Manufacturing Metrics: A Comprehensive Guide to the KPIs that Matter

Comprehensive Guide to Manufacturing Metrics

This guide outlines essential manufacturing metrics and key performance indicators (KPIs) that you can use to improve your business. It teaches you how to track these metrics with dashboards and make informed decisions to enhance performance in your industry.

In this article, you will find:

What Are Manufacturing Metrics and KPIs?

Manufacturing metrics gauge production performance, while KPIs offer a numerical way to understand strengths and weaknesses. These tools help businesses manage their production activities and work towards specific goals.

Key Points:

Why Use Manufacturing Specific KPIs?

Leading manufacturing companies use KPIs to enhance speed, quality, and reduce costs. This focus on gradual improvements using digital technology is often referred to as industrial transformation.

Today’s digital manufacturing change heavily relies on tools like enterprise manufacturing intelligence (EMI) and ERP platforms with advanced features. These tools allow real-time analysis and interactive dashboards, enabling manufacturers to prioritize quality, flexibility, and efficiency.

Guidelines for Manufacturing KPIs:

Define Clear Goals: Align manufacturing objectives with overall business aims like boosting quality or output. Select metrics that show when you reach these goals.
Measure Progress Accurately: Use the SMART guidelines to set actionable goals and track progress.
Identify Data Sources: Utilize ERP solutions to obtain real-time, reliable data to help management make informed decisions.
Implement Efficient Reporting: Opt for consolidated and easy-to-access dashboards to provide crucial information to management and stakeholders in a timely manner.

Top Manufacturing Key Performance Indicators

Manufacturing Key Performance Indicators (KPIs) help analyze productivity, quality, customer satisfaction, and profit. They can be utilized to enhance operations across your production lines.

Production Volume: Reflects the number of units manufactured during a set time frame, essential for benchmarking manufacturing efficiency.

Production volume = Total # of products manufactured during a specified time frame

Production Downtime: Measures non-operational time, considering both planned and unplanned instances. A focus on minimizing this metric leads to higher productivity.

Production downtime = Sum of all downtime during a specified time frame

Production Costs: Combines all direct and indirect costs related to manufacturing, including raw materials, labor, rent, and overhead.

Production costs = Direct labor cost + direct material cost + overhead costs

Per-unit product cost = Production cost / number of units manufactured

Overall Equipment Effectiveness (OEE): Evaluates the percentage of productive time, considering the quality of products, performance at full capacity, and availability without downtime.

OEE = Performance x quality x availability

Overall Operations Effectiveness (OOE): Similar to OEE, but includes maintenance time in availability, reflecting total operational effectiveness.

OOE = Performance x quality x availability

Total Effective Equipment Performance (TEEP): Assesses how a plant performs against a theoretical 24/7, 365-day capacity, a key utilization metric.

TEEP = Performance x quality x availability

Capacity Utilization: Indicates the percentage of the plant’s total available capacity being used, highlighting efficiency and growth opportunities.

Capacity utilization = (Total capacity used / total available production capacity) X 100

Defect Density: Monitors the ratio of defective to total products, which can affect profitability and customer satisfaction.

Defect density = # of defective units / total units produced

Rate of Return (ROR): Measures the performance of an investment over time, expressed as a percentage of profit or loss.

ROR = (Current value – initial value / initial value) X 100

On-Time Delivery: Quantifies the percentage of products delivered on time, reflecting how well the company is meeting customer demand.

On-time delivery = On-time units delivered / total delivered units

First Time Right (FTR): Represents a goal to complete processes right the first time, emphasizing efficient and lean production.

FTR = Total # of good units / total number of units in process

Inventory Turns: Examines the usage and replacement rate of stock, helping to minimize inventories in lean manufacturing.

Inventory turns = COGS / average inventory during a specified time frame

Asset Turnover: Evaluates how effectively assets are used to drive revenue, a potential indicator of efficiency.

Asset turnover = Net sales / average total asset value

Unit Costs: Calculates the average cost to manufacture one product unit, discerning production efficiency.

Unit Costs = Variable costs + fixed costs / total units produced

Return on Assets (ROA): Assesses the company’s profitability concerning its available assets, showing how assets are utilized to generate revenue.

ROA = Net income / average value of total assets

Maintenance Costs: Considers all costs for maintaining and repairing production equipment, with a goal to optimize availability at minimal cost.

Maintenance cost per unit = Total maintenance costs / # of products produced during the same time frame

Revenue per Employee: Measures the average revenue generated by an employee, useful for benchmarking and comparing efficiency.

Revenue per employee = Total revenue / (average # of full-time employee equivalents)

Profit per Employee: Looks at the average profit generated by an employee, serving as a measure of the organization’s overall profitability.

