{"id":5337,"date":"2020-05-05T10:41:00","date_gmt":"2020-05-05T10:41:00","guid":{"rendered":"https:\/\/www.mrpeasy.com\/blog\/?p=5337"},"modified":"2024-06-17T13:02:02","modified_gmt":"2024-06-17T13:02:02","slug":"key-manufacturing-business-metrics","status":"publish","type":"post","link":"https:\/\/www.mrpeasy.com\/blog\/key-manufacturing-business-metrics\/","title":{"rendered":"Key Manufacturing Business Metrics"},"content":{"rendered":"\n<p><strong>We have updated this article, you can find it here &#8211; <\/strong><a href=\"https:\/\/www.mrpeasy.com\/blog\/manufacturing-performance-indicator\/\" target=\"_blank\" rel=\"noreferrer noopener\"><strong>Top Manufacturing KPIs<\/strong><\/a><strong>.<\/strong><\/p>\n\n\n\n<p><\/p>\n\n\n\n<p>Key Performance Indicator or KPI is a quantifiable measure used to evaluate the success of an organization. Here are key manufacturing KPIs to track. <\/p>\n\n\n\n<!--more-->\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter\"><img loading=\"lazy\" decoding=\"async\" width=\"1000\" height=\"563\" src=\"https:\/\/www.mrpeasy.com\/blog\/wp-content\/uploads\/2020\/05\/key-manufacturing-business-metrics.jpg\" alt=\"key-manufacturing-business-metrics\" class=\"wp-image-5342\" srcset=\"https:\/\/www.mrpeasy.com\/blog\/wp-content\/uploads\/2020\/05\/key-manufacturing-business-metrics.jpg 1000w, https:\/\/www.mrpeasy.com\/blog\/wp-content\/uploads\/2020\/05\/key-manufacturing-business-metrics-300x169.jpg 300w, https:\/\/www.mrpeasy.com\/blog\/wp-content\/uploads\/2020\/05\/key-manufacturing-business-metrics-768x432.jpg 768w\" sizes=\"auto, (max-width: 1000px) 100vw, 1000px\" \/><\/figure>\n<\/div>\n\n\n<p><em>You can also listen to this article:<\/em><\/p>\n\n\n\n<iframe loading=\"lazy\" title=\"Key Manufacturing Business Metrics\" allowtransparency=\"true\" height=\"150\" width=\"100%\" style=\"border: none;\" scrolling=\"no\" data-name=\"pb-iframe-player\" src=\"https:\/\/www.podbean.com\/player-v2\/?i=ymrmm-e27889-pb&amp;from=pb6admin&amp;download=1&amp;share=1&amp;download=1&amp;rtl=0&amp;fonts=Arial&amp;skin=1&amp;btn-skin=3\"><\/iframe>\n\n\n\n<p>Key performance indicators (KPIs) allow companies to effectively manage the resources available to get products. In other words, KPI management enables you to make better use of production capacity, increase productivity, improve product quality, improve delivery times, minimize waste, and control costs. <\/p>\n\n\n\n<p>We will explore into some useful KPIs that a manufacturing business may\napply for performance improvement. <\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_80 counter-hierarchy ez-toc-counter ez-toc-custom ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #343333;color:#343333\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #343333;color:#343333\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/www.mrpeasy.com\/blog\/key-manufacturing-business-metrics\/#Overall_Equipment_Effectiveness_OEE\" >Overall Equipment Effectiveness (OEE)<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/www.mrpeasy.com\/blog\/key-manufacturing-business-metrics\/#Work-in-process_WIP\" >Work-in-process (WIP)<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/www.mrpeasy.com\/blog\/key-manufacturing-business-metrics\/#Lead_Time_LT\" >Lead Time (LT)<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/www.mrpeasy.com\/blog\/key-manufacturing-business-metrics\/#On-time-in-full_OTIF\" >On-time-in-full (OTIF)<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/www.mrpeasy.com\/blog\/key-manufacturing-business-metrics\/#Cost_per_unit_CPU\" >Cost per unit (CPU)<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Overall_Equipment_Effectiveness_OEE\"><\/span>Overall Equipment Effectiveness (OEE)<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The Overall Equipment Effectiveness or OEE is a key performance indicator that enables the production centers to monitor and improve the productivity of a machine or a production line. There are many ways to determine the OEE, one of which is to break down availability, performance, and quality. The OEE has the following formula:<\/p>\n\n\n\n<p>OEE = Availability * Performance * Quality<\/p>\n\n\n\n<p>This means it measures the percentage of time that a machine