What Performance Metrics Should Manufacturers Be Measuring and Reporting on?
Manufacturing, like any business process, is only improved when it is properly managed. As the rule states, “you cannot manage what you do not first measure in performance metrics.” A cliché? Yes, but it’s also true.
According to Cincom Systems’ Gillis West, “Manufacturing is driven by real-time data and connectivity that must help you run smarter and inform change decisions that assure success.”
Basic ERP typically includes robust reporting capabilities. The problem is that if the manufacturing processes themselves are not tuned to an Advanced Manufacturing posture, it’s likely that you will produce flawed reports that do not actually inform as much as confuse. You may be looking for the same high-level information, but the metrics are slightly different in the Advanced Manufacturing world.
An analogy would be found on the dashboard of your car. In your gasoline-powered vehicle, you have a fuel gauge. It tells you how many gallons of petrol you have in your fuel tank. This gauge is useless in an electric-powered car. There is no fuel tank, and there is no petrol to measure. However, as a driver, you may wonder how long your car will run before needing a recharge. The electric-car dashboard does provide a gauge that estimates your remaining battery power.
Advanced manufacturers have unique reporting requirements, and this is particularly true with the use of project management. The general ledger must show postings by project. Expenses and revenue must be pegged to specific projects in order to assure an accurate financial picture for each project.
This is easy with some expenses, and with others, it’s not so easy. Every project you run consumes some portion of supplies and parts, time on the assembly line and other easy-to-track expenses. It also consumes some percentage of the lighting and HVAC for the manufacturing facility. A portion of the plant manager’s salary can be attributed to each project as well. Almost any general overhead expense can be associated with a given project.
Indirect Cost Allocation facilitates the ability to accurately identify and assign portions of these higher-level overhead expenses to a given project. That is key to gaining understanding about how well you are running your operation over the course of a year.
Specific Key Performance Indicators in performance metrics will vary greatly between shops and manufacturing operations in general. If anything, more data is available today than ever before. Knowing what should be tracked and what is less critical is a matter of organizing your specific needs and recognizing those areas where you need knowledge. It may be helpful to review your needs using a hierarchy of data.
- Customer data – Demographic data, contact information, credit and collection performance, product purchases, special requirements and transaction timing and frequency
- Production data – Quality and efficiency information, inventory trends and constraint reporting
- Management data – Compliance reporting, expense reduction and profitability
These are just a few ways to organize your reporting needs. Our Roadmap to Advanced Manufacturing offers more detail on this critical aspect of managing a manufacturing operation.
Gillis West, Cincom’s Vice President of Sales and Service for the Americas, suggests looking at your operation from four specific perspectives: Customers, Innovation, Technology and Data. These track very well with the three bullets above.
Another aspect of management performance metrics reporting is related to that most critical of all resources, your workforce. Individual effort reporting and pegging that effort to specific projects is essential.
The goal of reporting performance metrics should be an accurate view of your production processes. Scheduling, budgeting, forecasting, billing revenue recognition and performance management by project should all be incorporated into the management view.