The KPIs to Help Manufacturers Improve Company Performance

Manufacturing companies need a quantifiable method to measure performance toward strategic goals or to monitor performance to make “fact-based” and “data-driven” decisions. In either case, the premise of “unmeasured is unmanaged” hinges on having the available information at the correct level, deployed throughout a company.

In this article, CLA Engagement Director Mike Estes and Rick Rosser, CEO of Milwaukee-based Phoenix Lighting, discuss leading practices they have cultivated over decades working in numerous types of manufacturing environments large and small.

Key performance indicators (KPIs) can serve as a scorecard to track performance for the C-suite and all staff throughout the company. Typically, four-to-five KPIs are monitored to provide direction at each level. Reviewing and reporting these indicators are critical to establishing targets, objectives, and maintaining company alignment.

If properly deployed, KPIs can help improve accountability and transparency for all functional areas. They provide actual data to hold people accountable and eliminate subjective views of performance. When individuals have clear visibility regarding expectations and performance, everyone can row in the same direction.

Common KPIs for manufacturers: Quality, delivery, inventory, safety, and cost

In CLA’s experience, some combination of KPIs need to be deployed throughout the levels of successful companies. Many manufacturers start measuring of QDISC as the top level:

1. Safety
2. Quality
3. Delivery
4. Inventory
5. Cost

While QDISC may be easy to remember, you’ll notice a change in order above. 

Safety should always be the first order of discussion during daily huddles on the shop floor, followed by quality and delivery. “The biggest issue we share with leaders is to focus on what matters,” explains Rosser. “Our team must understand the difference between ‘be good’ and to ‘look good.’ With KPIs, we strive for data-driven proof we are good.”   

Additional KPIs for manufacturers to consider

Frequently, leading companies further break down QDISC plus other KPIs into smaller groups to help functional areas to focus, align strategic goals, and promote effective decision making. To help a team get comfortable, CLA recommends picking the top four-to-five for the business to begin measurement and avoid information overload. 

• Customer delight:
  • Quality
  • Lead time — greatest impact on customers and cash flow
  • OTD to OTTP (on time to original promise date); must be a complete order, no partials
  • Price (value priced, not necessarily low cost depending on the market)
• Employee delight:
  • Safety (Lost time, total reportable incidents, near misses, DART, severity rate)
  • Stability (turnover)
  • Market wage
  • Training levels (employees earn more pay for more skills and the business gains flexibility)
  • Workforce — unplanned call outs
• Production and efficiency:
  • Capacity utilization (This may become a critical measurement to be included along with QDISC when underutilization of fixed costs erodes profitability and/or when busy is confused with productivity)
  • Throughput/volume/yield (units produced in a specific time frame)
  • Labor utilization
  • Waste/scrap costs
  • OEE (overall equipment effectiveness)
  • Changeover time
  • Cycle time
  • First pass yield
  • First time right
  • Bottleneck wait time
• Quality control:
  • FPY (first pass yield)
  • Scrap rate (percent of production)
  • Customer returns (including number related to quality defects)
  • Warranty costs and counts
  • CCPM (customer concerns per million — explained below)
• Operational:
  • OTD (on time to production schedule)
  • Supplier defect rate
  • OFT (order fulfillment time or delivery on time to distribution point)
  • Production downtime and maintenance cost o Mean time between failure (MTBF) for equipment
  • Return on assets (manufacturing equipment)
• Inventory:
  • Inventory turns
  • Cycle count accuracy
  • COGM = cost of goods manufactured = (beginning WIP and FG inventory + total manufacturing costs) – ending WIP and FG inventory
• Demand:
  • Demand forecast accuracy
  • Sales pipeline
  • Orders, orders/sales
  • Backlog 

CCPM — A KPI innovation

The team at Phoenix Lighting invented a new KPI: Customer concerns per million (CCPM). “We want to capture every issue — wrong quantity, wrong shipping method, wrong price, etc. — as a comprehensive measure of true customer delight,” explains Rosser. “Not one department is responsible for quality. We all are.”

Capacity

While capacity utilization is critical for capital intensive businesses, this KPI may have less applicability in assembly or low capital businesses. In the latter, we want to improve performance of the person (from a Lean Manufacturing perspective) versus the equipment. Our goal is to make it easy for each person to do the right thing. Too often people are focusing on equipment which overcomplicates the shop floor for employees. “Keep it simple and focus on continuous improvement,” summarizes Rosser.

How CLA can help manufacturers create effective KPIs

CLA can help manufacturers assess current operations, identify the most relevant KPIs, and develop robust measurement systems. By leveraging our deep industry experience and data-driven insights, CLA helps manufacturers implement KPIs to drive continuous improvement and support long-term success.

To discuss the creation of KPIs appropriate for your business, contact CLA for a personalized consultation.