Working Smarter, Not Harder: Identifying the Right KPIs for Your Organization
Denis J. Devos
While every manufacturer wants to track improvement and meet goals, how different manufacturers approach this can vary drastically. Manufacturers at the enterprise level can quickly devise dozens, even hundreds of performance indicators to monitor every point along every process. Not all of these indicators hold equal importance when it comes to making decisions and driving goals. The adage, "work smarter, not harder," sums up the purpose of KPIs. This blog will separate the wheat from the chaff and dive into KPIs and how manufacturing facilities can effectively use them.
What KPIs Are, and What They Are Not
Key performance indicators—KPIs—are a quantifiable level of achieving a critical objective, defined in ISO 22400. However, many manufacturers lose sight of one crucial word—key. In muddling together key and local performance indicators, they struggle to identify the appropriate metrics that can give a clearer picture of how closely aligned the metrics, and the objectives are.
Before identifying proper KPIs, it is crucial to begin at the lowest level by examining manufacturers' processes to deliver an output. The most basic questions, such as what customers want, form the basis for designing the process to provide the output or answer. The gap between the actual output and the desired output is the measurement of quality. Therefore, the output is the degree to which a process delivers intended results.
Utilizing Hoshin Planning
Hoshin planning or Hoshin kanri is a method that allows manufacturers to determine a specific direction by identifying the business’s strategic objectives. The Hoshin planning approach helps facilities bring goals and objectives into alignment, making it easier to identify the appropriate KPIs that will drive success.
Another benefit of utilizing Hoshin planning is to help differentiate objectives versus metrics and how the two things work together. Metrics are measurable data that evaluate progress toward a goal, and the objective is what the facility managers or corporate hope to accomplish.
Common Manufacturing KPIs
While KPIs can vary widely from one manufacturer or industry to another, there are some that most facilities commonly track. Operational enterprise objectives include:
Sales, profits, and cash flow
Market share
Throughput, yield, and efficiency
Customer satisfaction
Sales per labor hour
It is essential to distinguish KPIs from more localized tactics or initiatives. These metrics include:
Program budget
Achieving milestones
Hiring the right talent and team turnover
Reduction of the cost of poor-quality
When corporations identify too many KPIs or different departments fail to communicate correctly, the result can be conflicting metrics. For example, the purchasing department might use a specific KPI as motivation to keep inventory costs down. By achieving a target driven by that KPI, they could be preventing production from obtaining the products needed to meet their targets.
A Deeper Dive into KPIs
Many of the things that manufacturers track as KPIs are lagging indicators. Lagging indicators include customer satisfaction or profit and loss—all things that happened in the past. By transitioning to leading indicators that are predictive, manufacturers can become more proactive rather than remaining reactive. Conversely, leading indicators can predict changes in processes before the changes occur, allowing facilities to avoid quality-reducing issues.
In fact, leading indicators can measure the input variables that influence lagging indicators. Establishing a correlative cause and effect can help manufacturers better predict KPIs. If the lagging indicator is profit, then the leading indicator could be the cost reduction targets. Here are a few more lag versus lead examples:
The time to market versus the number of engineering changes
On-time customer delivery versus machine downtime
Employee retention versus engagement
As strategic planning, operations, and process measurement mature, your organization should adopt more leading indicators.
Software solutions like SafetyChain offer a comprehensive platform, allowing managers to instantly track data to better identify leading indicators and the most valuable KPIs.
KPIs Drive More than Profit
The most successful manufacturers create and use a balanced scorecard. Manufacturers need to worry about more than money and strike a balance between financial measures, customer satisfaction, operations, and learning and growth. There is a great benefit to creating a unique, balanced scorecard and not just grabbing a template off the internet. Evaluate the business and its strategies to adopt appropriate metrics. Not everyone will track the same KPIs in the same way.
Help! We're Drowning in a Sea of KPIs!
Corporate may want certain information delivered in a specific format, and it's not always relevant for a particular facility. Site-specific KPIs can be very different than corporate KPIs but must align for success. Corporate should work with operators at the facility level to ensure that common metrics across all facilities are measured the same way.
There's a lot of data that managers can track—don't overdo it. KPIs are key for a reason, and it's vital to recognize the difference between key and local metrics, or it can feel like a never-ending parade of KPIs all day. Just because a metric is nice to have, doesn't mean it is key. Focus on the strategic objectives and ensure metrics measure the target accurately. By pursuing leading indicators using KPIs, manufacturers can predict lagging indicators.
Don't Forget These Valuable KPIs
Two KPIs that many manufacturers often overlook can give important insight:
OEE: Overall equipment effectiveness aggregates availability, quality, and performance to enable tracking across multiple facilities.
Many manufacturers use tools like SafetyChain's OEE software to get a complete picture and streamline tracking and data processing. Take a peek at this Intro to OEE webinar to learn more about this KPI.
CoQ: Cost of Quality tracks the cost of conformance or non-conformance, creating a clearer picture of a manufacturer's investment in ensuring quality.
Conclusion
Begin with the strategic objectives, ensuring they are based on sound data, and measure the right things. Don't be afraid to refine and refresh KPIs and local metrics over time. Seek a leading indicator for each lagging indicator—crack the leading indicators, and the lagging indicators take care of themselves.
Click here to watch the full webinar replay on critical KPIs.
