Improve Business Profitability and Customer Satisfaction

As a manufacturing company CEO or business owner, you manufacture products that are in demand while maintaining long-term relationships with customers and vendors. You also look for ways to improve manufacturing efficiencies, eliminate waste, and reduce costs.

Knowing your key manufacturing performance indicators (KPIs) is critical for success. KPIs uncover areas that you can improve to achieve your goals.

Key Performance Indicators

KPIs are a set of quantifiable measures that a company uses to: (1) determine its progress in achieving its strategic and operational goals; and (2) compare its finances and performance against other businesses within its industry and other benchmarks. KPIs include financial measures, such as revenue and profit margins, and non-financial measures, such as customer satisfaction, employee turnover, and quality metrics.

The KPIs should tie directly to your company’s strategic and operational goals. When choosing KPIs, it’s essential to determine whether: the time spent on collecting, collating, and analyzing the data is worth the information gained, whether the information is accurate, consistent, and reliable, and that the results will arrive with enough time to allow management to act on it.

Drill Down to Manufacturing KPIs

Important manufacturing KPIs focus on reducing waste and increasing productivity.

A Case Study: Telluride Equipment Corporation

Telluride Equipment Corporation is a leading global designer, manufacturer, and distributor of outdoor equipment and lifestyle products focusing on the outdoor and consumer enthusiast markets. Their mission is to create the world’s pre-eminent, performance-defining product that the best-in-class user cannot live without.

Telluride’s products are sold under recognized brand names through outdoor specialty and online retailers, the company’s website, distributors, and original equipment manufacturers.

The CEO and executive team maintain strong relationships with their customers, vendors, and distributors to continue the company’s best-in-class status. They also ensure that they manufacture top-quality products. Tracking manufacturing KPIs enables the company to improve manufacturing efficiencies, eliminate waste, and reduce costs. KPIs also highlight when the manufacturing process deviates from the expected high-performance status so they can make corrections to get things quickly back on track.

Manufacturing KPIs

Get started with this sample of important manufacturing KPIs:

• On-time Deliveries as a Percentage of Total Units Delivered: A ratio of total on-time units delivered to the total units delivered.
• Total Cycle Time: A measure of the time it takes for a customer order to be completed. It does not include waiting time.
• Throughput: A measure of machine performance, specifically, the ratio of units produced by total production time.
• Yield: A ratio of the number of products manufactured without errors by the total items produced.
• Scrap: A quality measure, the ratio of total scrap by total product run.

Manufacturing KPIs Focused on Revenue and Profitability

Below are more manufacturing KPIs focused on revenue and profitability:

• Total Manufacturing Cost per Unit Excluding Materials: A measure of all potentially controllable manufacturing costs that go into the production of a given unit, item, or volume.
• 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.
• Net Operating Profit: A measure of the financial profitability for all investors/shareholders/debt holders before or after taxes for a manufacturing plant or business unit.
• Average Unit Contribution Margin: Calculate the ratio of profit generated by a manufacturing plant or business unit divided into a given unit or volume of production.
• Return on Assets/Return on Net Assets: Calculate the financial performance of a manufacturing plant or business unit by dividing the net income generated by the value of fixed assets and working capital used.
• Cash-to-Cash Cycle Time: The time 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, this is measured in days.
• Customer Fill Rate/On-Time Delivery/Perfect Order Percentage: The percentage of times that customers receive their entire order, manufactured to the correct specifications, and delivered at the expected time.

Do one thing: Determine what you can do to be hyper-focused on improving your manufacturing operations to uncover ways to improve manufacturing efficiencies, eliminate waste, and reduce costs. Start with the KPIs listed above.

Thanks for reading.

*Fictitious names and scenarios were used for this example.