September 20th, 2021 | Blog
Top 30 Manufacturing Metrics that Matter
How do you measure manufacturing performance?
Measuring manufacturing performance is not as simple as cost per unit. There are a lot of metrics and KPIs that should be tracked and evaluated to measure the true performance of a manufacturing plant or process
What are KPIs in Manufacturing?
A Key Performance Indicator (KPI) or metric is used to gauge the progress of the organization over time.
Why are KPIs important for Manufacturers?
In manufacturing, companies often use KPIs to monitor, analyze, and optimize operations and compare their efficiencies to those of competitors in the same sector. This data gives manufacturers valuable business insights to meet their organizational goals.
What KPIs and Formulas are used by Manufacturers?
Here are 30 of the most common:
Asset Turnover is highly used in many different industries because of the important insights it provides. Technically it is considered more of a financial KPI rather than manufacturing. It represents a ratio between your business revenue (or sales) and your assets, making it a great efficiency indicator when it comes to assessing if your assets are generating value or not. In an asset-heavy industry such as manufacturing, it is all the more important. Asset Turnover should only be compared within the same industry because of course, an e-commerce business will have extremely different metrics compared to a packaging manufacturer.
Asset turnover = revenue / total assets. Having a high ratio means you have more revenue per dollar invested.
Asset Turnover can also be known as the Asset Utilization Ratio. The asset utilization ratio is frequently used to compare a company’s efficiency over time. It calculates the total revenue earned for every dollar of assets a company owns.
For example, with an asset utilization ratio of 64%, a company earned $.64 for each dollar of assets held by the company. Asset utilization is increasing when a company is making more use of its assets.
Asset Utilization = Revenue / Average Total Assets
The Avoided Cost KPI is an estimated saving based on preventative measures. In other words, this manufacturing metric is an estimate of how much money you saved by spending money. Does that sound odd? Well, a common example is machine maintenance vs. repair cost if a machine were to break down and cause lost production value due to the repair downtime.
Avoided Cost = Assumed Repair Cost + Production Losses – Preventative Maintenance Cost
The capacity utilization metric measures the amount of capacity being utilized against the total capacity. Companies aim for this KPI to be as high as possible because it reveals that they are making better use of their production capabilities and maximizing return on their assets. This metric provides an idea of available resources, making it useful when deciding whether to take on new orders or quoting lead time.
Capacity Utilization = Actual Factory Utilization / Total Productive Capacity
Cash To Cash Cycle Time
Cash to Cash Cycle Time is a time-based manufacturing KPI. It is the time that it takes for a company to receive cash from its customers after paying for raw materials, inventory, or building a manufacturing facility. This KPI is typically measured in days, weeks, months, etc.
Cash to Cash Cycle Time = Inventory Sale Date – Inventory Purchase Date
Changeover time represents the amount of time required to switch from one task to another. In manufacturing, it typically represents the amount of time lost from switching a production line from one product to another, and in some cases, it can also represent the amount of time lost during a shift change.
Changeover Time = Net Available Time – Production Time
Customer Return Rate
This KPI is tried and true in the manufacturing industry for a reason. Keeping track of returns is essential. Customer return rates are calculated based on what percentage of products are returned, usually due to poor quality. A company should strive for the lowest customer return rate possible.
Customer Return Rate = (# of Products Returned * 100) / Total # of Products Shipped
This manufacturing metric sounds simple but can be difficult for companies to fully take advantage of because it depends on uncontrollable external factories. It is used by companies to estimate the number of raw materials required to meet future customer demand. The basic formula is as follows:
Projected Customer Demand = Raw Materials * Production Rate
Direct Material Usage Variance
The direct material usage variance is the difference between the actual and expected unit quantity needed to manufacture a product. The variance is used in a standard costing system, usually in conjunction with the purchase price variance.
Direct Material Usage Variance = (Actual Quantity – Standard Quantity) x Standard Price
Energy Cost Per Unit
This manufacturing KPI gets overlooked by a lot of companies. It can come in handy when companies are fine-tuning their operations and trying to become leaner. Energy Cost per Unit is the total cost of energy spent over a period of time divided by the number of units produced in that time frame.
Energy Cost Per Unit = Total Energy Cost / # of Units Produced
Overall Equipment Effectiveness (OEE)
This is great for measuring manufacturing productivity. The higher your OEE, the more effective your equipment is. A score of 100 percent means that you are manufacturing 100 percent of the time, at 100 percent capacity, at a 100 percent yield (no defective parts).
OEE = Availability * Performance * Quality
First Pass Yield
This KPI is fundamental to production. It’s essentially the percentage of products manufactured to specification the first time through the process (meaning that they do not require any rework or become scrap). A higher FPY rate is ideal for any company.
First Pass Yield Rate = Quality Units / Total Units Produced
Inventor Accuracy is one of the most important metrics for manufacturing operations. Without satisfactory levels of accuracy, the company cannot forecast; and the supply chain will falter. This might also cause costs to rise; unhappiness in customers; and the shop floor can suffer from inadequate productivity and throughput. To calculate inventory accuracy, divide the number of counted items that perfectly match every aspect of the record by the total number of items counted. The resulting number is your inventory balance accuracy.
Inventory Accuracy = Counted Units / # of Units on Record x 100
Inventory Carrying Costs
Inventory carrying cost is the total of all expenses related to storing unsold goods. The total includes intangibles like warehousing costs, depreciation, and lost opportunity costs. A business’ inventory carrying costs will generally total about 20% to 30% of its total inventory costs.
