In the manufacturing sector, the importance of comprehensive performance tracking is indisputable. Yet, from years of working with management teams, it's clear that many find the concept of identifying and leveraging Key Performance Indicators (KPIs) challenging, particularly in small to medium-sized enterprises.
Often, these organizations struggle initially with pinpointing what operational aspects to measure. However, a shift in focus towards the intricate processes within their production lines can bring about a transformation. By tracking the time taken at each stage of production, these companies are able to identify bottlenecks, refine their workflows, and significantly reduce production times. This approach highlights the essential role of KPIs in not only measuring but also enhancing operational efficiency and performance.
The Numbers are Never the Whole Story
KPIs are only a piece of the larger performance puzzle. A collection of key performance indicators only provides a partial image of the situation. It's critical to understand that KPIs are 'indicators,' not exhaustive measures. In a manufacturing facility, KPIs need to reflect the changing operational dynamics. For example, the transition from manual to automated processes, implementation of new technology, or introduction of new safety regulations may necessitate a revision of KPIs. It is a continuous process of setting, resetting, and adapting. Therefore, having a tool that will help you manage not only your KPIs but also version them as they evolve over time is of paramount importance. Ideally, when a KPI is updated, being able to apply the new definition across years of backfilled history is preferred.
For many, KPIs are merely a table of numbers. However, understanding the influence each measure has on others over time can uncover significant insights. Leading indicators, for instance, could predict future performance. If your facility performs well today in terms of utility efficiency and machine productivity, this would drive better financial results in the future. Once managers grasp the causality of KPIs, they will start asking deeper questions about the operation's performance, fostering a continuous improvement mindset. For instance, the precision in the grading process in a manufacturing operation could significantly impact the quality of output, the reputation of the product, and ultimately, the company's sales and profitability.
Incorporating KPIs in Daily Stand-ups and Shift Overviews
Effective use of KPIs extends beyond the managerial level. These metrics should form the basis for daily stand-up meetings and shift overview sessions - KPIs should drive the conversation. Leaders should communicate the performance of the team, machines, and the consumption of utilities in an easy-to-understand manner. In doing so, they'll encourage ownership and accountability among the staff, leading to an increase in operational efficiency.
KPIs Foster Relationships
At the heart of every manufacturing operation are people and machines. In many large organizations, significant resources are dedicated to tracking the satisfaction levels of staff through frequent check-ins and employee surveys. This effort is commendable, but it's crucial to understand the symbiotic nature of value creation. Manufacturing facilities ought to realize that productive workers and well-performing machines equate to higher efficiency and output. KPIs should, therefore, not only monitor the state of machinery but also track employee productivity, innovation, and morale. On the same note, utility and material consumption should be continuously assessed to optimize operations, reduce waste and increase sustainability.
Deciding On Your Top Seven
Before diving headfirst into the world of KPIs, it's crucial to understand that each KPI serves a unique purpose, aligning with different aspects of your manufacturing operations. Start by identifying your current challenges and business goals. Then, use these seven KPIs as a compass, guiding your strategies and actions towards improved efficiency and productivity. Remember, these KPIs aren't standalone figures but interconnected metrics that, when analyzed together, provide a comprehensive overview of your operations, helping shape a sustainable and profitable future in food and beverage manufacturing. Ideally, everyone on your team should be responsible for 3 or 4 KPIs, always aware of what they are and responsible for them.
Make Every KPI SMART
As valuable as traditional KPIs are, it is beneficial to enhance their effectiveness by ensuring they are SMART - Specific, Measurable, Achievable, Relevant, and Time-bound. SMART KPIs offer a framework that not only measures performance but also drives improvement by linking operational actions to strategic objectives.
