Modern manufacturing organizations are faced with a variety of challenges. The rapid pace of technology, the rise of disruptive competitors, and the ever-changing demands on their supply chain have all contributed to this.
It’s important to look at the measures that indicate what your company has accomplished so far during this year or within any particular timeframe as well those telling you where improvement might still lie ahead.
We’ve outlined 7 KPIs below that are worth keeping an eye on when evaluating how your manufacturing organization is doing against the modern demands. However, it’s up to you to decide which metrics work best with YOUR business model!
Inventory Turnover Rate
Your inventory turnover rate is a measure of how often you sell and replace inventory over a given period. This is a great way to measure your manufacturing process by how quickly you are able to get through stock.
The inventory turnover rate is calculated by dividing the cost of goods sold (COGS) for a given period, such as an accounting quarter or year, by your average inventory value.
Distribution Cost to Sales Ratio
Distribution costs are the expenses incurred during a manufacturing process to move goods from your plant or warehouse and into retail stores, wholesalers’ warehouses etc.
The distribution cost to sales ratio is calculated by dividing Distribution Costs for an accounting period By Net Revenue.
The Operating margin is the percentage of net revenue that’s leftover as operating profit after covering all expenses. It’s calculated by dividing Net Income for an accounting period By Total Revenue For An Accounting Period (Net Revenues + Non-operational Expenses).
This really helps you identify how much money your company makes on average from every dollar in sales it brings to its balance sheet, and this ratio can be used with other ratios like gross margins or cost/expense percentages which are also important financial indicators when evaluating a manufacturing organization’s performance efficiency levels.
Production Lead Time
Production lead time is a measure of how quickly your company can produce a product.
It is calculated by dividing the number of weeks or days it took you to complete one batch this year, for example, three months or 84 days) by total production capacity (number of worker hours available per week).
This will give an indication of how long your manufacturing process takes and if there are any bottlenecks in that time frame that could affect overall productivity levels at work.
Longer lead times mean increased costs because not only do they require more resources but also increase risks due within deadlines set out with clients. Shortening up these periods means better customer satisfaction as well since projects get completed quicker than before.
Production Backlog vs. Capacity
Keeping an eye on the backlog in your production process, or what is next in line for production, will help you to stay on top of your overall capacity and whether or not there is a danger in production lags.
If your company produces a number of different products on various pieces of machinery, it’s important to make sure you’re keeping an eye on the backlog vs capacity of each machine to estimate where future bottlenecks could occur.
If production slows down, or if the backlog increases then you should look at ways of increasing your capacity by expanding current machinery to allow for more throughput.
You can also use this data as a way in which customer satisfaction could be improved and risks managed with shorter deadlines being set out within projects as available so that they are completed as soon as possible(easing any potential customers’ frustrations).
Your machinery is the lifeline of your business, and it’s important to understand any scheduled uptime/downtime to ensure there are no disruptions to the wider process. Machine downtime can occur for a number of reasons, such as maintenance or a malfunction – which is why it’s important that this information be easily accessible and understood by all personnel so you’re able to take proactive measures whenever possible.
Keeping an eye on your machine’s uptime and demand is also a way to identify if it’s time to invest in additional machinery to take on any additional capacity needs or coverage should machinery need to be down for any extended maintenance.
Return on Assets
One of the most important KPIs for any manufacturing company is their return on assets. This measures how much money your investment in equipment and machinery generates with each year’s worth or production output. This helps you to identify if it will be time-efficient (and financially viable) to continue investing into that area, downsize operations by scrapping out an old machine from inventory, invest more heavily so as not fall behind competitors who are also invested within this industry sector.
These are only a selection of the important KPIs for a manufacturing organization, and it’s important to make sure the KPIs you choose to use match your organization’s specific needs.
If you’re struggling to find the right KPIs, or need help understanding how they work in your company’s operations, reach out to AuVis to chat with us about how you can measure the efficiency, ROI, and Efficacy of your manufacturing process.