – (Plant run time/Total available time to run or produce)
8. Labor as a percentage of cost is a straightforward metric.
Labor as a percentage of cost = Labor / Gross Sales
9. Labor usage is a metric that calculates how much of the time someone is working is spent working versus how much time is spent idle, or otherwise.
Total Labor Content/(Labor content + total idle time).
If someone is on the shop floor for 5 hours, but is idle for 2 of those hours, the labor usage rate is 60%.
10. Maintenance cost per unit “is total maintenance cost divided by the number of produced units in the measurement period. Total maintenance cost includes total costed maintenance man-hours, parts, and any other costs associated with the maintenance effort (preventive and corrective).” You can calculate this metric with the formula below:
Maintenance cost per unit = Total maintenance cost / Number of produced units
11. Manufacturing cost per unit calculates all possible costs of production (materials, labor, variable overhead, machine depreciation, etc.) and divides that value by the number of units of product produced.
Manufacturing cost per unit = Total Manufacturing Costs / Units Produced
12. Material costing, usage is a metric that compares the amount of material expected to make the number of units produced, against the amount of material actually used to make those units.
Material costing, usage = Materials Used/Materials Expected
13. Mean time between failure (MTBF) “is the predicted elapsed time between inherent failures of a mechanical or electronic system, during normal system operation.” Calculate this metric by taking the average time between the system’s failures. Note that this is a metric used for repairable systems.
14. Mean time to failure is a metric used for repairable systems. Like MTBF, it’s calculated as the average time between failures.
15. Mean time to repair “is a basic measure of the maintainability of repairable items. It represents the average time required to repair a failed component or device. Expressed mathematically, it is the total corrective maintenance time for failures divided by the total number of corrective maintenance actions for failures during a given period of time.”
16. On-time delivery is the percentage of time that a manufacturer delivers a completed product to the customer on schedule.
Calculate on-time delivery by dividing the number of units ordered by the number of orders delivered on time.
17. Overall equipment effectiveness (OEE) is a way to measure manufacturing productivity.
OEE = Availability X Performance X Quality
18. Manufacturing Cycle Efficiency measures “value-added time as a percentage of throughput time.”
Manufacturing Cycle Efficiency = Value-added time / Throughput time
19. Overtime as a percentage of total hours is a straightforward metric. It calculates how many of an organization’s hours are overtime, versus standard hours. This can highlight a production scheduling issue.
Overtime Hours/Regular Hours X 100%=Overtime Rate
20. Takt Time is the average between the production start time of one unit and the next unit.
Takt Time = Production Time / Customer Demand
21. First pass yield (FPY) is the number of units without rework or scrap defects exiting a process divided by the number of units entering the same process over a set time period.
Quality Units/Total Units Produced = FPY Rate
22. Rolling throughput yield is an FPY-related metric that measures the likelihood that a production line will produce a quality unit in a process with multiple steps. See the equation below, written assuming 4 steps, y, z, x, and a.
RTY= FPYofx * FPYofy * FPYofz * FPYofa
23. Unplanned capacity expenditure is unplanned for expenses.
Total capacity expenditure – planned capacity expenditure = Unplanned capacity expenditure
24. Unused capacity expenditures or the cost of unused capacity measures how much available capacity from machines, people, etc. was supported but went unused.
Unused capacity expenditure = Fixed costs x (1 – Company output/Company maximum possible output)
25. Utilization is the amount of output you generate as a proportion of your total possible output.
Output / Optimum Output = Utilization
26. Work-in-process (WIP) is the quantity or value of partially completed goods.
Percentage Complete * Sale Price – (Costs to date / Cost Estimate)
27. Time to Make Changeovers measures the speed or time it takes to switch a manufacturing line or plant from making one product over to making a different product.
Net Available Time – Production Time = Changeover Time
28. Rejects, or customer returns, measures how often customers reject products or request returns because they received bad products.
29. Throughput measures how much product a machine, line, unit, or plant produces within a given amount of time.
30. Production Attainment measures the percentage of time a target level of production is attained within a specified schedule.
Production Attainment = Periods when Production Target Met/Total Time Periods in Schedule
31. Health and Safety Incidents is the number of health and safety incidents recorded during a set period of time. Depending on your industry, you may also want to measure the number of non-compliance events you have in a year. This metric is the number of times the plant violated regulatory compliance rules during the year. In addition to the number of events, you may want to measure the length of time the plant was non-compliant, the reasons for non-compliance, and the way the event was resolved.
32. New Product Introduction Rate measures the amount of time it takes to design, develop, and ramp up production for a new product.
33. Full Production Start Date – Product Development Start Date = New Product Introduction Rate.
34. Cash-to-Cash Cycle Time measures the time between the manufacturing plant purchase or inventory purchase, and the collection of payments from the sale of the inventory produced or purchased.
Sell Date – Plant/Inventory Purchase Date = Cash to Cash Cycle Time
Bonus KPIs for 2023 and beyond
35. Workforce Utilization: Measures the percentage of time employees spend on productive activities, highlighting areas for better workforce management and training.
36. Digital Transformation Index: Evaluates the adoption and integration of digital technologies in the manufacturing process, fostering innovation and competitiveness.
37. Supply Chain Efficiency: Tracks the performance of the entire supply chain, identifying bottlenecks and opportunities for optimization.
38. Customer Satisfaction: Assesses the level of satisfaction customers have with the quality and delivery of manufactured products, supporting continuous improvement efforts.
39. Inventory Turnover: Analyzes how quickly inventory is being sold, revealing insights into demand and production efficiency.
40. AI and Automation Adoption Rate: Measures the extent to which manufacturers are incorporating artificial intelligence (AI) and automation technologies into their processes, enabling better productivity and decision-making.
As the manufacturing landscape continues to evolve in 2023, it's crucial for businesses to monitor and optimize their KPIs to stay competitive in the market. By tracking and analyzing these key production metrics, manufacturers can uncover valuable insights that lead to improved efficiency, quality, and customer satisfaction. Don't miss the opportunity to leverage these essential KPIs to bolster your manufacturing performance and secure long-term success.
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