As you likely know, manufacturing is one of the biggest industries around the globe. According to The World Bank, manufacturing added over 12.3 trillion USD in value globally in 2016. While there are many industries within manufacturing, there’s still an enormous amount of competition and pressure to produce goods quickly and cheaply. However, the right manufacturing software (ERP) can help your company track manufacturing KPIs.
KPIs, or key performance indicators, are points of measurement that determine an organization’s success. These are typically measured through sophisticated analysis and reporting functionalities that employ business intelligence (BI) –– charts, dashboards, displays, graphs and reports. Process manufacturers use KPIs to measure and evaluate success according to critical business objectives. Making sound business decisions based upon relevant, real-time data is invaluable in today’s market.
11 Manufacturing KPIs Your ERP Should Track
Whether you’re shopping for a new ERP or just trying to configure your current system, it’s important to track certain production planning KPIs. Here is a list of several important and common ERP KPI examples your software should track as part of your ERP systems implementations:
1. Cycle Time
You may want to monitor the cycle time of your production from the beginning to end of product creation and from finished production to the actual shipment. This is called supply chain cycle time. ERP conveniently tracks this information for you automatically, helping find ways to improve speed while maintaining quality. Your ERP can show you where your processes eat up time and can point you in the right direction to make them more efficient. Your ERP KPIs can show you if you need to find a better way to move raw materials quickly, if your suppliers aren’t meeting your goals or if setup times are too long.
You can also track the cycle time of individual processes. For instance, you might want to track cash-to-cycle time. This is the time between paying for raw material to make your product and when you are eventually paid for the finished product. If you’re interested in the distribution side of the business, you may also wish to track customer order actual cycle time. This tracks the time from which a customer places an order to when they receive it.
2. Inventory Turns
Knowing how often your company completely sells and replaces its entire inventory over a certain amount of time is indispensable information for manufacturers. Since many companies often have a significant amount of money tied up in its inventory, it’s beneficial to know which inventory practices are inefficient and which are productive. Slow-moving items in your inventory use up valuable space and makes the warehouse less efficient.
Using ERP data, you’re able to quickly see which goods consume the highest carrying costs. From here, you can come up with strategies backed by data to figure out a way to either move that product faster or carry less of it.
3. Inventory Deviation
If you’ve never used an ERP before, you’re probably well aware of how much actual inventory levels can vary from levels marked in your records. While you might do your absolute best to track all materials entering and leaving your warehouses and plants, deviation is still likely to happen.
However, with an ERP, you can drastically lower your deviation rate. All inventory transactions are performed in the software in real time using a warehouse management system. These systems include advanced tools such as RFID technology or established tools like barcoding. ERP systems ensure that you have a more accurate number recorded and improves the ways in which you track any deviation that may still occur.
Especially for process manufacturers, tracking the costs of every activity and every ingredient that goes into your product is a challenge, to say the least. But with an ERP system, you’re able to track each and every cost incurred during the production process. This includes the cost of labor, equipment, raw materials/ingredients, handling, landed costs, distribution and more. This is an important manufacturing KPI for production planning departments to consider as well.
In addition to tracking your costs, ERP systems equipped with a BI module can also show you cost trends. Many systems offer cost forecasts to show you where you’re likely to spend money again. Use these tools to understand exactly how much you’re paying and decide your strategy going forward. Using data, you may decide to procure cheaper materials or perhaps raise the cost of your product.
When production is at a standstill, your business isn’t working as efficiently as it could be and isn’t reaching maximum potential. To help minimize downtime, you need to understand the causes and record them in your ERP. The system then allows you to analyze the data to uncover patterns that lead to downtime.
Are you continually stopping due to equipment failure? Maybe you need to change the way you perform asset management. Are the errors due to operator error? It’s possible you need to offer more training to your employees. Maybe you continually see batch contamination and need to seek out the root cause of the issue. Whatever the main cause of downtime is, an ERP is able to accumulate and evaluate production KPIs unlike any other system to help you make better business decisions.
6. Reject Ratio
Reducing scrap left over from the production process helps your company meet its profitability goals. Is your scrap ratio within tolerable limits? Keep track of a product’s scrap factor and yield percentages in the bill of materials (BOM). Then, use this information to calculate the differences between projected scrap and realized scrap through your ERP system. Again, you can use the data you accumulate to make informed decisions on how to improve your business.
Monitoring your financials is absolutely necessary if you want to understand how your company is performing and if it’s able to reach your goals. Reports for accounts payable and receivable, cash flow, income statement, balance sheet and more can be generated from your ERP solution to give you a true picture of the company’s financial health.
ERP systems can help you determine your operating cash flow, quick ratio, current ratio and other metrics to influence your short-term and long-term goals. Using these points of data, you’re able to make a more knowledgeable judgment call when it comes to deciding where to allocate your financial resources.
Sales are tracked a number of different ways within an ERP. First, there are the typical metrics such as lead response time, rate of contact and follow-up. These data points are likely very important to your sales team in understanding what they could do to improve. A CRM with ERP integration can quickly analyze, manage and synchronize sales and provide the tools you need to see if you’re meeting the company’s sales initiatives.
A CRM integrated into an ERP can also help you track other sales information such as customer information and information regarding previous calls to further assist your sales team.
9. Quality Control (QC) and Quality Assurance (QA)
It is important for you to know the condition of the raw materials provided by your vendor and to be reassured that your products are safe and up to the expectations of your customers. ERP systems provide a level of visibility not available from many other software systems. For instance, ERP systems provide traceability tools like serial numbers that allow you to track finished products by lot and date. This is extremely useful if you were to find out your product was tainted or otherwise damaged.
With traceability, you’re able to recall only the product affected. This maintains your quality while minimizing costs on your end. ERP solutions also supply auditing tools so you can retrace your steps in case issues surrounding your product arise. In addition to helping you perform QC and QA testing, ERP sends issue reports to the FDA and other regulatory entities in minutes instead of hours.
10. Order Management
The better you understand your order management activities, the more perfect orders you’re able to fulfill. Tracking your order management KPIs also reduces the number of returns you’ll have to process. The number of sales order returns your company experiences due to improper shipments, mistakes and defects can damage your brand reputation and lead to unhappy customers. With a powerful ERP solution in place, you’ll be able to provide more insight into what causes these types of issues and rectify the situations.
With ERP you can track average order value, average time dedicated to client orders, return percentage, warranty activity, refund rate and more. All of these ERP metric examples give you valuable insight into how you can improve your processes and raise customer satisfaction.
11. Other Trends
Your ERP software can assist you with assessing consumer trends and predicting future behavior patterns. Or, it might be important to know how calendar dates, weather conditions, growth in eCommerce and the price of oil may affect your operation. The information can be accessed within your historical and real-time data along with external data resources. With the power of a business intelligence suite within your ERP, you can easily manipulate dashboards and share critical trend data across your organization.
KPIs are important for assessing accountability and measuring the success of your process manufacturing operation. With the assistance of an ERP system, you can define your company’s performance through KPIs. This allows you to make critical decisions backed by data to impact quality, profitability and the overall future of your business.
What other production planning metrics do you track using an ERP system? Tell us by leaving a comment below!