Profit per employee = Net income / (average # of full-time employee equivalents)

Efficiency manufacturing KPIs

These efficiency manufacturing KPIs are centered around the optimal use of resources and cost minimization. By focusing on producing high-quality products at the lowest possible cost and without waste, they align with broader organizational goals and lean manufacturing principles.

Throughput: This metric measures the volume of good units produced over a specific time frame and can be used to analyze and compare various equipment or production lines.

Throughput rate = Total number of good units produced / specified time frame

Work in Process (WIP): Refers to goods that are in mid-production, including associated raw materials, labor, and overhead costs. This KPI offers insights into material usage efficiency and the value of unfinished goods.

Work in process (WIP) = (Beginning WIP + manufacturing costs) – cost of goods manufactured

Schedule or Production Attainment: Compares actual manufactured goods to the planned output, helping to identify deviations and opportunities for improvement.

Schedule attainment = (Actual production output in units / target production output in units) x 100

Scrap Material Value: Represents the value derived from excess material left over after production, reflecting the efficiency of material usage and the potential revenue from scrap.

Scrap material value = Amount earned on disposing scrap material – disposal cost

On Standard Operating Efficiency: Assesses actual performance against estimated labor costs, essential for monitoring labor expenses and adjusting product pricing or processes.

On standard operating efficiency rate = # of products produced at or below estimated costs in a given period / total # of products produced in the same time frame

Asset Utilization: Also known as the average return on assets, this metric evaluates how efficiently assets are used in production, which can guide decisions about asset investment and utilization.

Asset utilization = Revenue in a given period / (value of assets at beginning of period + value of assets at the end of period/2) X 100

Cost & Profitability Manufacturing Metrics

These metrics help in tracking various aspects of cost and profitability, from unit manufacturing costs to broader financial indicators like EBITDA. Monitoring these KPIs enables companies to make informed decisions to enhance efficiency, profitability, and sustainability in the manufacturing process.

Total Manufacturing Cost per Unit Excluding Materials: Measures all manufacturing costs except materials per unit, focusing on labor and overhead costs.

Total manufacturing cost per unit excluding materials = (Total manufacturing costs – cost of materials) / total number of units manufactured

Manufacturing Cost as a Percentage of Revenue: Compares total production costs to revenue, aiding in identifying areas for cost savings.

Manufacturing cost as a percentage of revenue = Total manufacturing costs / overall revenue

Net Operating Profit: Represents profitability, taking into account the cost of goods sold, operating expenses, interest, and taxes.

Net operating profit = (Revenue – operating expenses) – interest and taxes

Productivity in Revenue per Employee: Measures the revenue generated per employee, reflecting productivity.

Productivity in revenue per employee = Total revenue / total employees

Average Unit Contribution Margin: Identifies the profit each unit is generating after variable costs, important for assessing product line performance.

Average unit contribution margin = (Total revenues – total variable costs) / total volume of production

Return on Net Assets (RONA): Calculates how well a company leverages its assets to create profits.

Return on net assets (RONA) = Net income / (value of fixed assets + net working capital)

Energy Cost per Unit: Represents how much energy is used to manufacture each unit, affecting profitability.

Energy cost per unit = Sum of all energy costs / number of units manufactured

Cash-to-Cash Cycle Time: Measures the time it takes to convert inventory investments into cash flow.

Cash-to-cash cycle time = (Days inventory outstanding) + (days sales outstanding) – (days payables outstanding)

Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA): Helps gauge operational profitability, often used by investors for company comparison.

EBITDA = Net income + interest + taxes + depreciation + amortization

Projected Customer Demand: A forecasting method that helps in optimizing inventory by using data, historical trends, and ERP tools.

Reorder point = (# units used daily x # days lead time) + # units safety stock

Employee Turnover: Measures attrition rate, significant for assessing recruitment, training costs, and the overall employee engagement.

Employee turnover = (Turnover Rate = # of separations in a given period / (# of employees at start of period + # of employees at end of period/2)) × 100

Manufacturing Compliance Metrics

These compliance metrics are critical in ensuring that a manufacturing organization adheres to various laws and regulations, including those related to environmental protection, health and safety, and overall business practices. Regular monitoring of these KPIs helps in identifying potential risks, improving compliance processes, and ultimately safeguarding the company’s reputation and legal standing. Manufacturers that prioritize these metrics tend to have a competitive advantage due to their commitment to ethical and lawful operations.

Reported Health and Safety Incidents: Records the number of health and safety incidents that have been reported to the Occupational Safety and Health Administration (OSHA).

