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The Best Metrics and KPIs for Manufacturers

Find the Best Metrics and KPIs for Manufacturers to Better Understand Your Company’s Performance.
The Best Metrics and KPIs for Manufacturers

What is a Manufacturing KPI?

Measuring performance is essential for any business desiring growth in today’s incredibly competitive marketplace and unpredictable economy. Key performance indicators (KPIs) are metrics for measuring and monitoring all production processes and workflows over a specified period of time. To help your manufacturing company improve efficiency and reduce costs, you can establish specific, well-defined Key Performance Indicators (KPIs), which, simply put, are metrics for measuring and monitoring all production processes and workflows over a specified period of time. The data supplied by these metrics provides insights on how to optimize performance and to meet organizational goals.

Actively using KPIs for manufacturers can lead to performance improvements, including better decision making, increased profitability, and enhanced customer service. However, before jumping on the KPI bandwagon, it’s important to determine what you’re hoping to accomplish with the metrics you choose.

Do you want to:

  • Improve the quality of existing products?
  • Develop new products?
  • Increase output?
  • Improve customer satisfaction?

Once you answer these and other questions unique to your business, you’ll be ready to set up your manufacturing KPIs, but if you’re wondering what the best metrics for manufacturing are, then read on to find out.

What are the Essential KPIs for Manufacturing?

As discussed, KPIs for manufacturing provide critical data—data you can use to measure your progress against your organizational goals as well as to report on your overall progress. The reports offer insights on where and how to make value-filled improvements that will result in a lean, money-making manufacturing operation. It’s important, however, that manufacturers do not overload themselves with an unmanageable amount of KPIs.

According to LinkedIn, between five and 10 KPIs are the right amount of KPIs for organizations. “KPIs must support each other. More than 10 KPIs will almost certainly break this rule; rather than support each other they will contradict each other and cause terminal confusion.”

With this in mind, here are the five foundational KPIs your manufacturing team should consider plus three KPIs focused on determining the overall efficiency of your business.

Foundational KPIs

  1. Production Volume: Production volume measures the number of units manufactured in a specified period (e.g., daily, monthly, yearly, etc.). You can compare this information to similar timeframes to get a clear picture of what is—and is not—working, thus informing you of adjustments needed to be made.
  2. Production Costs: Knowing how much it costs to manufacture a product will help you know how to lower expenses, thus improving operations. The costs can include materials, labor, and energy use, as well as rent, overhead, and taxes. Because these costs evolve over time, continually monitoring production costs will reveal areas that are too costly.
  3. On-time Delivery: On-time delivery is calculated by comparing products delivered on time to the total volume of delivered products. Though on-time delivery is not often one of the top KPIs for manufacturing, it does indicate how well you’re meeting customer demand and ensuring customer satisfaction—and customer satisfaction is a major requirement for success.
  4. First Time Right: First Time Right (FTR) is the idea of manufacturing a product correctly (e.g., without flaws) the first time and every time. As a metric, FTR lets you see how often hiccups—which may be caused by defective equipment, human error, or material issues—occur in the manufacturing process and puts a spotlight on where improvements must be made.
  5. Revenue Per Employee: Per Shopify, Revenue Per Employee (RPE) is the “average amount of money any given employee makes for the store.” Such information is important because it provides a high-level view of employee productivity and efficiency, helping you identify areas needing improvement in employee relations.

Efficiency KPIs

  1. Throughput: Measuring the rate of production and machine output—how many units a machine produces during a specified timeframe and dividing that number by the total number of units produced—provides insight into how long it takes you to produce your product or service. Investopedia notes, “If you can identify areas where there are backlogs, bottlenecks, or slowdowns, company managers can address these and improve efficiency. Quicker throughput times increase return on investment (ROI) and profitability.”
  2. Work in Process: Work in process (WIP) refers to the goods that are in mid-production. WIP is calculated by taking the beginning work in process in a specified time period plus the manufacturing costs and then subtracting them from the total cost of goods manufactured. This calculation enables you to see how efficient you are at producing a finished product.
  3. Standard Operating Efficiency: Calculating your standard operating efficiency reveals changes in labor costs as well as other expenses over a given period of time. To get your standard operating efficiency score, divide the total number of products produced in a certain period by the number of total products produced at or below estimated costs in the same time frame.

Bill Ferrin
"The only way to survive and be successful in this market is to have visibility into the KPIs to drive manufacturing, maintain profitability, drive customer satisfaction and quality. We couldn’t have done that without Acumatica."
Bill Ferrin, Director of Information Technology
Portacool LLC

The Importance of Measuring the Right Metrics

According to a McKinsey & Company article, U.S. manufacturing “accounts for $2.3 trillion in GDP, employs 12 million people, and supports hundreds of local economies.” The manufacturing sector also provides:

  • 20 percent of the nation’s capital investment.
  • 35 percent of productivity growth.
  • 60 percent of exports.
  • 70 percent of business R&D spending.

The manufacturing industry is a critical sector, and it’s a competitive one. As a manufacturer, going head-to-head with other manufacturers means understanding how your business is operating at all levels and having insights into which areas need improvements.

Measuring the right metrics increases the overall visibility for leaders and managers, while improving product quality and consistency. Additionally, businesses who consistently use KPIs and important metrics are more likely to meet business goals and objectives.

How to Measure Manufacturing KPIs Using a Cloud ERP Solution?

Measuring manufacturing KPIs begins with following the usual reporting best practices. For example, the data must be clean (or error-free), detailed, and standardized. Data should be relevant so as not to overwhelm the manufacturer’s database with unnecessary information. Using the same equation for calculating metrics today and in the future will ensure consistent results. And measuring the same metrics when reporting—and not switching metrics—will provide consistent results and deeper insights.

The reporting of important metrics and KPIs can be enhanced by leveraging robust technology, such as a cloud ERP solution that is integrated across the entire organization. A modern cloud ERP solution stores the manufacturing KPI data in a centralized database and supplies sophisticated reporting tools manufacturers can use to analyze the information in order to make intelligent, actionable decisions.

If you choose to implement cloud ERP software as part of your metric-measuring resources, you will want to carefully evaluate your options. Does the software provide multi-dimensional reporting, custom reports, personalized dashboards, and multiple display options? These are the features you’ll need as you institute your KPIs for manufacturing, and Acumatica delivers them all—and more.

How Acumatica Can Help?

The best metrics for manufacturers are the ones that meet your specific manufacturing goals, and the best cloud ERP solution is the one that helps you translate those metrics into business-building intelligence.

With Acumatica Cloud ERP, you can anticipate receiving a real time and customized view of your business, access to out-of-the-box—but easily modified—reports, and a single version of the truth. You’ll also be able to create visual dashboards for your essential KPIs, export your data to external analysis tools, such as Power BI, and keep your data safe with enterprise-level security.

To learn more about how Acumatica can assist you in gathering, analyzing, and applying your critically important KPIs for manufacturing, contact us today.

“Acumatica helps us collect data we need to make informed decisions, and we are very good at taking that data and turning it into actionable decisions. We get to do that because Acumatica is customizable and allows us to do that on the fly, based on live data.”

Nick Novy, President & Founder, Korpack

See what’s possible when you have a future-proof ERP platform that truly puts customers first.

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