How do you choose the best manufacturing KPIs among hundreds of different indicators? You may think: Can our manufacturing software provide the best KPI insights? No sweat.

This article covers the top ten manufacturing metrics you’ll need in 2024. We’ll also provide thought leader insights on choosing the right KPIs for your business and how to use them for better decision-making.

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Table of Contents

• Top Manufacturing KPIs
  • #1. Throughput
  • #2. Cycle Time
  • #3. Capacity Utilization
  • #4. Overall Equipment Effectiveness (OEE)
  • #5. On-Time Delivery
  • #6. First Pass Yield
  • #7. Scrap Rate
  • #8. Changeover Time
  • #9. Customer Returns
  • #10. Work-In-Process (WIP)
• Key Points To Consider When Choosing KPIs
• KPIs vs. Metrics: What’s the Difference?
• How To Make Better Decisions With Your KPIs
• FAQs
• Next Steps

Top Manufacturing KPIs

Whether you’re shopping for a new manufacturing program or configuring your current system, tracking production planning KPIs measures success, efficiency, profits and other factors.

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#1. Throughput

This KPI for the production planning department measures product output during specific timeframes. The higher the throughput, the more high-quality products you sell than competitors.

Patrick Faulkner, lead engineer of Accu Components, described this KPI as a manufacturer’s major lifeline.

Throughput is the lifeblood of a manufacturing cell, and if the production rate is high, there will likely be few issues relating to downtime or lead times, improving both the health of the business and the impression given to the end customer.”

James Brook, head of marketing and communications at FourJaw, stated that high throughput is “a good indication that your production lines are running efficiently.”

#2. Cycle Time

This manufacturing KPI gauges merchandise production from beginning to end. Pinpoint areas to enhance speed while keeping quality. You can also track individual practices.

Faulkner gave an example of how a company can measure cycle times.

In a multi-operation product, analyzing the cycle time for each process allows for the production plan to allocate resources where they are needed. An example of this would be in a standard fabrication environment. Bending sheet metal parts is a fast and repeatable process. However, welding them together is significantly slower.

“Analyzing the cycle time would show that assigning multiple welders to the project results in a faster throughput as they will be able to keep up with the bending cell’s output.”

Brook listed a few other KPIs similar to cycle time but giving more bottleneck insights.

Two other equally important measures that can help identify bottlenecks [are] capacity utilization, i.e., how much of the factory’s production capacity is in use, and the other is machine downtime, which measures the amount of time a machine is in a productive or unproductive state.”

Faulkner advised that take time is one of many more significant manufacturing KPI examples that resembles cycle time.

[Take time] is a more valuable metric as it shows exactly how much time is required to meet customer demand. This can also be used to ascertain the feasibility of a project and can be used to see if [an] additional resource is needed to complete a project by the expected date. For example, if it will take 25 hours of work, adding additional manpower or machinery in cells which bottleneck the process could reduce [the job] to only 15 hours.”

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#3. Capacity Utilization

Observe how plants use their production capacity to craft goods. The higher the number, the better you utilize resources to grow your return on investment (ROI).

Brook said capacity utilization helps better allocate resources to specific duties.

Without capacity planning, a factory may have idle workers or machinery, and equally, too many jobs assigned to one area but not enough manpower or machines to complete them. Overloading human and capital resources may also cause standards to drop, leading to costly errors, increased levels of waste, and a decrease in employee satisfaction. By planning capacity effectively, you help to reduce all of these risks in a manufacturing environment.”

George Yang, the founder of Yanre Fitness and Oxygen Ark, described this manufacturing KPI as an asset in “maximizing output, reducing costs and improving overall efficiency.”

#4. Overall Equipment Effectiveness (OEE)

OEE reviews and notifies you about machinery quality.

Yang stated that this data can help manufacturers “anticipate and prevent equipment failures, thereby reducing unexpected downtimes.”

Faulkner described OEE as the health score of production operations.

[OEE] is a metric based on the working percentage, speed of production and quality of product[s]. If a metric that makes up the effectiveness score begins to drop, it may be an indicator that the machine requires maintenance, the programs need alternation, or that more work needs to be sent to that machine. Paying attention to those factors can ensure that the machinery remains at the highest production rate possible.”

#5. On-Time Delivery

Use this KPI for the production planning department as the endgame for your manufacturing operations. On-time deliveries mean you promptly create and distribute high-quality products to your customers.

Brook described how on-time deliveries can establish a positive reputation among your clientele.

Consistently delivering goods on time will naturally lead to higher levels of customer satisfaction, which in turn may also lead to higher levels of repeat business, which can also result in better profit margins due to the repetitive nature of the work and frequency of orders.

“Manufacturers that have a high on-time delivery rate also benefit from having better resource planning and utilization, both of which are particularly important for businesses looking to improve their bottom line and remain competitive in the market.”

Yang said this manufacturing KPI gives your operational efficiency positive vibes.

[On-time deliveries reflect] the ability of a manufacturing facility to meet its production schedules and manage its supply chain effectively.”

