15 practical manufacturing KPIs for time-starved production managers

Ensure your business is running optimally by using key performance indicators. Here’s a list of the most common KPIs manufacturers use to track performance.

How to choose the right manufacturing KPIs for your business?
Published: 19.07.2022

When you look closer, working in any of the manufacturing industries can resemble a relay race.

Ultimate speed in every leg of the race, battling against quick rivals, and aligning your team towards a unified goal is both challenging and rewarding. As a production manager, your job is similar to the head coach of the relay team, but with smart manufacturers instead of sprinters. Like a head coach, you need to track the performance of your team — this is where manufacturing KPIs can help.

In this article, you will find a longer list of key performance indicators (KPIs) that can help you find or save your most valuable resource — time. You’ll find 15 quality KPIs in manufacturing you can consider implementing. But first, let’s take a step back and look at the pros and cons that come with implementing KPIs.

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Manufacturing KPIS — the good, bad, and the ugly

Speed, efficiency, and the ability to assess situations from all angles is critical in today’s competitive landscape. Sometimes you have the time to take a deep dive into your data to spot opportunities and areas of improvement, yet there are so many responsibilities on the daily plate and so few hours to spare.

Before browsing through the KPIs listed below, let’s set the record straight about manufacturing KPIs.

Manufacturing KPIs are not magical spells that your competitors haven’t heard of. They are popular and easy-to-find tools. Many use them to monitor and optimize production processes. Each manufacturing company and its respective product manager(s) has its own set of tools.

As the company grows, the production manager can feel an imminent urge to add more KPIs for manufacturing. Primarily tracking your manufacturing cost per unit, throughput, and cycle times can feel too simplistic. But in reality, more KPIs isn’t always the right approach. You don’t necessarily have to multiply the number of trackable manufacturing KPIs when your company grows.

Another ugly truth is that manufacturing analytics often rely on data from clunky spreadsheets and charts that are prone to human error. Manufacturing management software that presents data that is also accurate can be helpful, especially if it integrates with different programs that suit your specific manufacturing needs

15 universal manufacturing KPIs

It’s worth repeating in manufacturing there are industry-specific KPIs that are particularly important — though there are plenty of metrics to track business performance.

Regardless of whether you implemented the basics already or you’re just dipping your toes into the lake of manufacturing KPIs, it’s good to revisit the basics. Here are the first seven essential quality KPIs in manufacturing.

7 essential manufacturing KPIs

1. Cycle times

Experienced managers who work for manufacturing industries define cycle times as the average time spent on producing products.

For example, a Toyota car cycle time is about 18 hours, while a handmade Rolls-Royce car cycle time is about 4,320 hours (or six months). However, the term has more layers to it. In the car manufacturing industry, cycle times are also used to measure the time it takes to produce the gearbox or driver’s seat of a finished vehicle. Production managers also use this metric to measure the amount of time it takes for the car to reach the dealership.

In short, cycle times are good indicator of how quick your manufacturing process is.

Cycle times = Process End Time – Process Start Time

What’s the difference between lead time and cycle time?

Lead time and cycle time are two manufacturing KPIs that are often confused with one another.

In a nutshell, cycle time measures the time it takes for a team to make a product, while lead time measures the time between the order input and order fulfillment. Cycle time fits into the timeline of lead time.

2. Throughput

Throughput is often considered the holy grail of production metrics. It measures the production capabilities of a machine or production line. Throughput gives manufacturers the necessary data to understand how much they can produce over a specified period.

Ideally, throughput should be monitored on a real-time weekly basis. This is because any considerable decrease in the number of units being produced can highlight a major problem — which you can then resolve as quickly as possible.

Throughput = # of units produced / time (day, week, month, one day eternity?)

3. Takt time

Takt time is the maximum permissible amount of time spent on manufacturing a product while meeting a client’s deadline. The KPI originates from German manufacturing, which is known for its efficiency.

Like cycle times, takt time helps you schedule production orders and helps you understand whether you can deliver on your promises before your make them.

Takt Time = Net Available Time / Customer’s Daily Demand

4. Production attainment

This manufacturing KPI measures production levels over a specific time and simultaneously calculates how often a target production level is achieved.

