LNS Research provides executives a platform for accessing unbiased research and benchmark data to improve business performance
The LNS Research Blog provides an informal environment for analysts to share thoughts and insights directly with our community on a range of technology and business topics
When it comes to metrics, it’s often said that what gets measured gets done. Part of this is human nature. Everyone has more piled on their plate than ever, and many workers find themselves constantly re-prioritizing their work activities. Therefore, metrics that have the attention of business and manufacturing leaders tend to be those that get measured and improved upon by their employee teams.
Effectively measuring, analyzing, and improving manufacturing metrics is not as simple as it may appear. While there are certain metrics that work well for specific job roles, it’s often the case that there are multiple combinations of metric indicators needed to ensure that a larger business objective is being met.
For this reason, metrics need to be aligned to larger goals and objectives. Think “SMART” goals—Specific, Measurable, Actionable, Realistic, Time-Based. This mnemonic contains some key concepts.
It’s important to understand the interrelationships between high-level goals and objectives as well as what actions or methods are required for an organization to achieve them—this falls under Specific. Measurable and Actionable are when metrics come into play—any desired result must have a set of defined measurements, targets, and actions that can be taken in order to “move the needle” on the metrics that are leading or lagging indicators of results.
In manufacturing, each major goal typically requires multiple metrics. The list of 28 metrics that appear in this post are grouped together relating to specific higher-level goals and objectives (e.g. increase quality). The Realistic component of the acronym can present a significant area of challenge. Leaders want teams to stretch and achieve more than what is individually perceived as possible. However, if goals are too lofty, and workers don’t believe they can be achieved, they may give up and disengage. Since every goal needs to be driven by some type of deadline or period to achieve the target, a Time-Based aspect is important to keeping everyone focused.
Sustainable metrics improvements require a continuous improvement methodology—a cycle that is never fully complete. As can be seen, measurement and metrics is a central pillar of this continuous improvement cycle.
The MESA (Manufacturing Enterprise Solutions Association) organization has sponsored research over the past years to help the manufacturing marketplace identify the most important metrics, and help decision makers understand metrics improvements and their relationships to metrics programs and the use of software solutions. As part of the most recent metrics survey, 28 manufacturing metrics were identified as being the most utilized by discrete, process, and hybrid/batch manufacturers.
Below, we’ve grouped these metrics with the associated top-level area of improvement/goal for each.
1. On-Time Delivery to Commit – This metric is the percentage of time that manufacturing delivers a completed product on the schedule that was committed to customers.
2. Manufacturing Cycle Time – Measures the speed or time it takes for manufacturing to produce a given product from the time the order is released to production, to finished goods.
3. Time to Make Changeovers – Measures the speed or time it takes to switch a manufacturing line or plant from making one product over to making a different product.
4. Yield – Indicates a percentage of products that are manufactured correctly and to specifications the first time through the manufacturing process without scrap or rework.
5. Customer Rejects/Return Material Authorizations/Returns – A measure of how many times customers reject products or request returns of products based on receipt of a bad or out of specification product.
6. Supplier’s Quality Incoming – A measure of the percentage of good quality materials coming into the manufacturing process from a given supplier.
7. Throughput – Measures how much product is being produced on a machine, line, unit, or plant over a specified period of time.
8. Capacity Utilization – Indicates how much of the total manufacturing output capacity is being utilized at a given point in time.
9. Overall Equipment Effectiveness (OEE) – This multi-dimensional metric is a multiplier of Availability x Performance x Quality, and it can be used to indicate the overall effectiveness of a piece of production equipment, or an entire production line.
10. Schedule or Production Attainment – A measure of what percentage of time a target level of production is attained within a specified schedule of time.
11. WIP Inventory/Turns – A commonly used ratio calculation to measure the efficient use of inventory materials. It is calculated by dividing the cost of goods sold by the average inventory used to produce those goods.
12. Reportable Health and Safety Incidents – A measure of the number of health and safety incidents that were either actual incidents or near misses that were recorded as occurring over a period of time.
13. Reportable Environmental Incidents – A measure of the number of health and safety incidents that were recorded as occurring over a period of time.
14. Number of Non-Compliance Events / Year – A measure of the number of times a plant or facility operated outside the guidelines of normal regulatory compliance rules over a one-year period. These non-compliances need to be fully documented as to the specific non-compliance time, reasons, and resolutions.
15. Percentage Planned vs. Emergency Maintenance Work Orders – This ratio metric is an indicator of how often scheduled maintenance takes place, versus more disruptive/un-planned maintenance.
16. Downtime in Proportion to Operating Time – This ratio of downtime to operating time is a direct indicator of asset availability for production.
17. Rate of New Product Introduction – Indicates how rapidly new products can be introduced to the marketplace and typically includes a combination of design, development and manufacturing ramp up times.
18. Engineering Change Order Cycle Time – A measure of how rapidly design changes or modifications to existing products can be implemented all the way through documentation processes and volume production.
19. Total Manufacturing Cost per Unit Excluding Materials – This is a measure of all potentially controllable manufacturing costs that go into the production of a given manufactured unit, item or volume.
20. Manufacturing Cost as a Percentage of Revenue – A ratio of total manufacturing costs to the overall revenues produced by a manufacturing plant or business unit.
21. Net Operating Profit – Measures the financial profitability for all investors/shareholders/debt holders, either before or after taxes, for a manufacturing plant or business unit.
22. Productivity in Revenue per Employee – This is a measure of how much revenue is generated by a plant, business unit or company, divided by the number of employees.
23. Average Unit Contribution Margin – This metric is calculated as a ratio of the profit margin that is generated by a manufacturing plant or business unit, divided into a given unit or volume of production.
24. Return on Assets/Return on Net Assets - A measure of financial performance calculated by dividing the net income from a manufacturing plant or business unit by the value of fixed assets and working capital deployed.
25. Energy Cost per Unit – A measure of the cost of energy (electricity, steam, oil, gas, etc.) required to produce a specific unit or volume of production.
26. Cash-to-Cash Cycle Time – This metric is the duration between the purchase of a manufacturing plant or business unit’s inventory, and the collection of payments/accounts receivable for the sale of products that utilize that inventory – typically measured in days.
27. EBITDA – This metric acronym stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. It is a calculation of a business unit or company's earnings, prior to having any interest payments, tax, depreciation, and amortization subtracted for any final accounting of income and expenses. EBITDA is typically used as top-level indication of the current operational profitability of a business.
28. Customer Fill Rate/On-Time delivery/Perfect Order Percentage - This metric is the percentage of times that customers receive the entirety of their ordered manufactured goods, to the correct specifications, and delivered at the expected time.
In order to continue to uncover valuable industry trends of manufacturing metrics, in partnership with MESA International, LNS Research has launched the biennial ‘Metrics that Matter’ research survey. The 2013-2014 survey and research report is focusing on the trends and correlations between specific operational metric improvements, the use of Manufacturing Operations Management (MOM) software applications, role-based metrics reporting, and the effect of emerging technologies such as mobility, big data, and cloud-computing on metrics programs.
We invite you to take the survey by November 15, 2013 and receive access to LNS Research’s Performance Management Research Library for one year.
© 2014 matthewlittlefield.com