Reported health and safety incidents = # of health and safety incidents reported to OSHA during a specified time frame

Health and Safety Incidence Rate: Measures work-related injuries per 100 full-time workers during a year, also known as the total case incident rate (TCIR).

Health and safety incidence rate = (# of OSHA-recorded injuries and illnesses X 200,000) / total employee hours worked

Health and Safety Incidence Rate: Measures work-related injuries per 100 full-time workers during a year, also known as the total case incident rate (TCIR).

Health and safety incidence rate = (# of OSHA-recorded injuries and illnesses X 200,000) / total employee hours worked

* 200,000 = 100 employees working 40 hours per week, 50 weeks per year

Reportable Environmental Incidents: Keeps track of environmental incidents that must be reported to the Environmental Protection Agency (EPA), including matters related to air, water, and recycling.

Reportable environmental incidents = # of environmental incidents reported to the EPA during specified time frame

Number of Non-Compliance Events per Year: Monitors the number of times a manufacturing plant failed to comply with guidelines over a year, including the details of the incidents.

Number of non-compliance events per year = # of non-compliance events during a 12-month period

Failed Audits: Measures the frequency of failed safety audits for manufacturing plants and equipment, indicating how often operations meet compliance standards.

Failed audit rate= # of failed audits in a given period / total # of audits conducted in the same period

Maintenance Manufacturing Metrics

These metrics provide a comprehensive view of maintenance efficiency within the manufacturing process. By keeping track of these KPIs, manufacturers can identify weaknesses in their maintenance programs, improve equipment reliability, and reduce costs. They contribute to the overall efficiency, effectiveness, and profitability of the manufacturing process, helping in strategic decision-making and continuous improvement.

Maintenance Unit Cost: Monitors the cost of maintaining and repairing equipment per unit produced.

Maintenance unit cost = Total maintenance costs in a specified time frame / # of products produced during the same time frame

Mean Time Between Failure (MTBF): Calculates the average time between equipment failures, giving insight into asset reliability.

MTBF = Operating time in hours / # of failures

Mean Time to Failure (MTTF): Similar to MTBF, but for non-repairable components, such as electronics that need replacement upon failure.

MTTF = Operating time in hours / # of failures

Percentage Maintenance Planned (PMP): Compares the actual versus planned maintenance hours.

Percentage planned maintenance = (# of planned maintenance hours / # of total maintenance hours) × 100

Percentage Planned vs. Emergency Maintenance Work Orders: Evaluates the ratio of planned to emergency maintenance.

Percentage planned vs. emergency maintenance work orders = (# of planned maintenance hours / # of unplanned maintenance hours) × 100

Unscheduled Downtime: Measures the unexpected downtime of equipment, indicative of reliability issues.

Unscheduled downtime = Sum of all unscheduled downtime during a specified time frame

Downtime in Proportion to Operating Time: Expresses the ratio of downtime to operating time.

Downtime in proportion to operating time = Total time equipment is down : Total time equipment is in operation

Avoided Costs: Reflects savings from preventive maintenance that prevents costly repairs and downtime.

Avoided costs = (Assumed repair cost + production losses) – preventive maintenance cost

Machine Set-Up Time: The time required to prepare the machine for the next production run.

Machine set-up time = Time required to prepare the machine for the next run

Customer Experience & Responsiveness Manufacturing Metrics

By integrating these metrics into their operations, manufacturers can become more responsive to customer needs and foster loyalty and satisfaction, which are critical to long-term success in today’s competitive marketplace. They may also help in identifying areas of improvement that could lead to enhanced product quality, more efficient processes, and ultimately, higher customer satisfaction.

On-Time Delivery to Commit: Assesses how often products are delivered as promised.

On-time delivery rate = # of products delivered on time / total number of products delivered

Lead Time: The total time it takes for customers to receive their orders after placement.

Lead time = Order process time + production lead time + delivery lead time

Customer Fill Rate: Monitors the fulfillment of customer orders through existing inventory.

Customer fill rate = (# of orders delivered / # of orders placed) X 100

Customer Return Rate: Helps in understanding customer retention and loyalty by measuring repeat business.

Customer return rate = (# of return customers / total # of customers) X 100

Customer Satisfaction: Gauges customer satisfaction through surveys or feedback.

Percentage of satisfied customers = (# of customers who said they were either very or extremely satisfied / total # of surveys filled out) X 100

Quality Manufacturing Metrics

Quality metrics are not only about conforming to standards but also about customer satisfaction, cost control, environmental considerations, and overall process efficiency. By continually monitoring and analyzing these metrics, manufacturing firms can identify areas for improvement, increase customer satisfaction, and maintain a competitive edge in the marketplace. The insights derived from these metrics can lead to better decision-making, improvements in the supply chain, and alignment of manufacturing practices with business goals.

