automatic production process in the manufacturing industry

KPI Examples for the Manufacturing Industry

charts and graphs showing the production volume over time

Production Volume

Evaluate the quantities that your business is able to produce over time

Our first manufacturing KPI example will give you an overview of what your factories are able to produce in a month, a semester or a year. You then have the big picture of what your business is handling and when. Comparing it to previous similar periods is a good indicator of evolution, to stop anomalies, regress or progress. Likewise, measuring which machine makes up for which percentage of the production can give you an idea of their performance and importance -no one wants to see the 45%-production machine breaking down without a plan B. Acknowledging that will also help in assessing your assets and what you invest in them (cf. Return on Asset).

Performance Indicators

A good production volume is one that satisfies demand but does not leave too much inventory in stocks.

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visual example of the production downtime for a manufacturing company

Production Downtime

Optimize your maintenance by controlling when and why it happens

One of the most important manufacturing metrics to track is the Production Downtime. If your machines are not working, the result is money that can’t be made: reducing your downtimes to a minimum must be your goal number one to avoid further lost profit. When downtime happens, it is necessary to report the reasons why it occurred, as it is the only way you can track the problems, assess them and then acknowledge what needs to be solved. Downtime can also be planned, when the equipment needs maintenance, or during lunch breaks and shifts: that way, you can not only optimize it, but also keep it under control by preventing machines out of service, or inventories running out of stocks taking you by surprise.

Performance Indicators

Try to reduce your downtime as much as you can. Monitoring it properly will help you improve processes, boost profitability and evaluate the effectiveness of your equipment.

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charts breaking down the production costs of a manufacturing company

Production Costs

Monitor the costs implied in the production of your different products

The Production Costs by Product specifies how much each component of your product costs and how much it represents for your finished product. Breaking down this manufacturing metric into the various types of costs will tell you which ones are making the biggest part of your unit and can help you if you want to track different expenses that can be optimized. Tracking these production costs over time is a good thing to know how they evolve and if you manage, at the end of the day, to stay under the target price per unit you set in order to make it profitable.

Performance Indicators

Measure the overall costs per unit your business has over a production cycle, and see if that makes you profitable in regard to the sales price you want to set..

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chart illustrating the defect density for different products over time

Defect Density

Track the damaged items right away

Evaluating the Defect Density is an important task in the production environment. This is a key quality indicator that is easy to gauge. The Defect Density pinpoints the number of defective products divided by the total number of products produced. A manufacturing metric like this one will let you compare the quality of your different products. It is helpful in identifying areas where problems occur, and will let you take the measures to what must be rectified. Working with this metric alongside others like the Right First Time KPI will lead to increased efficiency in your production process and ultimately, avoid useless expenses that’ll save money.

Performance Indicators

Try to keep your defect density as low as possible and compare it to industry benchmarks.

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charts showing one of the most important manufacturing KPIs: The Rate of Return

Rate of Return

Measure how many items are sent back to your factories

Very similar to its retail counterpart, the Rate of Return evaluates the percentage of products that are sent back to you. Returns are expenses that could be avoided, as they are products that need to be processed all over again. They may come back to you for any kind of reason: defect, wrong packaging, non-compliance, etc. Analyze these reasons in order to tackle the root cause of the problem, and avoid further returns. Doing so will not only save you money but also earn you a better image in the eyes of your clients, that will see you as more reliable. You can also assess which products are more subjected to returns, to polish your analysis.

Performance Indicators

Try to keep it as low as possible and assess the reasons of these returns for your different products.

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data visualization of the manufacturing KPI 'Right First Time'

Right First Time

Measure the performance of your production process from the beginning to the end

Having to rework a product is costly and reveals a certain inefficiency on your supply chain. With this manufacturing metric, you will know how often you are able to produce something without any defect over the whole production process. After measuring your ratio, the important move is to examine where and when the failure happens, find the root cause of this issue and work on it to avoid similar problems in the future. Comparing it to similar time periods over the years is an interesting analysis to do. Setting a target percentage is also a good incentive to perform always better.

Performance Indicators

Right First Time = (Number of impeccable products / Total products) x 100
Once you have evaluated this ratio, set a target you want to exceed.

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column chart illustrating the manufacturing metric asset turnover

Asset Turnover

Acknowledge your assets in relation to your revenue

The Asset Turnover is actually more of a financial than a manufacturing KPI. However, it is highly used in many different industries because of the important insights it provides. It represents the value of your business revenue (or sales) relatively to the value of your assets. It is a good efficiency indicator when it comes to assessing if your assets are generating value or not, and is all the more important if you evolve in an asset-heavy industry such as the manufacturing industry. It is interesting to compare this ratio, but it can only be done within the same industry – of course an online retail company will have a really different one.

Performance Indicators

Asset Turnover = Revenue / Total assets. The higher this ratio the better, as it means that you generate more revenue per dollar of asset.

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data visualization of the unit costs

Unit Costs

Track & optimize your units costs over time

This manufacturing KPI evaluates the total costs involved in the production of one item, including the fixed costs and the variable ones. This unit cost can also be broken down to show all the costs (labor, warehousing, equipment, material, etc) and analyze what are the major inputs and how much they represent in the total. Note that sometimes, due to volatile energy costs for instance, they cannot be measured accurately. Showing them with a trend over time helps in analyzing the evolution and see if your business manages to stay under the target unit costs fixed, so as to have a profitable product.

Performance Indicators

Try to identify production processes you can optimize to decrease unit costs over time.

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chart displaying the return on assets

Return on Assets

Measure your company’s capacity to generate profit for each dollar of asset

Return on Asset (ROA) is another manufacturing metric borrowed to sales, like the Asset Turnover. It shows how profitable your business is relatively to your overall assets; that is to say that this indicator measures how efficient you are at using assets to generate profit. Since this KPI tells you what earnings were generated from a capital you have invested, this can be also seen as a Return on Investment (ROI). It is a good indicator of performance because it tackles both income statement and the assets a company needs to support its business activities.

Performance Indicators

Return on Asset = Net income / Total assets. Once again, the higher this percentage, the better for your company. Benchmark to other businesses in your industry.

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gauge and line charts showing the immportant manufacturing metric maintenance costs

Maintenance Costs

Evaluate how much your equipment costs you in the long run

After assessing your assets, how much they produce and the revenue you get from them you cannot let them wither, therefore maintenance is required. That’s why measuring this last manufacturing KPI is critical to know which equipment needs more work than others, where the resources should be focused and what kind of preventative measures can be implemented to optimize that maintenance for the future. Set a target cost for a correct maintenance that leaves enough money aside for other investments, and try to reach it. Compare your preventive and corrective costs, as the latter should be inferior to the former, if done well.

Performance Indicators

Try to optimize maintenance costs over time and adjust your target accordingly.

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