Linking manufacturing performance metrics to the life of a business

Creating and measuring performance metrics should be well-defined and reflect the goals of the business that focus on delivering value to clients.

By Brad Staats, Ultra Consultants August 7, 2018

Setting manufacturing performance metrics is the process of collecting, analyzing and/or reporting information regarding the performance of an individual, group, organization, system or component. To achieve effective performance management, the correct manufacturing performance metrics must be well-defined, understood, and routinely used. Continued business success requires appropriate performance measurements.

The importance of manufacturing performance metrics

Measurements influence behavior. The old saying "you get what you pay for" is relevant when it comes to metrics used in business and the results achieved. It is also true you cannot control what you cannot measure. Without metrics, explaining results becomes anecdotal with little to no accountability.

Manufacturing performance metrics focuses the attention on the desired performance and provides feedback to the manager and the performer as to how well the desired results are being achieved. Continued business success requires appropriate performance measurements.

Tie metrics to results

Well-defined performance measures will tie the specific results to the overall objectives of the organization. For a typical enterprise resource planning (ERP) project team, manufacturing performance measurements include:

  • Customer-related: bookings, service, and responsiveness
  • Quality: product and process
  • Operating: capability and throughput
  • Quality: first time through, corrective actions
  • Equipment: utilization and efficiency
  • Inventory: investment and accuracy
  • Equipment maintenance: planned and unplanned downtime
  • Employee development: flexibility and innovation
  • Financial: cost and profitability
  • Compliance: issues and corrective actions.

Business analytics and intelligence tools help make this monitoring easy, fast, and reliable without having to dive deep onto computer programming skills. These tools can be used to correlate one measure to another to draw conclusions and identify root cause problems.

Types of manufacturing performance metrics

Traditional metrics are generally related to financial measurements that are more symptomatic of problems than identifying the problem itself. These are historically-based and are not future-oriented. They may be stated in terms of future goals, but they are poor at defining how to achieve these goals.

Traditional metrics tend to emphasize control of a specific activity rather than focusing attention on a bigger picture. They have a tendency toward localized goals, are lagging performance rather than leading it and tend to be closely held to few key people.

Not-so-traditional metrics are much more leading in their nature and are related to the strategic objectives of the organization. These measures tie to the lifelines of the business so each activity monitored is adding value to what the organization is trying to achieve.

These concepts are key to consider while selecting an ERP. By incorporating key business drivers into the measures being used, they tend to be more process oriented, tend to encourage integration across company boundaries, and focus on the results desired in terms of what the customer deems as value.

Using manufacturing performance metrics

For example, a company with 100 employees produced handmade musical instruments. With nine departments, each of which was measured on their individual performance, not tied to any quality measures and with no regard of what was being shipped, the company was not achieving their goal of catching up on the backlog by shipping horns against their order book. They had a year’s worth of inventory in the pipeline (the actual total lead time was 4 months) and they were producing horns that were not needed and vice versa.

As a solution, a monthly bonus program was implemented that awarded hours of paid time off (PTO) for producing quality product according to the production schedule. Product produced not on the schedule did not count and if a subsequent department rejected an instrument due to a previous department defect, it was subtracted from the total.

In addition, the nine departments were grouped into three groups, the third department of each group being the production that was counted. With this, each of the three departments had to work together to facilitate the production that counted.

Another part of the solution was to implement a second bonus related to total shipments where all employees received another hour of PTO if we matched or exceeded the shipment plan. Instruments produced but not shipped did not count. This helped to link everyone to the desired goal of shipping the right horns at the right time.

Since these were monthly metrics, they broke them down to weekly metrics, which could also be broken down to daily numbers as needed. These were posted in the most public place we could find so everyone had a chance to see what was happening. With this, they could monitor results along the way and make adjustments without having to wait until the end of the month when it was too late.

As a result of this business process analysis, they reduced in-process inventory to half of where we started and were able to catch up on our past due order book.

Setting manufacturing performance metrics

When developing manufacturing performance metrics, it is important to create metrics that are easy to understand and individuals can easily implement.

For example, in another organization that produced a 12-week lead-time product, the key metric was ship-on-time. This sounds great, but when the last division of several operations received the order 6 weeks late due to upstream process failures, it was a meaningless metric to those involved. They could do nothing to affect the metric. Instead, by instituting a cycle time metric where time spent in front of each operation was measured, they were able to reduce the total cycle time of the division. Cycle time was something everyone understood and knew how to affect.

Link to the life of the business

With manufacturing performance metrics, they need to be in line with business goals to ensure the life of the business.

Attention must also be paid to the culture of the organization so there is a clear understanding as to how the metrics will be used and received. Select only a few key metrics to display in ERP reports for overall performance so people can focus on the key factors. If the performance metrics report is several pages long, it is likely it includes too many metrics.

Consider the drawbacks of performance measures. If it’s not designed properly, they can cause people to focus on attaining the metric without regard to a higher purpose of delivering value to the customer.

If it is a be-all-end-all environment for attaining the metric, people can also "game the system" which demoralizes the workforce. Designing a system of performance measures needs to have some flexibility in it so people do not get caught up in the attainment of a number at all costs. When achieving the metrics becomes more important than delivering value, the measures in place need to be reviewed.

Manufacturing performance metrics are necessary to monitor and achieve results, but as the measurement system is designed, care must be used to tie the measures to the lifelines of the business. Metrics should match the organization’s culture and should be easily understood.

Brad Staats is a senior consultant at Ultra Consultants, a CFE Media content partner. Staats has broad-based manufacturing and operations experience with more than 30 years of helping companies increase productivity, efficiency, quality, throughput, revenues and profitability. Staats has experience in ERP, supply chain/materials management, lean manufacturing, project management and integrating business and process systems in highly automated manufacturing environments. Staats holds a BS in administrative management from the University of Arkansas and an MBA in operations management from DePaul University. Early in his career, he earned the CPIM certification from APICS. He currently serves on the advisory board for the NE Indiana Lean Network.