Key Performance Indicators for Production Monitoring

April 11, 2023 by Joe Aherne

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Key performance indicators (KPIs) are quantifiable measures used to evaluate the success of an organization, business, or project in achieving its goals and objectives. KPIs are used to track progress, identify areas of improvement, and make informed decisions.

KPIs can be applied to different areas of a business, such as sales, marketing, customer service, finance, human resources, and operations. Some common KPIs used in various industries include:

Revenue: The total amount of money generated by the business through sales or services.
Customer acquisition: The number of new customers acquired by the business in a given period.
Customer retention: The percentage of customers who continue to use the business’s products or services over time.
Gross profit margin: The percentage of revenue that is left after deducting the cost of goods sold.
Return on investment (ROI): The ratio of the net profit earned by the business to the amount of investment made.
Employee satisfaction: The level of satisfaction among employees in the organization.
Website traffic: The number of visitors to the business’s website over a given period.
Conversion rate: The percentage of website visitors who take a desired action, such as making a purchase or filling out a form.
Inventory turnover: The number of times inventory is sold and replaced over a given period.
Time to market: The time it takes to bring a new product or service to the market.

KPIs should be specific, measurable, achievable, relevant, and time-bound (SMART) in order to be effective. By regularly monitoring KPIs, businesses can identify areas of improvement and make data-driven decisions to achieve their goals.

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The Top 7 Key Performance Indicators

In manufacturing, KPIs are used to track and evaluate the performance of processes, machinery, and personnel. KPIs help manufacturers identify areas of improvement, optimize production efficiency, reduce costs, and increase profitability. KPIs vary from one organization to the next, but there are seven common KPIs listed below that are used in production.

Count – A standard KPI for a factory floor is the count, which refers to the amount of product created. This could refer to the total production for a shift, a week, or since the last machine changeover. In many cases, the individual employee or shift output is compared in order to encourage competition among employees.
Reject Ratio – The reject ratio measures produce scrap. The goal is to minimize the amount of scrap created in order to reach profitability goals. Therefore, the reject ratio is used to keep scrap within acceptable limits.
Rate – Rate measures the speed at which goods are produced. Slower rates mean decreased profits, and faster rates can affect the quality of the product. The goal is for operating speeds to remain at a set, consistent rate.
Target – Target values are set for output, rate, and quality. This encourages employees to reach the set targets for each of these categories.
Takt Time – The amount of time that it takes to complete a task is known as takt time. It can refer to the time it takes to produce a product or the cycle time for a specific operation. Tracking and displaying this information helps a manufacturer to identify where bottlenecks are occurring in a process.
Overall Equipment Effectiveness (OEE) – The OEE is a measurement of whether resources, such as personnel and machinery, are being used efficiently. A higher OEE value means more efficient use of resources.
Downtime – Tracking downtime is considered to be one of the most essential KPIs. Reducing downtime is a major goal because downtime means lost profits. In many cases, operators must enter a reason code to justify downtime so that the explanations can be tracked and reviewed.

For plant managers in manufacturing businesses, increasing production and profitability is a major responsibility. The success of an organization rests largely on its processes and their careful implementation by employees.

What is a Lean Manufacturing KPI?

A Lean manufacturing key performance indicator (KPI) is a performance metric that measures the success of Lean manufacturing processes and principles in a production environment. Lean manufacturing is a philosophy and methodology that aims to reduce waste, increase efficiency, and improve quality in the production process.

Why Your Company Needs to be Using Production KPIs

Using production KPIs are essential for optimizing your production processes, achieving your business goals, and driving greater efficiency and profitability in your organization. By monitoring key metrics, you can identify areas for improvement, make data-driven decisions, and create a culture of continuous advancement and innovation.

9 Production Key Performance Indicators (And Their Calculations)

There are many KPIs that can be used to measure production performance. The specific calculations for each KPI will depend on the industry and the specific goals of the organization, but here are some common examples:

Count

Count is a common KPI used in production to measure the number of items produced. The calculation for count is fairly simple:

Count = Total number of units produced

Reject Ratio

This KPI measures the percentage of defective products that are rejected during production. The formula for reject rate is:

Reject rate = (Number of rejected products : Total number of products produced)

Capacity Utilization

Capacity utilization measures how much of a facility’s production capacity is being used. The formula for capacity utilization is:

Capacity utilization = (Actual output / Maximum possible output) x 100

Rate

This KPI measures the number of units produced per unit of time. The formula for production rate is:

Production rate = Total number of units produced / Total production time

Target

This KPI sets a specific production goal for a given time period. The calculation for production target is:

Production target = Desired production volume for the time period

Takt Time

Takt time is a KPI that measures the rate at which a product needs to be produced in order to meet customer demand. The calculation for takt time is:

Takt time = Available production time / Customer demand

Overall Equipment Effectiveness

OEE measures the efficiency of production equipment by taking into account three factors: availability, performance, and quality. The formula for OEE is:

OEE = Availability x Performance x Quality

Availability = (total time – downtime) / total time
Performance = (actual output / theoretical maximum output) x 100
Quality = (good output / total output) x 100

Downtime

Downtime measures the amount of time that production equipment is not in operation. The formula for downtime is:

Downtime = Total time – Operating time

Cycle Time

This KPI measures the time it takes to complete a production cycle, from start to finish. The formula for cycle time is:

Cycle time = Total production time / Total units produced

What are Lean Manufacturing KPIs?