or production line produces good quality articles during the scheduled time. <\/p>\n\n\n\n<p>Let\u2019s see an example. A machine was planned to run from 6:00 a.m. to 2:00 p.m. (8 hours) and the standard production rate is 100 units\/hour. Suppose there were 30 minutes of machine downtime, and during that 8 hours 700 units were produced, for which only 640 were of adequate quality. To determine the OEE, you may proceed as follows:<\/p>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter\"><img loading=\"lazy\" decoding=\"async\" width=\"600\" height=\"600\" src=\"https:\/\/www.mrpeasy.com\/blog\/wp-content\/uploads\/2020\/05\/Overall-Equipment-Effectiveness.png\" alt=\"Overall-Equipment-Effectiveness\" class=\"wp-image-5348\" srcset=\"https:\/\/www.mrpeasy.com\/blog\/wp-content\/uploads\/2020\/05\/Overall-Equipment-Effectiveness.png 600w, https:\/\/www.mrpeasy.com\/blog\/wp-content\/uploads\/2020\/05\/Overall-Equipment-Effectiveness-150x150.png 150w, https:\/\/www.mrpeasy.com\/blog\/wp-content\/uploads\/2020\/05\/Overall-Equipment-Effectiveness-300x300.png 300w\" sizes=\"auto, (max-width: 600px) 100vw, 600px\" \/><figcaption class=\"wp-element-caption\"> Overall Equipment Effectiveness (OEE)<\/figcaption><\/figure>\n<\/div>\n\n\n<p>Overall Equipment Effectiveness shows the value-added time and highlights the losses. The losses can be defined as the activity that does not add value to the product. There are many categories to classify the losses:<\/p>\n\n\n\n<ol class=\"wp-block-list\">\n<li>Machine breakdown<\/li>\n\n\n\n<li>Contingencies<\/li>\n\n\n\n<li>Setup time<\/li>\n\n\n\n<li>Shortstops<\/li>\n\n\n\n<li>Speed loss<\/li>\n\n\n\n<li>Scrap or quality defect<\/li>\n<\/ol>\n\n\n\n<p>Every operational team should measure and highlight the operational\nlosses and implement countermeasures to increase the OEE.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Work-in-process_WIP\"><\/span>Work-in-process (WIP)<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The <a href=\"https:\/\/www.mrpeasy.com\/blog\/work-in-process-inventory-accounting\/\" target=\"_blank\" rel=\"noreferrer noopener\" aria-label=\"Work-in-process (WIP) (opens in a new tab)\">Work-in-process (WIP)<\/a> is a key performance indicator that measures the value of raw materials or subassemblies that have entered the manufacturing process, before obtaining the finished good. <\/p>\n\n\n\n<p>There are two main groups:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Waiting to be processed<\/li>\n\n\n\n<li>Being processed <\/li>\n<\/ul>\n\n\n\n<p>The WIP has the following formula:<\/p>\n\n\n\n<p>WIP = Manufacturing Lead Time * Production Flow Value<\/p>\n\n\n\n<p>Let\u2019s say that a work center takes 5 hours to finish a batch and the\nproduction flow rate is in average 100 kg\/h at a cost of $1\/kg, the WIP will\nbe:<\/p>\n\n\n\n<p>WIP =&nbsp;5 hours * (100 kg\/h * 1 $\/kg) = 500$<\/p>\n\n\n\n<p>This means that there is $500 of material in that work center. Following the two main categories, it may be that this material is on any machine or waiting to be used.<\/p>\n\n\n\n<p>Work-in-process inventory depends on the manufacturing lead time and manufacturing costs, the number of orders in process, and the batch sizes. Further analysis will be required by the operational team to determine any way of performance improvement. Among others, such improvement may result in:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>reduction of the manufacturing cost<\/li>\n\n\n\n<li>reduction of the manufacturing lead time<\/li>\n\n\n\n<li>optimization of the batch sizes<\/li>\n\n\n\n<li>optimization of the labor<\/li>\n\n\n\n<li>increase of space in the shop-floor<\/li>\n\n\n\n<li>enhancement of the transition between the work centers<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Lead_Time_LT\"><\/span>Lead Time (LT)<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The Lead Time or LT is the key performance indicator that measures the time that takes to perform a process. It can be:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Manufacturing Lead Time, which is the total time that a production center requires to manufacture a product.<\/li>\n\n\n\n<li>Delivery lead time, which is the time taken to deliver a finished product to the customer.