28 Manufacturing Metrics That Actually Matter

How to monitor high-level goals and the processes that achieve them

Published: Thursday, October 17, 2013 - 14:18

It’s often said that what gets measured gets done. Part of this is human nature. Everyone has more piled on their plates than ever, and many workers find themselves constantly reprioritizing their work activities. Therefore, metrics that have the attention of business and manufacturing leaders tend to be those that get measured and improved on by their employee teams.

Effectively measuring, analyzing, and improving manufacturing metrics is not as simple as it may appear. Although there are certain metrics that work well for specific job roles, it’s often the case that multiple combinations of metric indicators are needed to ensure that a larger business objective is met.

For this reason, metrics need to be aligned to larger goals and objectives. Think “SMART” goals—specific, measurable, actionable, realistic, and time-based. This acronym contains some key concepts.

It’s important to understand the interrelationships between high-level goals and objectives as well as what actions or methods are required for an organization to achieve them. In manufacturing, each major goal typically requires multiple metrics, most of which fall under the specific, measurable, and actionable categories. Any desired result must have a set of defined measurements, targets, and actions that can be taken to “move the needle” on the metrics that serve as leading or lagging indicators of results.

The realistic component of the acronym can present a significant area of challenge. Leaders want teams to stretch and achieve more than what is individually perceived as possible. However, if goals are too lofty, and workers don’t believe they can be achieved, they may give up and disengage. Because every goal must be driven by some type of deadline or period to achieve the target, the time-based element is important to keep everyone focused.

Sustainable metrics-based improvements require a continuous improvement methodology—a cycle that is never fully complete. As can be seen, measurement and metrics are a central pillar of this continuous improvement cycle.

Which metrics matter most?

The Manufacturing Enterprise Solutions Association (MESA) sponsors research to help the manufacturing marketplace identify the most important metrics, help decision makers understand metrics improvements and their relationships to metrics programs, and make use of software solutions. As part of the most recent metrics survey, 28 manufacturing metrics were identified as being the most utilized by discrete, process, and hybrid/batch manufacturers. Below, these metrics are grouped under their associated top-level area of improvement or goal for each.

Improving customer experience and responsiveness

1. On-time delivery to commit. This metric is the percentage of time that manufacturing delivers a completed product on the schedule that was committed to for customers.

2. Manufacturing cycle time. Measures the speed or time it takes for manufacturing to produce a given product, from the time the order is released to production to finished goods.

3. Time to make changeovers. Measures the speed or time it takes to switch a manufacturing line or plant over from making one product to making a different product.

Improving quality

4. Yield. Indicates a percentage of products that are manufactured correctly and to specifications the first time through the manufacturing process without scrap or rework.

5. Customer rejects, return material authorizations, and returns. A measure of how many times customers reject products or request returns of products based on receipt of a bad or out-of-specification product.

6. Supplier’s quality incoming. A measure of the percentage of good-quality materials coming into the manufacturing process from a given supplier.

Improving efficiency

7. Throughput. Measures how much product is being produced on a machine, line, unit, or plant over a specified period of time.

8. Capacity utilization. Indicates how much of the total manufacturing output capacity is being utilized at a given point in time.

9. Overall equipment effectiveness (OEE). This multidimensional metric is a multiplier of availability x performance x quality, and it can be used to indicate the overall effectiveness of a piece of production equipment, or an entire production line.

10. Schedule or production attainment. A measure of what percentage of time a target level of production is attained within a specified schedule of time.

Reducing inventory

11. Work-in-process (WIP) inventory and turns. A commonly used ratio calculation to measure the efficient use of inventory materials. It is calculated by dividing the cost of goods sold by the average inventory used to produce those goods.

Ensuring compliance

12. Reportable health and safety incidents. A measure of the number of health and safety incidents that were either actual incidents or near misses that were recorded as occurring over a period of time.

13. Reportable environmental incidents. A measure of the number of environmental incidents that were recorded as occurring over a period of time.

14. Number of noncompliance events per year. A measure of the number of times a plant or facility operated outside the guidelines of normal regulatory compliance rules during a one-year period. These noncompliances must be fully documented as to the specific noncompliance time, reasons, and resolutions.

Reducing maintenance

15. Percentage planned vs. emergency maintenance work orders. This ratio metric is an indicator of how often scheduled maintenance takes place, vs. more disruptive or unplanned maintenance.

16. Downtime in proportion to operating time. This ratio of downtime to operating time is a direct indicator of asset availability for production.

Increasing flexibility and innovation

17. Rate of new product introduction. Indicates how rapidly new products can be introduced to the marketplace and typically includes a combination of design, development, and manufacturing ramp-up times.

18. Engineering change order cycle time. A measure of how rapidly design changes or modifications to existing products can be implemented, all the way through documentation processes and volume production.

Reducing costs and increasing profitability

19. Total manufacturing cost per unit excluding materials. This is a measure of all potentially controllable manufacturing costs that go into the production of a given manufactured unit, item, or volume.

20. 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.

21. Net operating profit. Measures the financial profitability for all investors, shareholders, and debt holders, either before or after taxes, for a manufacturing plant or business unit.

22. Productivity in revenue per employee. This is a measure of how much revenue is generated by a plant, business unit, or company, divided by the number of employees.

23. Average unit contribution margin. This metric is calculated as a ratio of the profit margin that is generated by a manufacturing plant or business unit, divided into a given unit or volume of production.

24. Return on assets and return on net assets. A measure of financial performance calculated by dividing the net income from a manufacturing plant or business unit by the value of fixed assets and working capital deployed.

25. Energy cost per unit. A measure of the cost of energy (e.g., electricity, steam, oil, gas) required to produce a specific unit or volume of production.

26. Cash-to-cash cycle time. This metric is the duration between the purchase of a manufacturing plant or business unit’s inventory, and the collection of payments and accounts receivable for the sale of products that use that inventory; typically measured in days.

27. EBITDA. This metric acronym stands for “earnings before interest, taxes, depreciation, and amortization.” It is a calculation of a business unit or company's earnings, prior to having any interest payments, tax, depreciation, and amortization subtracted for any final accounting of income and expenses. EBITDA is typically used as top-level indication of the current operational profitability of a business.

28. Customer fill rate, on-time delivery, and perfect-order percentage. This metric is the percentage of times that customers receive the entirety of their ordered manufactured goods, to the correct specifications, and delivered at the expected time.

To benchmark your performance and understand the most important manufacturing metrics, click below to participate in the 2013–2014 Metrics that Matter Research Study, conducted by LNS Research and MESA International. In exchange for taking the survey, you will receive access to the LNS Performance Management Library for one year as well as the benchmark report on the research in Q1 of next year.

Click to take the survey and gain access to valuable research.

First published Oct. 9, 2013, on the LNS Research blog.

About The Author

Mark Davidson

Mark Davidson is a principal analyst at LNS Research, conducting research on operational excellence. His primary focus is research and development of manufacturing operations management. Davidson has more than 35 years experience in automation and information technology-based products and services for strategy and business planning, new business development, sales and marketing, internal and external B2B communications, and product line management.