Production Attainment = # of Periods Production Target Met / Total Time Periods

5. Manufacturing costs per unit

Manufacturing businesses need to know the total costs associated with manufacturing a product. How else would you know how to price products? Typical manufacturing costs include labor, raw materials, overhead, among, unfortunately, many others.

Manufacturing Costs Per Unit = Total Manufacturing Costs / # of Units Produced

6. Energy costs per unit

This is the manufacturing KPI that is increasingly relevant every year. More clients are demanding environmentally-friendly products, and energy manufacturing is becoming an expensive political weapon that can skyrocket the price of your products.

The energy costs per unit metric calculates the total energy costs and divides it by the number of units produced in a specified timeframe.

Energy Cost Per Unit = Total Energy Cost / # of Units Produced

7. Inventory turns

Excessive inventory might be helpful in an era of market disruptions, but if it’s becoming the norm, it’s usually a sign of poor sales and market turbulence. Inventory turns is a manufacturing KPI that will help you measure how often merchandise is sold over a specific time period.

Low ratio numbers indicate meager sales and redundant inventory. High ratio numbers stand for strong sales or insufficient stock.

Inventory Turns = Cost of Goods Sold / Avg. Inventory

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3 manufacturing KPIs for monitoring efficiency

We’ve covered seven universal KPIs for manufacturing, only eight to go. In this section, we’ll introduce three manufacturing KPIs that will help you gauge the efficiency of your operations.

8. Overall equipment effectiveness (OEE)

Overall equipment effectiveness (OEE) measures the efficiency of all operations. This manufacturing KPI is another must-have if you want to be sure that your machines are productive. The higher your OEE, the more effective your equipment is.

OEE combines performance, quality, and availability, but includes scheduled time only. If the machine is not scheduled or maintenance is performed, the OEE doesn’t factor in this time.

OEE = Performance x Quality x Availability (actual production time / scheduled time)

9. Overall operations effectiveness (OOE)

Overall operations effectiveness or OOE measures the availability of all operations from the beginning to the moment they end. Manufacturing industries track this metric to have a clearer picture of how their processes are running.

For example, planned maintenance for machines is included in the OOE calculation but not in the OEE calculation. Machines are generally not productive during maintenance times — if they are then hold onto them. Visualized OOE data gives production managers ideas on how to improve their processes for optimal output.

OOE = Performance x Quality x Availability (actual production time/ operating time)

10. On-time delivery (OTD)

OTD is a straightforward metric that will show you how big of a percentage of your products are delivered on time. You want to keep this metric to the round, beautiful number of 100%, but it will be a challenge in an era of disrupted logistics.

If you consistently keep OTD close 100%, never shy away from asking for a higher salary from your boss or higher rates from your customers! Be wary of abusing this manufacturing KPI, since the thrill of chasing the elusive 100% can lead to an unrealistic production schedule and cutting corners on quality.

On-Time Delivery = (# Units Delivered on Time * 100) / # Units Delivered

3 manufacturing KPIs for staying lean

Lean manufacturing is a practice of Japanese origin that focuses on minimizing waste without sacrificing productivity. However, waste in this context doesn’t mean garbage or defective parts. In lean manufacturing, waste is any activity that does not add value from a customer’s perspective.

Here are three lean manufacturing KPIs to help you reduce waste of all kinds.

11. First pass yield or throughput yield

If possible, do not pronounce it as an acronym (too similar to FBI, isn’t it?). Also known as throughput yield, this manufacturing KPI tracks the quality and development of production processes.

Specifically, throughput yield calculates the percentage of products manufactured to specification the first time around. In time, a high yield rate will lead to a decrease in rework expenses and an increase in profitability.

First Pass Yield Rate = Quality Units / Total Units Produced

12. Downtime to operating time (DOT)

DOT can measure the effectiveness of machinery maintenance and the machine itself.

Suppose effective preventative maintenance is your main priority. In that case, the downtime can be reduced if you follow this metric and use it to create a more optimal manufacturing process. Lean manufacturing companies aspire to reduce this ratio as much as possible.

