Because Rhythm acts as a framework for pulling together into one single system many improvement initiatives and management tools that are popular among manufacturing companies, many of our most successful clients come from this industry. One area that our clients come to us for help with is determining the right KPIs (Key Performance Indicators). Some are not sure where to start, and many are measuring so many things that their metrics are just noise, not driving action or change.
These were the most commonly used metrics for Manufacturing companies according to a survey conducted by Schenck and some specific KPIs that our Manufacturing clients are tracking today:
4. Labor cost
5. Delivery performance
6. Total cost
7. Material cost
10. Equipment utilization
12. Total cycle time
|14. Backlog, Open Orders
15. On Time Delivery
16. Maintain Inventory Level
17. Safety Recordables, Near Misses
18. Stock outs
20. YTD Sales, Invoiced sales, Sales vs. Budget
21. New Revenue from Existing Customers
22. Revenue from New Customers
23. Training hours
24. Internal Quality, DPPM
25. # of Customer Issues
While examples like the ones above can be helpful as you start thinking about the right KPIs, the key to the right KPI list for your company is not to start with someone else’s list. If you truly want to derive value from your KPI set, you have to start by thinking about the business results you want to drive.
Your Critical Numbers determined in your Annual Planning and Quarterly Planning sessions are a good place to start for KPIs to track weekly on your dashboard. Then, consider what other results you are trying to achieve this quarter. This will help you come up with a handful of results indicators.
From there, think about what a leading indicator might be for each of your results indicators. The leading indicator should give you a picture of whether you are on track to hit your desired results or not.
For example, if your results indicator for the quarter is "# of Customer Issues,” you might hypothesize that “On Time Delivery” is a leading indicator for this result. You can test for a quarter to see if Red "On Time Delivery" gives you a heads up that the "# of Customer Issues" will rise and also be Red. If this holds up after some testing, you might peel back the onion a layer further and determine that “Maintain Inventory Level” is a leading indicator for "On Time Delivery.” So, in this example, if you can keep the right inventory in stock to deliver on time, you will have fewer customer issues. Your KPI dashboard can let you know early if you are heading for Red on customer issues so that you will have enough time to do something about it. Don't forget to check out our 33 KPI Examples to Measure Productivity & Prevent Organizational Drag.
For more about how Rhythm can help your manufacturing company grow with purpose, check out our Rhythm for Manufacturing Guide. In this guide, Chris Cosper, our Head of Consulting and former CEO of a manufacturing company, shares how Rhythm’s Think-Plan-Do methodology can help you build stronger accountability into your company culture, develop growth strategies to drive revenue, and continuously improve everything. Enjoy!
Looking for some KPI Examples to help get you started? Check out our additional resources:
Rhythm Systems KPI Resource Center
Editor's note: This blog was originally posted on Oct. 20, 2014 and has been updated.