Technology has made powerful, flexible measurement systems with KPI capability both affordable and user-driven.
“KPIs are a standard business management tool that is becoming both more powerful and at the same time easier to use thanks to packaged Business Intelligence and Executive Information Systems applications that are part of a comprehensive back office software system.”
Every kind of manufacturing company, in all industry segments including automotive, food and beverage, health and beauty, electronics, industrial machines, metal fabrication, plastics, etc., rely on measurements to monitor business activities and performance, document successes and challenges, and help direct management decision-making.
Of course, while we measure a number of parameters simply to comply with mandatory accounting and reporting requirements, smart management will incorporate those measurements into valuable intelligence that helps run the business more effectively and more efficiently.
“KPIs are a standard business management tool that is becoming both more powerful and at the same time easier to use thanks to packaged Business Intelligence and Executive Information Systems applications that are part of a comprehensive back-office software system.”
Download this free whitepaper from Acumatica and learn:
- What is a key performance indicator
- Types of KPIs and those specific to manufacturing
- How to use and reap the benefits of KPIs
- Ongoing KPI maintenance including adjustments and expansions
- anytime, anywhere.
Historical and Predictive KPIs – Which Should You Use?
There are two basic types of KPIs. First, ones that tell you where your business has been and where you are headed. The other, shows you the overall health of your business.
Historical KPIs allow you to easily measure past activity, and showcase where your business will likely go in the future based on that history. They can be set up with alerts and warnings to monitor and detect exceptions, based on historical data, and call attention to issues. These systems can even alert you via email or text.
The second type of KPIs are predictive. These can provide multiple lines of insight into where your business could go in the future. By utilizing all your business data, predictive KPIs can help you make better decisions for your business. In other words, predictive metrics don’t rely on the experience of previous tasks. These metrics show future results according to which the optimal production scenario for the whole factory is made evident. For example, when production runs smoothly, peripheral departments such as sales, supply chain management, etc. are affected positively, as their value-added activities are conducted in alignment with the shop floor.
As performance indicators of the future, Predictive KPIs usually contain information around:
- Inventory – Total inventory value, raw material inventory, WIP inventory, finished goods material value, and others
- Resources – Productivity, OEE, manufacturing time, setup time, capacity load and others
- Products and Customers – Production quantity, manufacturing cost, contribution margin, profitability, and others
- Orders – Earnings, profit, profit ratio, cumulative employee costs, cumulative total costs, and others
One thing to note, you want to make sure your predictive KPIs exist for the entire planning period as well as pre-determined shorter planning periods. This forms an important pillar for making effective management decisions in every case, which is the reason that every manufacturing company today requires an end-to-end planning solution.
Example KPIs for Manufacturing
Plan vs. Actual Hours & Cost
This KPI compares different areas of the shop, different processes, and different products. By keeping a close eye on these metrics, you get an indication of how effectively your business is operating and how to improve overall results.
Utilization & Capacity
The ability to plan optimum utilization of resources is key to a lean shop. Resource load balancing can help save on costs and improve on-time products, reduce overtime and expediting costs, and improve on deliver promise dates. Utilization and capacity KPIs, also referred to as Work Center Dispatch KPIs, can easily be modified to fit your business so you’ll always know what each center is working on and what’s in the queue for completion.
Production Scheduling
This metric is a little bit more granular but offers better insight into workflows and resource utilization. Many manufacturers use this as a starting point for defining a display of released orders in the plant and the current location and status of each. By using this production schedule KPI and the work center dispatch KPI, you can easily see the overall status of each work center and schedule across your departments or the entire shop.
Profitability by Customer by Category by Item
We all know that not all customers are created equally. Some of them are highly profitable and others might cost your company money. And this is true for products too. It’s wise to review profitability of both customers and products on a regular basis. This example of Sales and Profitability by Item Class and Item gives you plenty of data to better understand your business.
KPIs may have originated in large, complex organizations but their value us universally recognized, and technology has made powerful, flexible measurement systems with KPI capability both affordable and user-driven so smaller organizations can benefit as well.
Many KPIs are historical in nature, focused on summarization, presentation, and analysis of data commonly found in manufacturing management systems. User-managed alerts and alarms highlight activities and business areas that need attention, relieving busy managers from the need to pore over endless reports and screens. Built-in tools enable fast, intensive analysis to get to the heart of the problem and make sound, informed decisions.
If you need better insight into your manufacturing business, talk to GaleForce. We have the experts you need and solutions to match your unique business and pricepoint. ERP solutions have evolved immensely over the past years and enterprise level features like KPIs are readily available for SMB level businesses. Let’s talk. Contact us today.