Yield: Compares the actual number of products manufactured to the maximum possible yield from raw materials.

Yield = (Actual # of products manufactured / theoretical number of maximum possible yield based off raw materials input) X 100

First Time Yield: Represents the non-defective products without rework.

First time yield = # of non-defective or good units / total # of products manufactured

Perfect Order Percentage: Measures complete orders shipped on time and without issues.

Perfect order percentage = (Percent of orders delivered on time) X (percent of orders complete) X (percent of damage-free orders) X (percent of orders with accurate documentation) X 100

Return Merchandise Authorizations (RMA): Tracks dissatisfaction and refunds for returned goods.

Return merchandise authorizations = (# of RMAs / # of orders delivered) X 100

Customer Reject Rate: Focuses on how many parts delivered to customers are defective.

Customer reject rate = (# of rejected parts / total #of parts in all products shipped) x 100

Supplier’s Quality Incoming: Examines the quality of incoming raw materials.

Supplier’s quality incoming = # of quality raw materials received / total # of incoming materials

Scrap Rate: Measures the discarded materials during manufacturing.

Formula: Scrap rate = Amount of scrap material produced during a manufacturing job / total materials intake or put into the process

Lean Manufacturing Metrics

Lean manufacturing emphasizes continuous improvement, and these metrics allow organizations to track their progress towards achieving more streamlined operations. By analyzing these KPIs, managers can pinpoint areas where they can reduce waste, such as unnecessary labor hours or material usage, and increase speed and responsiveness. Integrating lean principles with ongoing tracking of these metrics promotes a culture of continuous improvement, contributes to a more agile manufacturing process, and can lead to substantial cost savings and higher customer satisfaction.

Cycle Time: The average time taken to complete a customer order, reflecting how prepared your business is to meet customer demand.

Cycle time = (Time customer received order – time customer placed order) / # total shipped orders

First Pass Yield: A quality measurement for the number of non-defective products built the first time, excluding rework and scrap.

First pass yield = # of non-defective products excluding rework and scrap / total # of products manufactured

Capacity Utilization: Indicates how much of the plant’s production capacity is being used, providing insight into efficiency and potential growth.

Capacity utilization = (Total capacity used during specific timeframe / total available production capacity) X 100

Machine Downtime Rate: Measures the unavailability of equipment for manufacturing, including both planned and unplanned downtime.

Machine downtime rate = Total uptime / total uptime + total downtime

Downtime in Proportion to Operating Time: Assesses the availability of assets for production by considering both scheduled and unscheduled stoppages.

Downtime in proportion to operating time = Total available time to run – scheduled and unscheduled stoppages

Material Yield Variance: The difference between the amount of material used and the standard, providing insights into material efficiency.

Material yield variance = (Actual unit usage – standard unit usage) x standard cost per unit

Overtime Rate: Calculates the extra hours employees work beyond normal working hours, often a signal of inefficiency in planning or capacity constraints.

Overtime rate = (Overtime hours / total hours worked, including overtime) X 100

Performance Metrics

Performance Metrics focus on evaluating the success of each stage of the production process, such as meeting production targets, changing over the production line, and aligning production with customer demand. These metrics allow manufacturers to track efficiency, flexibility, and responsiveness in production. Here’s a look at these key performance metrics:

Production Attainment: This measures how well manufacturing meets its target production levels. A higher percentage signifies better alignment with the planned production schedule.

Production attainment = (Actual production / scheduled production) x 100

Changeover Time: Reflects the time required to transition a production line from making one product to another. This is crucial in a flexible manufacturing environment where different products are made on the same line.

Average changeover time = Total time to changeover production lines / # of changeovers

Takt Time: This represents the rate at which a product must be completed to meet customer demand. It helps in setting the pace for production to ensure that manufacturing is aligned with market needs.

Takt time = Total available production time / average customer demand

Manufacturing Innovation Metrics

Manufacturing Innovation Metrics highlight the creativity, adaptability, and progressiveness of an organization in introducing new products and implementing changes. These metrics focus on how the organization fosters innovation through the introduction of new products and the ability to respond to engineering changes efficiently. Here’s a deeper look at these essential innovation metrics:

Rate of New Product Introduction (NPI): This measures how frequently new products are introduced into the market, reflecting the company’s ability to innovate and respond to market demands.

New product introduction rate = # of new products / new product introduction goals

Engineering Change Order Cycle Time: This metric assesses the time it takes to complete a product change from the receipt of a change order to its implementation. It demonstrates the organization’s responsiveness to necessary product modifications.

Engineering change order cycle time = Engineering change order cycle time in days, weeks or months