Manufacturing KPIs to Improve Production KPI Performance

It is important to grow the top line of your business on an annual basis, but you also need to make sure the bottom line is healthy which can help fund that growth. 

This is particularly important if you are a manufacturing company and need to be efficient in your production process. In most cases, the two biggest expenses in your manufacturing business are labor and raw materials. There are exceptions, of course, in machine-intensive automated manufacturing plants, but let’s focus on the former. So how can we make sure the production line is running at peak performance? One very effective way is to put the right balance of production KPIs in place. Some of these are leading indicator KPIs that help provide insight into future performance and some are results KPIs that tell you how you have done. It is good to have both, although I always prefer giving my production managers a good set of leading indicator KPIs as these manufacturing metrics drive the results.

Below Are Some of the Most Impactful Manufacturing KPIs & Metrics:

Production KPI Examples 

• Capacity Utilization – This measures how much of your available capacity you are using on your production line. The higher the better. Buildings and equipment are expensive assets and you want to maximize their use. It also helps to manage what you sell by production center so you do not over or undersell a particular manufacturing line, thereby balancing the workload.
• On Standard Operating Efficiency – If you have a piece rate or incentive system in place, you want to measure how employees are performing against the labor standards you used to cost the product. If these numbers are low, it is beneficial to examine methods and do post-production analysis. It is very common for companies to underestimate labor costs, and this KPI can help you identify this.
• Overall Operating Efficiency (OOE)– This is one of my favorites because it includes on-standard time as well as off-standard time. You are trying to maximize this percentage so that employees are adding value the majority of the time they are clocked in and present. 
• Overall Equipment Effectiveness OEE– This metric measures the overall effectiveness of a piece of production equipment or the entire line. Availability x Performance x Quality. This is a great KPI to maximize to ensure you are running the plant effectively.
• Machine Downtime – This KPI and the two below are components of OEE above, but worth measuring on their own. This includes scheduled downtime for maintenance, setups, and unscheduled downtime and can include machine changeover.
• Unscheduled Downtime – This one can be a killer and one to minimize because it affects other processes in the production chain. Scheduled and predictive maintenance can help minimize unscheduled downtime. There are wireless sensors you can use that can help support predictive maintenance to reduce unscheduled downtime.
• Machine Set-Up Time - A lot of production time can be lost to set up and changeovers. Implementing SMED (single-minute exchange of dies or similar techniques) can help keep this lost time to a minimum. Look for ways to incorporate parts of the setup so that they are internal to the process to avoid taking machines offline for any longer than you need to. Quick changeover setups also reduce this time.
• Inventory Turns – In today’s Lean environment and pull approach, keeping inventories to a minimum can help free up cash and give you the ability to respond to changing customer needs much more efficiently and with better delivery times. It also keeps your on-hand inventory fresh and relevant to avoid obsolescence and mask quality problems. 
• Inventory Accuracy – There is nothing worse than putting a work order into production only to find your raw goods inventory was inaccurate. This either delays the start of production or causes delays in the line if the order happens to make it into the process. I had a rule to never let an order begin production unless everything was available in-house for the order. This helps you manage and maintain your supply chain to keep the right amount of inventory on hand to keep things running.
• Quality – This is a no-brainer and table stakes today, but still necessary to measure. There are many ways to measure quality, and I am listing a few below for consideration. Percent defective is one of many ways you can measure quality. Establishing clear and consistent standards goes a long way to reaching your quality goals.  The only way to continuously improve is to learn from your mistakes, so don't just measure the quality - determine the root cause and fix it.