DOT = downtime / operating time

13. Material yield variance (MYV)

Say you work for ACE Beaute, a small cosmetics company that processes raw materials. This lean manufacturing KPI takes the estimated amount of materials required for a product and compares it against the number of raw materials used.

In short, analyzing yield variance helps production managers maintain control over material usage.

Material yield variance = actual material use / expected material use

2 more manufacturing KPIs you should know

You are now familiar with 13 quality KPIs in manufacturing. While there are plenty more, remember that KPIs are only useful if you truly understand what they indicate. The effectiveness of your strategy execution will depend on how you use your KPIs, not many you hoard.

Don’t worry, the finish line is now near. Here are two additional metrics that can save some of your vital brain cells and time.

Only two more manufacturing KPIs to go, you’re almost there.

14. Defect density

Evaluating defect density is something smart manufacturers use since it allows you to compare the quality of different products and lines. The formula is also simple — divide the number of defective products by the total number of produced products.

If you use this manufacturing KPI regularly, you will avoid costly recalls, diminished profitability, and a damaged reputation.

All that it requires is examining your quality assurance and final production data.

Defect Density = defective products/total produced products.

15. Employee turnover

Of course, this isn’t a manufacturing-only metric. However, it can be argued that it is equally as important as the other manufacturing KPIs on this list.

While employee turnover typically has a negative connotation, not all turnover is bad. Employee turnover may be required to replace underperformers with higher performers.

However, having too high of a turnover can lead to lower morale, and when morale is low, negative rumors spread like wildfires. No matter how much you pay your PR guru(s), it’s almost impossible to stop negative word-of-mouth.

You can use this metric to regularly gauge your employee turnover rate and strive for a healthy balance.

Employee Turnover Rate (%) = (Employees who left * 100) / Avg. # of Employees

Higher morale leads to a lower employee turnover rate among employees.

Final advice on manufacturing KPIs

Congratulations, you now have all the info you need on manufacturing KPIs. Hopefully, you found several or at least one manufacturing KPI that you will implement to cut production time and manufacturing costs.

Manufacturing analytics is meant to improve efficient and propel your growth as a result. Pair your newfound knowledge and interest in manufacturing KPIs with the quest to find modern ERP software that will streamline data collection. Calculating all those KPIs in messy and overloaded spreadsheets will likely be confusing and stressful.

Is essential if you’re looking into improving your entire manufacturing business.

Track your fresh manufacturing KPIs within Katana ERP software

Katana is an all-in-one solution for smart manufacturers. With great inventory control, clear resource planning, and great distribution integration, Katana is the ideal manufacturing ERP software.

If you want to track demand so your production schedule matches your lead times, Katana manufacturing ERP software will be your helpful assistant.

Katana helps manufacturers increase their profits with:

A real-time master planner

Katana ERP manufacturing software automatically takes available finished goods and raw materials. It allocates them to open sales and manufacturing orders, helping you understand your production capabilities briefly and fulfil orders even quicker.

End-to-end traceability

Our features are designed to give you full traceability – useful if you want to use cycle times as a KPI – throughout your entire product lifecycle.

Katana supports batch tracking for manufacturing, purchasing, and sales orders, ensuring industry compliance and visibility when it comes to tracking your perishable stock.

Integrating with your favorite tools

Many manufacturers rely on third-party software to rake in profits. Katana integrates with Shopify, WooCommerce, and other platforms so you can manage your manufacturing operations from one place. It’s even capable of integrating with accounting software such as QuickBooks Online too.

Katana’s integration partners are companies that connect their products with us. Our systems are connected via a safe software application. These apps enable customers to use several technologies on a single platform.

If you have any questions, our customer support team are ready and waiting to help assist you.

Start implementing your new manufacturing KPIs with our software. Implement Katana for free and see how it can take your business to the next level. Try the 14-day free trial and start scaling your business today.

Otto Oliver Olgo Photo

Otto Oliver Olgo

Copywriter

Oliver is a writing whiz. He started off as a sports journalist focused on dramatic feature stories, but he found out that there’s more to life than sports. For example, the wonderful world of manufacturing and writing children’s stories for his kids.
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