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If you're responsible for managing operations, the following scenario won’t be new to you: You have a meeting with the executive team tomorrow, and you are running around to get information on metrics for your presentation. The next day, you’re expected to report on the overall performance of your plant to several department heads.
Corporate executives are often inundated with data, which makes it difficult to pull out relevant insights. Although most metrics on the executive dashboard are finance-related, executives in manufacturing organizations need visibility into operational metrics to gain more control over their businesses. They are looking to understand the effect operational performance has on their organizations’ goals.
The impact quality has on a company’s success is often well understood. However, companies have traditionally struggled to establish metrics that can easily represent the effectiveness of quality in the organization. The following metrics will help you provide an accurate picture to present to the executive team. It is important to understand that, depending on the type of industry, geography, and company size, there might be additional metrics you would want to add to this list.
1. Cost of quality. The definition of this metric is similar to the way it sounds. It measures the cost incurred by an organization to manufacture a quality product. Further narrowing things down, these costs come from two main categories: cost of good quality and cost of poor quality. The cost of quality definition and enterprise quality management software—part 2, cost of quality both offer detailed descriptions of these metrics and insights on how to measure them.
2. Overall equipment effectiveness (OEE). Quality affects many different parts of the business, so it is critical to establish a comprehensive metric that provides visibility into the most important areas of operations. The answer to this lies with calculating the OEE formula: OEE = Availability × Efficiency × Quality
First, OEE measures how often an asset is available when it should be producing product for a customer. Second, when an asset is producing product for a customer, OEE measures how close the asset is producing to its theoretical maximum. And third, for those products that are produced, OEE measures the percentage that are produced within quality specifications.
3. Percentage of products in compliance. This is a critical metric in regulated industries such as medical devices, pharmaceutical, biotechnology, and food and beverages. Even in industries such as automotive, aerospace, and defense, this metric plays a crucial role. It measures the percentage of products that are in compliance with government regulations and internal guidelines. It is often challenging for companies to keep employees up to date with the changing compliance landscape.
Additionally, compliance to the European Union’s registration, evaluation, authorization, and restrictions of chemicals (REACH) directive, or the restriction on hazardous substances (ROHS), or the waste electrical and electronic equipment (WEEE) directive impact companies differently based on the industry, which adds to the complexity of selling in a global market. This metric measures how effective your organization is in being compliant with local, national, or global policies that affect your business.
4. On-time and complete shipments. Managing the quality of the product should not be at the expense of delaying final delivery from the plant floor. Even though on-time and complete shipments as a metric sounds fairly easy to understand, there are many different ways companies measure this metric. LNS Research defines this metric as percentage of products delivered on time and complete with no errors or repromise dates.
5. New products introduction (NPI). NPI as a metric is defined as a percentage of new products introduced in the market that hit time, volume, and quality targets. New products are often introduced in the market and are a source of competitive advantage in industries such as automotive and consumer electronics. Profit growth depends not only on how successful your organization is at introducing new products into the market, but also how effective your organization is at hitting NPI targets.
These five key metrics provide an executive with critical insight into operational and financial performance. Does your organization measure any of the above metrics? Are there any other metrics that should be included in the description above? I would love to hear your comments on the metrics your organization is measuring.