<\/li>\n\n\n\n<li>Total lead time, which is the time from when an organization receives an order till the delivery of the order to the customer.<\/li>\n<\/ul>\n\n\n\n<p>To shorten the lead times, every manufacturing business uses different\nmanufacturing strategies, depending on the type of product they manufacture:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Make to Stock<\/li>\n\n\n\n<li>Assemble-to-order\n<\/li>\n\n\n\n<li>Make to Order<\/li>\n\n\n\n<li>Engineering to\nOrder<\/li>\n<\/ul>\n\n\n\n<p>The differences between themselves depend on<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>The nature of the items (standard or customized)<\/li>\n\n\n\n<li>The nature of the equipment (specific machinery or general-purpose machinery)<\/li>\n\n\n\n<li>The nature of the process (design, manufacture, assemble, etc.)<\/li>\n<\/ul>\n\n\n\n<p>And the type of production system the organization has<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Flow System, for example, a refinery.<\/li>\n\n\n\n<li>Bath Manufacturing, for example, when producing metal spare parts.<\/li>\n\n\n\n<li>Fixed Position System, for example, when building a skyscraper.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"On-time-in-full_OTIF\"><\/span>On-time-in-full (OTIF)<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The <a href=\"https:\/\/www.mrpeasy.com\/blog\/on-time-in-full-otif\/\" target=\"_blank\" rel=\"noreferrer noopener\">On-Time, in-Full, or OTIF<\/a> is the key performance indicator that measures the amount of orders which had been delivered with the right quality and the right quantity on time to the customer. To get the shape of a ratio, it is compared to the total amount of orders. <\/p>\n\n\n\n<p>The OTIF has the following formula:<\/p>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter\"><img loading=\"lazy\" decoding=\"async\" width=\"650\" height=\"150\" src=\"https:\/\/www.mrpeasy.com\/blog\/wp-content\/uploads\/2020\/05\/On-time-in-full-OTIF.png\" alt=\"On-time-in-full-OTIF\" class=\"wp-image-5351\" srcset=\"https:\/\/www.mrpeasy.com\/blog\/wp-content\/uploads\/2020\/05\/On-time-in-full-OTIF.png 650w, https:\/\/www.mrpeasy.com\/blog\/wp-content\/uploads\/2020\/05\/On-time-in-full-OTIF-300x69.png 300w\" sizes=\"auto, (max-width: 650px) 100vw, 650px\" \/><figcaption class=\"wp-element-caption\"> On-time-in-full (OTIF) <\/figcaption><\/figure>\n<\/div>\n\n\n<p>Let\u2019s assume that an organization has currently 100 orders for delivery\ntoday, but:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>4 orders have not reached the quantity required by the customer<\/li>\n\n\n\n<li>3 orders exceed the quantity required by the customer<\/li>\n\n\n\n<li>2 orders contain defective products<\/li>\n\n\n\n<li>1 order arrived late<\/li>\n<\/ul>\n\n\n\n<p>Then the OTIF on that day will be:<\/p>\n\n\n\n<figure class=\"wp-block-image\"><img loading=\"lazy\" decoding=\"async\" width=\"650\" height=\"150\" src=\"https:\/\/www.mrpeasy.com\/blog\/wp-content\/uploads\/2020\/10\/On-time-in-full-OTIF_mrpeasy.png\" alt=\"\" class=\"wp-image-6658\" srcset=\"https:\/\/www.mrpeasy.com\/blog\/wp-content\/uploads\/2020\/10\/On-time-in-full-OTIF_mrpeasy.png 650w, https:\/\/www.mrpeasy.com\/blog\/wp-content\/uploads\/2020\/10\/On-time-in-full-OTIF_mrpeasy-300x69.png 300w\" sizes=\"auto, (max-width: 650px) 100vw, 650px\" \/><figcaption class=\"wp-element-caption\">On-time-in-full (OTIF)<\/figcaption><\/figure>\n\n\n\n<p>Finally, we can say that the On Time in Full is a strict KPI that measures the service level of an organization and it involves many functions (commercial, logistics, production, purchasing, etc.). On the other hand, it is necessary that every organization defines the tolerances involved with the product defects, quantities per order, and late arrival. <\/p>\n\n\n\n<p>By breaking down the losses, it can highlight:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Delays within\nthe supply chain<\/li>\n\n\n\n<li>Product defects<\/li>\n\n\n\n<li>Shipments with\ndifferent quantities to the sales order<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Cost_per_unit_CPU\"><\/span>Cost per unit (CPU)<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The cost per unit (CPU) is a powerful key performance indicator that helps a manufacturing system to optimize the cost of the products. It also helps to offer competitive <a href=\"https:\/\/www.mrpeasy.com\/blog\/selling-price\/\" target=\"_blank\" rel=\"noreferrer noopener\">selling prices<\/a> in the market, and also increase the profit of the company.