Implementing SMART KPIs in Manufacturing
Here are some typical KPI examples that would help drive a typical Food and Beverage manufacturer that have been translated into the SMART format:
1. Overall Equipment Effectiveness (OEE)
OEE is a gold standard KPI in manufacturing, including food and beverage. It measures the percentage of planned production time that's truly productive, combining metrics related to availability, performance, and quality. A high OEE means your production processes are working effectively, leading to better use of resources and increased productivity.
SMART: Improve OEE from the current 85% to 90% in the next six months to enhance resource utilization and productivity.
In food and beverage manufacturing, yield is a critical KPI that quantifies the amount of finished product obtained from raw materials. It's calculated as a percentage of the actual produced amount to the theoretically possible amount. A higher yield translates to efficient processes, reduced waste, and improved profitability.
SMART: Increase yield from 80% to 85% over the next quarter to reduce wastage and improve profitability.
3. First Pass Yield
First Pass Yield indicates the percentage of products manufactured correctly the first time, without any need for rework or repair. It's an excellent measure of quality and efficiency. Increasing First Pass Yield reduces waste and downtime, leading to cost savings and increased customer satisfaction.
SMART: Achieve a First Pass Yield of 95% in the next six months to enhance product quality and customer satisfaction.
4. Scrap Rate
The scrap rate refers to the percentage of materials that become waste during the manufacturing process. A high scrap rate is detrimental to both profitability and sustainability goals. Monitoring and aiming to lower the scrap rate can lead to process improvements and cost reductions.
SMART: Reduce scrap rate from 5% to 3% within the next year to enhance sustainability and cost-efficiency.
Downtime refers to periods when production is halted, usually due to machinery failure or maintenance. Tracking downtime is crucial as it directly affects productivity and profitability. Reducing downtime, through preventive maintenance or equipment upgrades, can significantly enhance operational efficiency.
SMART: Reduce machine downtime by 15% in the next quarter to boost productivity and profitability.
6. Inventory Turnover
Inventory turnover represents how many times inventory is sold or used in a specific period. It's crucial in the food and beverage industry because it impacts cash flow, storage costs, and product freshness. High inventory turnover indicates effective inventory management and high demand for your products.
SMART: Achieve an inventory turnover rate of 8 times per year to optimize inventory management and product freshness.
7. On-time Delivery
This KPI measures the percentage of orders delivered to customers on the promised delivery date. On-time delivery is an essential performance metric for maintaining customer satisfaction and loyalty. It also offers insights into the efficiency of your supply chain processes.
SMART: Improve on-time delivery from 90% to 95% in the next six months to enhance customer satisfaction and loyalty.
Remember, the power of KPIs lies not just in measuring them, but in how you respond to the insights they provide. Regular reviews, coupled with strategic actions, can truly maximize the benefits derived from these powerful business tools. So, it's time to embrace these KPIs and let them guide your journey to manufacturing excellence in the food and beverage industry.
-Jeff Knepper, Managing Director, Flow Software
About the Author
Jeff is a seasoned expert in data and analytics, clearly communicating value, and leading teams, with a career spanning over two decades across multiple industries including automotive, oil/gas, manufacturing, and utilities. As Managing Partner at Flow Software, Inc. and Co-Founder of IntegrateLive!, he applies his deep understanding of data-driven solutions to improve process metrics and efficiency. Known for his collaborative approach, Jeff is passionate about empowering others, constantly learning, and leveraging his expertise to help individuals and organizations achieve their goals.
At the forefront of advancing analytics and data readiness in the life sciences sector, Skellig Automation and Flow Software have aligned in a strategic partnership. This collaboration sets a fresh benchmark for actionable KPIs and insights in the industry.
Most medium to large scale manufacturers are in crisis--you may be among them--they cannot scale their analytics efforts to embrace today’s technologies, let alone tomorrow’s. To compete in the new manufacturing landscape, you must unleash the full potential of your data.
Flow Software, a company that transforms the data accumulated within organizations into valuable, usable knowledge and intelligence, has joined as the newest member of CESMII, the Smart Manufacturing Institute.