Key Performance Indicator (KPI)

What are KPIs?

Key Performance Indicators (KPIs) are defined metrics that companies use to track performance next to established goals and objectives. These can be anything from sales stats, quality output, and waste mitigation.

Within manufacturing, KPIs enable industry leaders to collect valuable insight into their operational, financial, and customer performance. These insights can then be organized onto a manufacturing KPI dashboard for quick and easy assimilation of knowledge.

Manufacturing KPIs consist of 2 key elements:

• Actual performance: how the business is performing.
• Intended performance: how well the business should be performing.

With these two factors, every industry can track and monitor what is fundamental to the health of their business and operation, making KPIs an invaluable inter-industry tool.

3 Types of KPIs

Though there are seemingly infinite metrics for companies to use, all KPIs fit into three overarching categories: Process Metrics, Financial Metrics, and Customer Metrics.

1. Process Metrics

Process Metrics focus on operational performance. For instance, in a manufacturing environment, companies can measure the rate and percentage of defects. In this case, the goal is to keep this number under an acceptable limit or, if possible, remove defects completely.

Examples of Process Metrics are Cycle Time and Takt Time. Additionally, lowering your defect rate to 3.4 defects per million opportunities is a distinction of Six Sigma, which could not be observed without tracking Process KPIs.

2. Financial Metrics

Financial Metrics focus on how much money is being spent, saved, and produced. This includes metrics such as gross margin and working capital.

Breaking down the financial KPIs of their departments gives companies a more fined tuned idea of where money is going, how well it is being spent, and their ROI.

3. Customer Metrics

Customer Metrics observe performance from the perspective of customer satisfaction, retention, and efficiency. Since product value is often dictated by the customer and the larger market, KPIs geared towards this perspective provide companies with a keen level of insight on how well they are performing for their customers.

Metrics such as Lead Time are an excellent way of gauging the time it takes for customers to receive the product after their order is placed.

Each of these categories does interplay with the others to some degree. Production performance will invariably affect financial and customer performance, indicating that all departments and their performance are intrinsically connected.

Why Use Manufacturing KPIs?

Success within manufacturing can only be known by comparing it to a metric goal. Otherwise, companies would be unable to tell if their particular operation is under or overperforming.

For instance, producing 10 products in one year may be a good metric for an areospace manufacturer while it is an abysmal number for producers of consumer goods.

The two basic questions at the bottom of every KPI are:

• How often did we achieve our objective?
• How far are we from our goal?

KPIs enable companies to fully appreciate the complexity of their manufacturing operations. To achieve your goals and understand the performance of your business, KPIs are a must-have tool. They are the driver and signalers of both successes and failures

The 4 Rules for Successful Manufacturing KPIs

Successfully creating and tracking your KPIs is simpler than you may think. You just need to follow these four rules to make sure you are getting the most accurate data possible.

1. Clearly define your goals

The first thing to ask yourself is, what am I trying to achieve? Think about our Aerospace vs Consumer Goods example from earlier. Having a clearly defined goal will enable you to pin down the proper level of performance for your industry.

One thing to keep in mind is that your goals need to be realistic. Setting attainable goals will enable you to improve and progress more quickly than if you set goals that are out of reach.

2. Set up clear parameters that can be quantified objectively

Choosing targets that can be numerically valued is the optimal way to keep your KPIs objective and accurate. Basing your metrics on numbers will enable you to actively measure and compare results over time.

At the end of the day, everything is quantifiable. Even metrics like customer satisfaction which are primarily subjective can be reduced to numbers through statistics and large sample surveys.

3. Get data from a strong source

An intelligent way to track your Manufacturing KPIs is with purpose-built manufacturing software like VKS digital work instructions. Instead of manually recording production times and quality output, our work instruction software makes this an automated process that is recorded in real-time.

As operators follow their work instructions, VKS is tracking key metrics behind the scenes while also enabling operators to enter data and provide feedback when necessary.

4. Appropriately time your data collection and reporting

Unsurprisingly, time plays a key role in how you collect and report your KPIs. Depending on your operation and reporting schedule, you may want to report KPIs on a monthly or weekly basis.

On the other hand, collecting data for your KPIs should be as frequent as necessary. This will give you a play-by-play view of your performance and provide you with the latest information available.