Maintenance Cost Per Unit
Maintenance cost tends to be considered an overhead item, so this KPI is often overlooked. However, when trying to optimize efficiency, it is an important manufacturing metric to take into consideration.
Maintenance Cost Per Unit = Total Maintenance Cost / # of Units Produced
Manufacturing Cost Per Unit
A company must be tracking the total cost related to manufacturing a product on a per-unit basis because you wouldn’t be able to price a product properly without it. By dividing the cost by the number of units produced, this KPI accounts for all costs associated with production. Standard costs include materials, labor, overhead, depreciation etc.
Manufacturing Cost Per Unit = Total Manufacturing Cost / # of Units Produced
Manufacturing Lead Time
Lead time is the time required for processing orders, preparing materials, manufacturing, and delivering them. It generally consists of three periods:
Manufacturing Lead-time = preprocessing + processing + post-processing
Material Yield Variance
This manufacturing KPI compares the estimated amount of material required for a product and against the amount of material used.
Material Yield Variance = Actual Material Use / Expected Material Use
Mean Time Between Failure (MTBF)
Mean Time Between Failures is the anticipated elapsed time between failures of a system during normal operation. The term is used for repairable systems, whereas the term Mean Time to Failure (MTTF) refers to the estimated time to non-repairable system failures.
MTBF = Total # of operational hours / # of failures
Mean Time To Repair (MTTR)
Mean Time to Repair is the average time it takes to repair a system, either technical or mechanical. This includes both time spent to repair and any testing time. Until the system becomes functional again, the clock continues to tick on this metric.
Planned Maintenance Percentage
This manufacturing metric is used to determine and analyze the ratio of scheduled maintenance against any unscheduled maintenance. It is useful in identifying when more preventative maintenance is required for specific assets.
PMP = (# Planned Maintenance Hours * 100) / # Total Maintenance Hours
Production Schedule Attainment
The percentage of the actual production versus the planned production is used to calculate this metric. If low percentages are reported, it is likely that the machine is not optimized properly or that the production team is not prepared for changes in the field.
Production Schedule Attainment: (Actual Production Output in Units / Target Production Output in Units) *100
Return On Assets
ROA has less to do with manufacturing and more to do with finance. But financial metrics are just as important as manufacturing metrics and this one tops the list. Making money is crucial to the success of any business. Using this metric, you can see how efficiently your business is utilizing its resources (money).
ROA = Net Income / Avg. Total Assets
Revenue Per Employee
This manufacturing KPI is a powerful indicator of a company’s efficiency and productivity levels. The higher the metric, the greater the productivity. Essentially, it measures the success of the manufacturing department, and it contains cost information that directly links with the financial department. To be sure your company is on the path to sustainable development, make sure your revenue per employee is steadily growing.
Revenue Per Employee = Revenue / # of Employees
Total Case Incident Rate
The reality of the matter is, workplace accidents and near misses do occur. The Total Case Incident Rate is the number of incidents/near misses over a period of time (normally per year).
Health and Safety Incidence Rate = (Number of Incidences * 200,000) / # hours worked by all employees
Total Cycle Time
This KPI is relatively simple. This metric can be a very powerful tool if used innovatively. The average time it takes to produce a product is known as the cycle time in the manufacturing industry. It sounds simple, but one can use the cycle time metric to determine how long it takes to manufacture a completed product or each component of the finished product, and even determine how long it takes to deliver the product to the customer. Manufacturing Cycle Efficiency can be used to analyze the overall efficiency of a manufacturing process on the macro scale, as well as determine inefficiencies on a micro-scale.
Total Cycle Time = Process End Time – Process Start Time
Manufacturing Cycle Efficiency
Measures how much time is spent on value-added activities during the manufacturing process. By analyzing this information, a business can decide to eliminate non-value-added activities, thereby reducing expenses and shortening the time required to manufacture a product. Businesses can use both of these outcomes as competitive advantages since they allow them to lower prices while maintaining a robust profit margin, as well as offer faster turnaround times to their customers.
Manufacturing cycle efficiency = Value-added time / Total Cycle Time
Downtime is a period when the line is not producing any products. No money can be made when production is down.
There are two categories of downtime: scheduled and unscheduled. Downtime is scheduled, including lunches, breaks, shift changes, and meetings. There are many reasons for unscheduled downtime, but some of them include out-of-stock conditions, equipment malfunctions, and operator mistakes.
Rolling Throughput Yield/Profit Per Asset Hour aka Profit Velocity
This is arguably one of the most fundamentally important metrics for the manufacturing industry. The Throughput KPI measures the production capabilities of a machine, line, or plant; also known as how much they can produce over a specified time period. This KPI can be extremely difficult to track when you are dealing with hundreds or thousands of SKUs. Watch our YouTube video that explains this concept in further detail.
Throughput = # of Units Produced / Time (hour or day)
Manufacturing KPI Dashboard Examples and Templates
Regardless of the size of your manufacturing company, a manufacturing dashboard can help with reporting processes. Some of the processes include:
- Consolidating the data into a central location.
- Managing large data inputs.
- Interface with other services like ERP software.
- Generate performance reports and send alerts.
A manufacturing reporting solution is an essential part of running a business in the industry. These KPIs and manufacturing metrics build and transform along with your business. And sometimes there are metrics that you don’t think of as being useful for manufacturing.
Want to know how to leverage your manufacturing KPIs with Velo?
Take advantage of a complimentary phone call where we will divulge our perspective on how you can not only put these powerful Manufacturing KPIs to good use but transform your profits.