Articles

The Best Metrics and KPIs for Manufacturers

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

What are Manufacturing KPIs?

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.

As a manufacturer operating in a highly competitive marketplace and a volatile economy, you know that regularly measuring the performance of your manufacturing processes and workflows is essential for operating at peak level. Measuring performance accurately requires setting and analyzing manufacturing-specific key performance indicators (KPIs) and quantifiable manufacturing metrics. Actively using manufacturing KPIs can lead to performance improvements, including better decision making, increased profitability, and enhanced customer service. Data gleaned from the manufacturing KPIs provides insights into how to best optimize production processes, meet organizational goals, and enhance customer service.

What are the Essential Manufacturing KPIs?

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 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 manufacturing metrics your team should consider plus three KPIs focused on determining the overall efficiency of your business.

Foundational Manufacturing KPIs

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.
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.
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 manufacturing metrics, it does indicate how well you’re meeting customer demand and ensuring customer satisfaction—and customer satisfaction is a major requirement for success.
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.
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 Manufacturing KPIs

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.”
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.
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.

"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

Why is Measuring the Right Metrics Important?

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 manufacturing 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 their business goals and objectives. Here’s how:

Efficiency: How long and how much it takes to produce a product is critical information for manufacturers. By measuring throughput and operational KPIs, you’ll know if your processes are efficient in terms of time and cost, and if they’re not, you can use that knowledge to improve them before the inefficiency negatively impacts your customers and your bottom line.
Competitiveness: Your competitors are using everything at their disposal to appeal to customers, and it’s important you do the same. Measuring manufacturing metrics, such as how your customers feel about you, how well you’re performing in the market, and how well you’re taking advantage of market opportunities, will help you understand—and overcome—your challenges and stay ahead of the competition.
Alignment: When setting corporate goals, you’ll need to align them with your manufacturing metrics. In other words, your goals and your metrics should align with each other, working cohesively together to better your operations.
Reduced Risk: It’s a fact that being in business is risky. Some common risks for manufacturing include concerns about quality, equipment set up, and costs. But utilizing manufacturing KPIs can help you foresee possible risks and avoid them before they become an unfortunate reality.
Decision Making: What’s better? Making quick decisions or strategic ones? The answer is both, and metrics provide the data you need to make informed and fast decisions for every aspect of your business, from inventory to investments and beyond.
Profitability: The ultimate goal of any business is to make money, and the way to accomplish this is by creating products efficiently and selling them at competitive rates. With manufacturing metrics, you can identify areas that need improvement, such as wasteful processes and setting prices based on what your products are worth, what the market will allow, and what your competitors are doing.

As you establish your manufacturing KPIs and begin to enjoy the benefits, your employees and your customers will thank you.

How Do You Measure Manufacturing KPIs Using a Cloud ERP Solution?

Manufacturing KPIs and metrics produce a lot of critical, detailed data that you can use to make strategic, actionable decisions. But being able to gather, organize, and analyze that much data requires sophisticated technology, such as a cloud-based Enterprise Resource Planning (ERP) solution.

A cloud ERP solution acts as the central database for an entire organization, synchronizing the data and making it accessible to every team member. When researching your ERP options, you’ll want to find one that provides multi-dimensional reporting tools that allow you to analyze your manufacturing KPIs, custom reports for conveying the information to your team, and role-based dashboards that can be personalized to fit your manufacturing needs. In addition, you should be able to use the solution to create visual dashboards for your essential KPIs, export your data to external analysis tools, such as Power BI, and enjoy custom workflows for managing actions and facilitating change throughout your business.

The benefits of using a cloud ERP solution to measure your KPIs for manufacturing include:

A real-time, accurate view of your business—at any time, on any device, from anywhere.
Out-of-the-box and customized reporting.
A single version of the truth.
Enterprise-level data security.
Insights into how to address problems quickly.
Ability to identify things that are going well so you can replicate it in other areas.

And you can use the manufacturing KPIs to recognize patterns, and if you add these patterns to external information, you can project operational results like revenue, profit, margin, workload/backlog, etc. in the future, which will help you proactively adjust operations as a result.

How Can the Right Cloud ERP Solution Help?

The right cloud ERP solution will help you measure the manufacturing metrics that meet your specific goals and translate those metrics into business-building intelligence. With Acumatica, you can gather data from current sales activity and forecasts, procurement and production, and outside factors to build a dynamic and valuable view of every aspect of your business.

Acumatica makes it easy to collect, distribute and communicate that intelligence and information as you head into a successful, productive future.

Data collection: With ERP automation tools, you can easily obtain data and improve your data accuracy. For example, you can integrate with third-party applications (e.g., programmable logic controllers (PLC), supervisory control and data acquisition (SCADA) applications, industrial internet of things (IIoT) with RFID tags, and more) to gather information and scan manufacturing and warehousing documents.
Artificial intelligence: Acumatica’s core application platform offers built-in artificial intelligence with machine learning capabilities. This means you have modern tools that can help you streamline manufacturing processes, show Acumatica how to recognize and differentiate between various documents, and see issues you may otherwise miss.
Dashboards: Real-time, personalized dashboards provide financial, operational, and organizational data in one place, aiding you in monitoring your manufacturing KPIs, including the ability to drill down into the nitty gritty details. In addition, you can access your dashboards on the go on any web-enabled device.
Power BI Analytics: Gathering, analyzing, and presenting data gleaned from numerous sources (e.g., CRM, manufacturing, or quality management systems) is possible with Acumatica’s business intelligence tools, like Microsoft Power BI. The result is incredible insights into organizational processes and procedures.
Reports and inquiries: ERP systems act as the centralized database for the entire organization, and the data that’s stored must be able to be accurately related to stakeholders via reports. With Acumatica, each application provides out-of-the-box and easily tailored reporting—through Acumatica’s Report Designer—as well as generic inquiry capabilities.
Notifications workflow: Generic Inquiries and Business Events work together to inform your team of issues before they arise. Plus, custom workflows can be programmed to automatically notify your employees, customers, or vendors of actions that are happening or need to be taken (e.g., apprise customers that their order is shipped or let warehouse team members know low inventory status).

“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

Featured resources

Industry Asset

Manufacturing ERP Handbook

eBook

Manufacturing Metrics Made Easy

Infographic

Manufacturing Businesses Ensure Customer and Employee Success With Role-Based ERP Software

View all resources

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

Request a demo