Key performance indicators, or KPIs, are useful when managing any business. However, when it comes to the factory floor, having a set of quantifiable metrics that you can use to evaluate success is absolutely critical.
While KPIs vary considerably across different industries, within the manufacturing environment, there are just a handful of fundamental KPIs that should form the core objectives for performance on any factory floor.
Underpinning these core KPIs is the notion of transparency. The route to improving performance is for everyone – operators and managers alike – to see exactly where there is good performance and bad performance. When everyone can see the problems, it seems that solving them isn’t so difficult. In short, if you can’t measure it, you can’t manage it.
The following core manufacturing KPIs should feature on your factory floor. As with many KPIs, it’s not so much the absolute values that you need to worry about, but whether you can continuously improve on your starting point.
Overall equipment effectiveness (OEE)
For anyone running a factory that uses a lot of plant, OEE is usually the #1 KPI on their list. It shows how manufacturing assets perform relative to their theoretical maximum potential.
OEE tracks three performance metrics:
- Availability (actual running time vs running time)
- Performance (actual speed vs standard speed)
- Quality (good production vs total production)
Overall labour effectiveness (OLE)
UK manufacturers are probably sick and tired of hearing how unproductive they are. According to a recent report in the FT, UK productivity, or output per hour worked, has persistently disappointed since the financial crisis. In fact, since 2008, it has barely grown. Economists measure productivity by dividing GDP by the total number of hours worked. Unfortunately, this aggregated measure doesn’t help us to understand the reasons for flat-lining productivity.
If you also use an aggregated measure for your labour effectiveness (for example, revenue divided by your wages bill), you will also be unable to explain who, why or when specific teams or operators are underperforming. Detailed OLE tracking enables manufacturers to address the specific areas that will deliver the biggest performance improvements.
Where OEE quantifies how your machine assets are performing, OLE does the same for your most important assets: your people.
Labour effectiveness comprises:
- Utilisation (direct hours vs attendance hours)
- Performance (actual speed vs standard speed)
- Quality (per cent labour hours lost to rework or scrap)
Whilst OEE has been widely adopted, OLE is rarely tracked in detail. To be able to improve labour effectiveness, you need to be able to measure and track it in detail by product, team, shift, operator, activity, and several other variables.
In industries that use a lot of labour, improving productivity will also help to make the most of fixed overhead costs as these become shared across more production effort.
Right first time
Right first time is another KPI that depends on transparency to be effective. Tracking where, why and how your production efforts fail will allow you to get to the root causes of failure. Once you know the root causes, you can then take steps to reduce the time and cost of reworking products.
Scrap rates affect material costs. Your finance director might be satisfied to know that your business’s overall scrap rate is X%, but she will be even happier to know that you know how to reduce it. As production manager, you need a sufficient level of detail to enable you to find and fix the problems that are causing failures. Like OLE, and every other manufacturing KPI, the devil is in the detail.
On-time in full
So, you’ve manufactured your widget right first time, you know the exact labour and material content, which has enabled you to set the price with a good profit margin. Unfortunately though, you’ve missed the delivery date…
It’s no good manufacturing with ever-reducing costs if you can’t get the product to the customer on time. Achieving On-Time-In-Full (OTIF) delivery will ensure that you fully satisfy your customers’ demands.
‘On time’ means meeting whatever schedule commitment you made to your customer. If your delivery is missing parts or materials, you haven’t delivered it ‘in full’.
Tracking OTIF will highlight deficiencies in your full order process, from order creation right through to delivery.
First-time pass rate tells you a lot about the cost of achieving quality, but complaints are the ultimate measure of customer satisfaction.
By formally tracking every complaint and monitoring incident rates, you can continually improve quality to work towards 6-sigma levels of customer satisfaction.
Implementing manufacturing KPIs
So much for the theory, but how do you implement KPIs in a manufacturing environment in practice? Our software enables manufacturers to easily collect the data that they need to track KPIs, eliminating the need for paper-based data collection on the shop floor. We give our customers access to the detail they need to inform decision-making, and improve performance.