Lean manufacturing KPIs are measures used to assess and track the performance of Lean manufacturing processes. These KPIs help to identify areas for improvement and ensure that lean manufacturing initiatives are meeting their goals.

Here are some common Lean manufacturing KPIs:

Cycle Time
Lead Time
First Pass Yield
Overall Equipment Effectiveness (OEE)
Inventory Turnover
Customer Satisfaction
Downtime

By tracking and analyzing these KPIs, manufacturers can identify areas for improvement and implement Lean manufacturing initiatives that can reduce waste, increase productivity, and improve customer satisfaction.

What Does a Good Production KPI Look Like?

A good production KPI is one that provides a clear and measurable insight into the performance of a manufacturing process or production line. As mentioned above, a KPI should be specific, relevant, measurable, and timely.

Some characteristics of a good production KPI are as follows:

Specific: The KPI should be well-defined and specific to the process or production line being measured. For example, “cycle time” is a specific KPI that measures the time it takes to complete one cycle of a process.
Relevant: The KPI should be relevant to the goals and objectives of the manufacturing process. For example, if the goal is to increase productivity, a relevant KPI might be “units produced per hour.”
Measurable: The KPI should be quantifiable and measurable. This means that it should be possible to track and analyze the KPI over time to determine if improvements are being made. For example, “scrap rate” is a measurable KPI that can be tracked over time to determine if improvements are being made.
Timely: The KPI should be updated and reported on a regular basis. This ensures that any issues or trends are identified and addressed in a timely manner. For example, “downtime” is a KPI that should be reported in real-time or near real-time, as it can impact productivity and efficiency.

Overall, a good production KPI should provide actionable insights that can help to improve the performance of a manufacturing process or production line. It should be aligned with the goals and objectives of the organization and be regularly tracked and analyzed to ensure that improvements are being made.

How to Take Actionable Steps for Production KPIs

Identify the KPIs that are most critical to the success of your manufacturing process. This may involve looking at historical data, industry benchmarks, and other performance indicators to determine which KPIs have the greatest impact on your production.
Set targets and goals for each KPI. This involves determining what level of performance is acceptable or desirable and setting a specific target or goal to achieve that level of performance.
Regularly monitor and track your KPIs. Collect data and analyze it to determine whether your production is meeting the targets and goals you’ve set. Use tools such as dashboards or reports to help you visualize the data and identify trends or areas for improvement.
Take action when KPIs are not meeting targets. When a KPI misses the target, investigate the root cause of the problem and take corrective action. This may involve changing the manufacturing process, improving training or equipment, or adjusting production schedules.
Continuously improve your manufacturing process. Use the insights gained from your KPIs to identify opportunities for improvement and implement changes to your process or equipment. This will help you to continuously improve your performance and meet or exceed your targets.

By taking these steps, you can use production KPIs to drive continuous improvement and increase the efficiency and effectiveness of your manufacturing process.

Used Appropriately, KPIs Can Be Powerful Tools

When used appropriately, KPIs can be powerful tools for driving organizational performance and achieving strategic goals. It’s important to carefully select the KPIs that are most relevant and meaningful to your organization, regularly review and update them as needed, and use them to drive action and continuous improvement. Here are some ways in which KPIs can be powerful tools when used appropriately:

Focus On What Matters

KPIs help to focus attention on the most critical aspects of the business. By identifying and tracking the right KPIs, organizations can ensure that they are focusing on the activities and processes that have the greatest impact on their success.

Measure Progress

KPIs provide a way to measure progress towards goals and objectives. This helps to ensure that everyone in the organization is aligned and working towards the same outcomes.

Identify Areas for Improvement

KPIs can help to identify areas where performance is not meeting expectations. This provides a starting point for investigating root causes and taking action to improve performance.

Drive Accountability

KPIs help to drive accountability by providing a clear and measurable way to assess performance. This encourages individuals and teams to take ownership of their work and strive for continuous improvement.

Foster a Culture of Continuous Improvement

By using KPIs to measure and track performance, organizations can foster a culture of continuous improvement. This helps to ensure that the organization is always looking for ways to upgrade and innovate.

KPIs Done For You

Do you want to develop and implement specific KPIs within your organization or review your current KPIs to make your organization more efficient? Contact us to discover more about Lean and how it can help better your business!