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#6. First Pass Yield

Understand the percentage of manufactured goods without mistakes or sorting them as scrap over a range. The better the first pass yield, the faster you can distribute objects to patrons.

Faulkner explained how ideal first passes can reduce waste.

In an ideal world, the yield rate should be as close to 1-1 as possible. This simply means that for each process, several parts enter, the equal volume is completed. This can help reduce waste, and if the rate is consistent, can reduce the overage required at initial production.”

#7. Scrap Rate

Track and ensure workers follow the proper steps to reduce cracks, spills and other wasteful habits. This manufacturing KPI determines how much raw materials and other goods you throw away when operations go awry.

Faulkner described how this KPI aligns with quality control.

If the scrap rate is higher than the reported quality control failure rate and expected material waste, it can be an indicator that mistakes are bypassing the quality procedures in place.”

Yang stated that “lower scrap rates indicate more efficient use of materials and a more cost-effective production process.”

#8. Changeover Time

Calculate how long it takes to switch from one task to another or how much lost time it takes to change production from one object to the next to detect and reduce delays.

Faulkner describes this KPI as the no-pressure standard.

Changeover time allows for the inspection of equipment, cleaning and other important tasks not normally accounted for to be carried out without the pressure of meeting a quote or throughput goal. This, in the long run, can help save time and delays as operators are more inclined to take the time to inspect correctly and any errors or faults encountered can save a costly shutdown mid-production.”

Brook conversed about how specific lean manufacturing methods like Single-Minute Exchange of Die (SMED) can decrease changeover and production times.

By [using SMED], you free up machine capacity, allowing you to improve your factory’s overall output, which, in turn, maximizes revenue.”

#9. Customer Returns

Evaluate why customers return products. The item may have arrived damaged, customers received the wrong item or someone ordered merchandise by mistake.

Other factors apply, but this metric helps reduce as many in-house errors as possible. Implement high-quality standards and regulations for local and standard practices, such as:

• Food and Drug Administration (FDA)
• International Organization for Standardization (ISO)
• Code of Federal Regulations (CFR)
• And more!

Brook stated that this metric gives you a better sense of quality and profitability.

When you track the percentage of faulty products that are being returned, you’re also able to factor this into the cost of each item to make up for defective ones. Not only will this allow you to closely measure return levels over time, but it will also give you a better idea of revenue.

“By formalizing the feedback procedure, manufacturers can periodically review the percentage rate of returns and identify if the same negative feedback is being received more than once. If the same feedback is given, they should review production and quality assurance processes to try and mitigate the risk of a product being returned.”

Faulkner said this manufacturing KPI can be an example of much-needed design or machinery calibrations.

Customer returns can enable a manufacturer to examine the reasons behind the return. For example, it could be due to a design error which can be fixed to make a stronger product or a tooling issue which can be fixed for the next run. If these issues are not reported by the customer, the manufacturer will have no data with which to improve their offering.”

#10. Work-In-Process (WIP)

Check current WIPs for incomplete jobs or additional methods. You can also review expenditures for incomplete assignments and catch supply chain inconsistencies.

Yang said this manufacturing KPI can verify “that there are no excessive build-ups at any stage of the production process, thereby improving overall productivity.”

Brook said this indicator is also vital in detecting workflow obstacles.

If a delay is identified, the machine operator or shop floor supervisor will be able to review the process that is causing delays and proactively make changes as appropriate. By continuing to measure work-in-process rates, you’re able to see if your improvement has made any impact on output and overall productivity.”

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Key Points To Consider When Choosing KPIs

Finding the right KPIs is similar to searching for the right manufacturing ERP system. You have to determine what works best for your organization. Yang stressed that finding the right indicators yields more success and credibility.

It is particularly important to select those KPIs that are highly correlated with the critical success factors of the business, and they need to be fully captured. I remember once at Oxygen Ark when our team was selecting KPIs, we first considered those directly related to our reputation and client retention. And then we chose the KPIs that measure product quality and customer satisfaction.”

Brook gave helpful manufacturing KPI examples when determining how to overcome capacity constraints.

If a manufacturer has identified they have production capacity constraints, it would be sensible to focus on manufacturing metrics such as machine downtime and utilization. By understanding these metrics, a manufacturer can identify where capacity bottlenecks are and take appropriate action.”

KPIs vs. Metrics: What’s the Difference?

People often use KPIs and metrics interchangeably to describe performance. However, these terms are as different as apples and oranges. Metrics measure general operations, while KPIs focus on big-picture goals.

Yang described why it’s essential to know the difference between these terms.

KPIs are strategic in nature and are closely related to overall business objectives, whereas metrics are more operational in nature and are more related to specific processes or activities. For instance, while machine downtime is a metric, it’s just to measure the work of a machine. The rate of on-time delivery is a KPI as it directly affects customer satisfaction and overall business success.”

Faulkner described how Accu Components differentiate metrics and KPIs.

