A Brief Introduction to Manufacturing KPI
Many companies, both small-sized and international market giants, take advantage of the Balanced Scorecard approach to measure their business' success. The core of this strategy evaluation system are Key Performance Indicators, or KPIs. These metrics are quantifiable values that reflect the underlying drivers of the company's success. Typically, these measurements belong to one of the four BSC's Perspectives (Finance, Customer, Internal Processes, and Learning and Growth), are categorized by function or department, and thus can help point out weaknesses and strengths of the organization. Scorecards have become very popular ever since their introduction to the business sphere in the 1990's. This approach is very flexible and can be successfully applied for both manufacturing and non-profit organizations. In this article we are going to dwell upon the specifics of manufacturing KPIs.
Typical Manufacturing KPIs Designing a Balanced Scorecard for a manufacturing company starts with identifying proper indicators. These metrics should reflect the innermost manufacturing processes that influence on the overall performance. In production management these can be linked with cycle time, rejection rate (waste), etc. So, let's try to identify some of the most typical metrics for manufacturing organizations: Manufacturing cycle. This measure reflects the amount of time spent on production of the item. Amount of defective production. This measure is also referred to as Defects per million opportunities or DPMO.
Average product cost. This measure is essential for estimating cost-efficiency of the entire enterprise. Meantime between failure. This measure reflects time between failures of the system. Loss of material per order. This measure is presented in percents and is equal to the amount of lost material divided by the quantity of material stated in order. The standard, acceptable value for this metrics is 3 to 5%. In case the loss is higher than 5% it is advisable to reexamine the manufacturing process. In addition to these, you can enter other KPIs which are the most crucial in your particular production process. These can include rate of material defect, rate of lost production due to the workers' errors, etc.
Tips on Selecting Manufacturing KPIs Designing a Balanced Scorecard and identifying Key Performance Indicators isn't an easy task. Usually, business owners hire skilled analysts who know how to create the most effective and comprehensible scorecards. However, you can try to design your business evaluation framework yourself, in case you know exactly the way your company functions. Designing BSC also requires time, dedication, and ability to think analytically. The most common tips on creating strategy evaluation systems for manufacturing organizations would be: Inspect the most important processes in your production to identify the underlying drivers that influence the most on your company's overall performance. The number of indicators should not be great (on average, 10-12 KPIs for each Perspective).
Sources: http://www.quora.com/David-Pulman http://ezinearticles.com/?A-Brief-Introduction-to-ManufacturingKPI&id=7423000