If you are an owner or a manager of a job shop or contract manufacturing facility, the old management adage of “you can’t manage what you don’t measure” is more true today than ever before. With the economic uncertainty that still abounds, the demands placed on you by customers for high quality parts at lower and lower prices, and the skills gap between those employees that you might be losing and those available in the workforce, it is critically important to understand the current state of your business through the use of real time key performance indicators or KPIs. The challenge for many job shop owners is understanding first WHAT to measure, then setting a goal or standard METRIC by which your current state is measured against also known as benchmarking, and then putting corrective actions into place to help you achieve or surpass these goals in a regular, sustainable fashion.
WHAT TO MEASURE
Key performance indicators should be uniquely personal for your shop. However, for most small and mid-sized manufacturers there are the obvious indicators which EVERY shop should consistently measure at least on a monthly (or even weekly) basis. These indicators should represent a cross-section of your business focusing on the key elements of customers, productivity, vendors/suppliers, and financial.
For example, when a business establishes their customer indicators, these indicators should focus on quote backlog, quote win rate, order backlog in weeks or dollars, new orders placed this week/month, on-time performance, etc. When the shop establishes productivity metrics, these indicators should focus on utilization by work center or department, efficiency by work center or department, throughput in days both from a production standpoint (lead days from first time entry to first shipment) and administrative throughput (lead days from order date to first shipment), overbook or underbooked work centers, rework hours, scrap cost, and direct vs. indirect hours.
For vendor metrics, the shop should establish metrics for a vendor on time performance, average lead time by vendor, acceptance rate by vendor, and valuation of stock and WIP inventory. Finally, key financial indicators should focus on customer and vendor aging, past due invoices, average days to pay (customers and vendors), and current cash position.