In Accu’s operations, metrics are values which are used to show performance and data from the business in an easy-to-digest manner, for example, quality control fail rate or machine downtime. KPIs are goals that use the value of a metric to set performance expectations. An example of which would be to have machine downtime be under 10% of operational hours.”

How To Make Better Decisions With Your KPIs

Using KPI data can help you pinpoint what’s working and needs improvement to make better choices regarding machinery, employees, profits, supply chain and distribution methods, and more.

Brook said KPIs can establish standards and eliminate guesswork.

By gathering real-time and overtime datasets across your factory, manufacturers can benchmark their performance against their KPIs. This data can then be used to allow people on the factory floor and top floor to make informed decisions based on insights rather than guesswork, enabling individuals, teams and the overall business [to] become more proactive in removing inefficiencies and driving a culture of continuous improvement.”

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FAQs

What is a KPI?

Key performance indicators (KPIs) are measurement points that determine an organization’s success in any given category.

You measure KPIs through sophisticated analysis and reporting functionalities, typically found in business intelligence (BI) or business analytics (BA) software, such as charts, dashboards, graphs, reports and other visual displays.

Today, most core business software solutions, like ERP, manufacturing and CRM, come with analytical and reporting features to supervise KPIs.

What are the most important KPIs for manufacturing?

The most important manufacturing KPIs are:

• Throughput
• Cycle Time
• Capacity Utilization
• Overall Equipment Effectiveness (OEE)
• On-Time Delivery
• First Pass Yield
• Scrap Rate
• Changeover Time
• Customer Returns
• Work-In-Process

What are the four mandatory key performance indicators?

These KPIs are the starting blocks for any business:

• Customer Satisfaction
• Internal Process Quality
• Employee Satisfaction
• Financial Performance

What does KPI stand for in manufacturing?

KPI stands for key performance indicator in manufacturing and other sectors.

What’s the difference between KPIs and metrics?

KPIs are company-oriented goals to achieve. For example, increasing on-time deliveries by 20% in the third quarter is a KPI.

A metric is a general performance. Machine downtime, cycle time and fail rates are examples of metrics.

How do you measure manufacturing productivity?

Reliable manufacturing software can measure numerous KPIs and gather in-depth data, such as profits, productivity, machinery downtime and more.

How do I choose the right manufacturing software to measure KPIs?

Finding a platform is no easy feat; you need a plan. Luckily, SelectHub has a sound nine-step methodology called Lean Selection, which alleviates the stress of searching for a new platform.

1. Establish: Identify the problems with your current operations or system, which will help you know what to search for in a new solution.
2. Collaborate: Create a software selection committee of department leaders, internal and external stakeholders, users, executives, and more to provide a detailed requirements list.
3. Define: Meet with your selection committee to draft a features list for your potential vendors.
4. Distribute: Compare potential vendors and evaluate how well they score on your desired features. Create a shortlist of vendors that best align with your requirements list.
5. Justify: After collecting scores, you have a choice: look for a brand-new system, get integrations for your current system or use your existing program and end your selection process.
6. Prove: Ask your shortlisted vendors for demos, use cases or proofs-of-concept (POCs).
7. Rank: Take every vendor’s requirements score, demo score and total cost of ownership (TCO) and rank them accordingly. You should have at least two to three options that meet your company’s needs.
8. Negotiate: Sit with your ideal vendor to negotiate usage terms and review their contract. Ask for additional legal advice if the contract sounds sketchy. Repeat this step with your second vendor if you can’t reach a compromise.
9. Sign: Evaluate and sign the contract. Then, establish a solid implementation plan.

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Next Steps

Tracking manufacturing KPIs helps you assess accountability and measure production success. Consider your company’s unique requirements and needs when analyzing KPIs and solutions.

Ready to look for solutions that can measure your KPIs? Check out our free comparison guide with unbiased oranges-to-oranges stack-ups of different systems and their capabilities.

How did tracking manufacturing KPIs make a difference for your business? Let us know in the comments!

SME Contributors

Patrick Faulkner, Accu Components’ lead engineer, is pivotal in driving internal project development and keeping the company at the forefront of engineering innovations. His expertise in CAD and 3D printing rapid prototyping elevates Accu’s service offerings, ensuring exceptional client service. Faulkner spearheads staff training, enriching the team’s understanding of various components and their applications. He holds an undergraduate degree in production design and a master’s in industrial design.

George Yang is the founder of Oxygen Ark and Yanre Fitness. His journey in health education and business operations has led to giving insights to journalists for USA Today, Workable, Health Reporter, Databox and more.

James Brook is the head of marketing and communications at FourJaw. Brook has a
background of 15+ years in developing and implementing marketing, brand, and product strategies for companies across a breadth of sectors and geographies. Over the last five years, he has worked in the technology space, leading the global marketing function at an industrial monitoring and control company, and more recently, joining FourJaw. FourJaw is a SaaS business that is helping to change the world of manufacturing productivity through its IoT machine monitoring platform.