<\/p>\n\n\n\n<p>The CPU has the following formula:<\/p>\n\n\n\n<p>In\nwhich,<\/p>\n\n\n\n<p>To give a simple example, let\u2019s assume an organization that manufactures 1000 units of a product with the following cost breakdown:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Direct Material &#8211; $3000<\/li>\n\n\n\n<li>Direct labor &#8211; $2000<\/li>\n\n\n\n<li>Manufacturing Overhead (MOH) &#8211; $1000<\/li>\n<\/ul>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter\"><img loading=\"lazy\" decoding=\"async\" width=\"600\" height=\"600\" src=\"https:\/\/www.mrpeasy.com\/blog\/wp-content\/uploads\/2020\/05\/Cost-per-unit.png\" alt=\"Cost-per-unit\" class=\"wp-image-5358\" srcset=\"https:\/\/www.mrpeasy.com\/blog\/wp-content\/uploads\/2020\/05\/Cost-per-unit.png 600w, https:\/\/www.mrpeasy.com\/blog\/wp-content\/uploads\/2020\/05\/Cost-per-unit-150x150.png 150w, https:\/\/www.mrpeasy.com\/blog\/wp-content\/uploads\/2020\/05\/Cost-per-unit-300x300.png 300w\" sizes=\"auto, (max-width: 600px) 100vw, 600px\" \/><figcaption class=\"wp-element-caption\"> Cost per unit (CPU) <\/figcaption><\/figure>\n<\/div>\n\n\n<p>There are different methodologies to allocate Manufacturing Overhead when a company produces a mix of products. The methodologies can be standard cost, direct cost, activity-based cost, etc. <\/p>\n\n\n\n<p>It is very important to define the correct allocation methodology. It\nwill help to define how profitable or not a product is and set the price by\nadding the markup to the total product cost.<\/p>\n\n\n\n<p>In any case, every KPI follows an iterative process to improve and reach\nbusiness goals, as follows:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Measure the KPI<\/li>\n\n\n\n<li>Break down the KPI into categories<\/li>\n\n\n\n<li>Sort the categories with a higher percentage of losses, for example by using <a rel=\"noreferrer noopener\" aria-label=\"Pareto charts (opens in a new tab)\" href=\"https:\/\/asq.org\/quality-resources\/pareto\" target=\"_blank\">Pareto charts<\/a><\/li>\n\n\n\n<li>Find the root cause of the problem<\/li>\n\n\n\n<li>Implement countermeasures for problem-solving<\/li>\n\n\n\n<li>Re-measure the KPI as an iterative process.<\/li>\n<\/ul>\n\n\n\n<p>As an additional consideration, note that some of the terms used to define each KPI in this article may vary depending on the author and the particular use within each organization. <\/p>\n\n\n\n<p><em>You may also like: <\/em><a rel=\"noreferrer noopener\" aria-label=\"Top 10 Most Important Manufacturing Performance Indicators (opens in a new tab)\" href=\"https:\/\/www.mrpeasy.com\/blog\/manufacturing-performance-indicator\/\" target=\"_blank\"><em>Top 10 Most Important Manufacturing Performance Indicators<\/em><\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>We have updated this article, you can find it here &#8211; Top Manufacturing KPIs. Key Performance Indicator or KPI is a quantifiable measure used to evaluate the success of an organization. Here are key manufacturing KPIs to track.<\/p>\n","protected":false},"author":4,"featured_media":5342,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[94],"tags":[272,273,264,263,268,269,3,265,270,271,16,267,266],"class_list":["post-5337","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-tips","tag-cost-per-unit","tag-cpu","tag-key-performance-indicator","tag-kpi","tag-lead-time","tag-lt","tag-manufacturing","tag-oee","tag-on-time-in-full","tag-otif","tag-overall-equipment-effectiveness","tag-wip","tag-work-in-process"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v26.7 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Key Manufacturing Business Metrics - Blog for Manufacturers and Distributors<\/title>\n<meta name=\"description\" content=\"Key Performance Indicator or KPI is a quantifiable measure used to evaluate the success of an organization. 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