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The Best Manufacturing KPIs, Part 2 of 2

Read The Best Manufacturing KPIs, Part 1 here

Now that we have a better understanding of how to approach the data available to us for developing Key Performance Indicators, let’s dive deeper into the manufacturing organisation itself. My objective here is to dive into understanding how you would go about selecting which KPI would be ‘best practice’ for your particular business.

I’ve always liked the concept of “cascading KPIs,” and this can take two forms. The first is a traditional hierarchy, where my input sums up into a total team goal. We refer to these as “roll-up goals.” The second is to look at the company’s headline objectives and to work through what the key numbers are that identify how a single job contributes to the business achieving that objective. These headline objectives ought to be in your strategic plan, and if they are, then your cascading KPIs fit your cascading strategy, which engages your team and helps them understand their contribution.

With that in mind, let’s look at some headline goals and see how we might arrive at KPIs supporting them.

Customer Satisfaction

Often this objective is likely to have accountability on the senior leadership team, often with the CEO, because every part of the business engages in activities that impact customer satisfaction. Thus, this objective cascades through a manufacturing organisation perfectly.

They say that out of quality, speed and low cost, you can achieve two, but not all three. Still, your customers will have certain expectations for each, and they have a right to expect you to meet them.

So, whichever two you emphasize, we can say with confidence that on time deliveries (DIFOT) is a key outcome metric metric for most manufacturing organisations. You may not be the fastest, but you certainly want to be on time. You’ll soon be focusing on the specific activities that your processes are tuned to by asking further questions diving into what sometimes causes product delays. With an external, customer-oriented focus, the reason for implementing change is much more powerful.

Quality

When your team focuses on how they can drive customer satisfaction, then the importance of internal quality controls takes on a more meaningful importance. If your team takes pride in defects picked up prior to despatch, then their conversations around how to prevent those defects are much easier.

You’ll have success when the conversation has identified the key areas that you can use to drive improvements in quality that you can measure before a product is despatched, thereby preventing a customer having a disappointing experience.

It is through posing the right questions that you’ll connect the quality conversation to the customer satisfaction conversation. For example, “What is the number one thing we do that delights our customers?” is a great question to ask when trying to ferret out the location in your process of a great KPI.

There’s another aspect of managing with KPIs that becomes especially fulfilling in the area of quality. Everyone wants to be associated with a quality product, and this is especially true in a manufacturing environment. Celebrating your team’s success when improvements are made and targets are hit can make the adoption and use of KPIs much more culturally powerful.

Manufacturing Efficiency

From a leadership level, improving efficiency and productivity in our manufacturing operation is imperative. We’ve got profit targets to meet and these are likely to be included in the headline outcome metrics that leadership owns. While those metrics will be important to you, your team probably isn’t that interested or excited by increasing gross profit percentages, which can seem abstract.

On an operational management level it may be vital to understand gross profit percentages by product range or by geographic area. But cascading multiple profitability metrics as KPIs won’t motivate people to be more efficient. They’re too difficult to understand in terms of how an individual job changes them, and so they usually fail to create the robust discussion you would need if you were expecting to have your employees help discover ways to improve them. Yet, all too frequently, we see managers attempting to do just that.

A better approach is to simplify metrics in a world of increasingly available data, and to turn these into metrics that matter to the team and to individuals on that team. You need to dive into the causes of inefficiency to understand where your teams can challenge each other to drive improvement. This brings the discussion into areas where employees have control. What specific actions on the production line, shift or product responsibility can create a situation where machinery doesn’t break down, materials are available and people are able to keep processes moving? If your metrics measure things that your people can actually impact in the way they do their job, then you’ve found KPIs that your employee can respond to that will also drive gross profit percentages.

Operational Effectiveness

Operational Effectiveness is clearly one of those key ‘levers’ we must pull correctly to operate a successful manufacturing business. When looking at how effectively we complete the tasks and follow the processes we’ve identified as crucial to maximising use of resources, there will be plenty of opportunities for the people involved to provide outstanding input.

Many of the effectiveness metrics that are important for a manufacturing organisation are around appropriate usage of time and materials. Once again, we need to appreciate the difference between the strategic outcomes we want to achieve for the business and the KPIs that measure where people can actively contribute in a way that is meaningful for them personally.

I often start these discussions asking the operational team what would make their lives easier. I ask about their lives, but you might be surprised to learn that their answers are almost always about taking care of the business. You’d be amazed at how much your team dislikes having to redo work that wasn’t done the right first time, or how much it rankles them to clean up wasted materials. Right there, you have the start of some incredibly powerful conversations. Their work satisfaction goes up when there are fewer mistakes and less waste; you can see how KPIs designed to target those things would also impact your business goals.

Health & Safety Compliance

One of the biggest opportunities for creating a great culture in a manufacturing business lies in the area of health and safety. As a leadership team we have a huge responsibility to keep our people safe and there are many compliance boxes to tick to ensure that we do so. To meet this compliance (and prove we’ve met it) there are often rules that need to be in place and that need to be enforced. These can often appear draconian and lead to your people feeling restricted.

We encounter a familiar challenge here as well. High level metrics, such as days since a lost-time injury, might be important to the leadership team. Those might be the metrics reported to compliance officers. But that metric is less likely to engage people or drive the kind of behaviour that will set us up for success here.

If your people are aware that their safety is one of your top priorities and are actively encouraged to deliver the actions that keep themselves and their colleagues safe the context around completing compliance tasks becomes more compelling and meaningful. We’ve seen clients get clever with use of core values as well as KPIs to create internal interest and competition around safety and health. Rather than feel restricted, employees feel valued.

Since every manufacturing operation is unique, these guidelines help you more with the conceptualization of what a KPI ought to be than they do with the KPI itself. Generally speaking, when an employee understands the strategic objective behind their job, all you need to do is to bring them into the KPI creation process and they will often help you come up with excellent metrics that matter.

Employees emerge from that interaction feeling that their KPIs are fair, and, more importantly, that they are metrics with a meaningful attachment to strategic objectives for the company’s success. And that, of course, is why we work so hard with every one of our clients to make sure that the KPIs they use have this positive impact on both their workforce and their bottom line.