Carlson Thought Leadership in Finance & Technology

Manufacturing KPIs

October 30, 2014 / by Jotham Lane
Jotham-Lane-director-Carlson-Management-ConsultingA question that invariably arises when I’m implementing manufacturing budgeting and planning software with clients is - which metrics should we be tracking? I could list any number of perfectly valid metrics, but at that point, I steer the discussion to priorities and strategy. In my experience, key performance indicators (KPIs) are an excellent means for ensuring that budgets align with strategy. Specifically, what are the factors necessary for them to improve competitiveness over both the shorter and longer term? Where should they be focusing their time, effort and investment? For example, a company may wish to prioritize cost efficiency, safety, compliance, quality, or delivery.

The discussion about KPIs can get overwhelming as it can often be varied based on the industry as a whole or the company in particular. There are several financial as well as non-financial metrics that can and should be closely managed. For the purposes of this post, let’s focus on some of the financial KPIs that can be applied broadly across manufacturing. Not surprisingly, they involve measurements around units. Here is my shortlist of must-have KPIs:

Cost volume profit analysis: Also known as CVP, this analysis goes beyond break-even analysis, which is essential in its own right. CVP is particularly valuable for ascertaining short-term goals in profitability as production is planned or projected to scale. It does have limitations as it assumes there won’t be changes to fixed and variable cost. It also assumes that all units will be sold, which as we all know doesn’t always happen. However, it does provide guidance for aligning production with profit targets.

Manufacturing cost per unit (without material): This KPI is very handy because it addresses costs that are generally under a manufacturer’s control. In its most basic form, it is the cost of direct labor plus overheads divided by units. As material costs usually fluctuate, they are not included in this analysis. This is a great measure of manufacturing efficiency, as it allows companies to gauge the effects of any process improvements they put in place.

WIP inventory/turns: A frequent priority among manufacturers is inventory management; more specifically lean inventory. With improved, integrated technology in the areas of CRM, ERP, MRP, and Supply Chain Management, it is possible to have real-time insight into demand, production, and inventory. It’s a goal of many world-class manufacturers to accelerate the velocity at which inventory turns; thereby, lowering carrying costs.

Carlson Explains Adaptive Insights Easy to read DashboardIn order to make KPIs understandable to those who need to be in the know, we recommend making them available in self-service dashboards. Dashboards present a visual interpretation of the data and thus are more easily consumed and acted upon.

The aforementioned KPIs and dashboards are pre-configured in the Carlson Manufacturing CPM solution. Our ready-to-implement solution is powered by Adaptive Insights, the #1 Cloud-based corporate performance management software. Our solution incorporates manufacturing finance and operational “best practices” so that clients begin to experience the benefits quickly and at much lower implementation cost.

Please download our Manufacturing CPM Brochure or contact us for a demo.

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