Mastering Manufacturing KPIs: Key Metrics, Definitions, Formulas, and Dashboard Best Practices

What Are KPIs in Manufacturing?

KPIs in manufacturing are quantifiable metrics that offer insight into business performance. KPI stands for Key Performance Indicator and they do just as the name suggests -  they indicate successful performance.

One commonly-used manufacturing KPI is “overall equipment efficiency”(OEE) which is measured by calculating the factory’s performance, availability, and quality. While an effective measure of performance, especially at the factory floor, machine-specific level, OEE should ideally be used alongside other KPIs to gain greater clarity on performance from multiple angles.  Manufacturing businesses can, and should, choose several KPIs to focus on in order to help guide decision-making. 

 

Why Are KPIs Important for Manufacturers?

KPIs are important for manufacturers because they are defined, measurable metrics that help businesses focus on what’s most important, so they can track, analyze, and optimize performance over a period of time. 

KPIs let manufacturers know whether they are on course for success, if they are growing, and where issues may be present within their businesses. Having a KPI dashboard readily available can make company goals and priorities stay in focus and ensure the organization is moving forward as a whole.

With the right manufacturing analytics solution, manufacturers can quickly analyze production data and key metrics in pre-built reports so all stakeholders can make fast, effective decisions.

 

Manufacturing KPIs and Formulas

Below we cover over 50 manufacturing KPIs, providing both their definitions as well as how to calculate each of them. There are hundreds of manufacturing metrics in existence, but we have created a simple way to browse through the most important production KPIs. You can skip to any manufacturing metric by selecting it in the table below.

You can also jump directly to the "Manufacturing KPI Dashboards, Reports, and Templates" section. Manufacturing dashboards are important for visibility on various levels of the organization, including shop managers, operators on the shop floor, as well as corporate. Within that section, we show off some of the simple, useful production dashboards available from MachineMetrics.

 

 

Asset Turnover 

What is Asset Turnover? 

Asset Turnover is the value of sales or revenues generated. It measures the efficiency with which a manufacturer uses its equipment and other assets to drive revenue. Companies with a high turnover ratio are more efficient than those with a lower turnover.

How to Calculate Asset Turnover 

Asset Turnover = Net Sales / Average Total Assets

 

Asset Utilization 

What is Asset Utilization? 

Asset Utilization is the total revenue earned for every dollar of assets owned.  It measures how well you are using your installed capacity.

How to Calculate Asset Utilization 

Asset Utilization = (Actual Output / Maximum Capacity) *100

 

Availability 

What is Availability? 

Availability is the run time compared to planned production time. It is similar to overall availability, but uses planned production time, rather than total calendar time. Learn more about calculating and improving availability.

How to Calculate Availability 

Availability = Uptime / (Uptime + Downtime)

 

Avoided Cost 

What is Avoided Cost? 

Avoided Costs are expenses that will not be incurred by the manufacturers if the associated activity is no longer done. For example, a manufacturer may discontinue a product line, which means they will have a variety of avoided costs in the form of labor and equipment usage.

How to Calculate Avoided Cost 

Avoided Cost = Sum of expenses avoided from foregoing a particular activity

 

Capacity Utilization 

What is Capacity Utilization? 

Capacity Utilization is the rate at which potential output levels are being met or used. It essentially tracks how much of a manufacturer’s production capacity is currently being utilized.

How to Calculate Capacity Utilization 

Capacity Utilization = (Actual output/Maximum possible output)*100

 

Cash To Cash Cycle Time 

What is Cash To Cash Cycle Time? 

Also known as the cash-conversion cycle, Cash To Cash Cycle Time is the the number of days between paying for raw materials and components and getting paid for a product. 

How to Calculate Cash To Cash Cycle Time 

Cash To Cash Cycle Time = (Days Inventory Outstanding) + (Days Sales Outstanding) - (Days Payables Outstanding)

 

Changeover Time 

What is Changeover Time? 

Changeover Time is the time elapsed from the last good part of the previous run, to the first good part of the following run. 

How to Calculate Changeover Time 

Changeover Time = T∆ = total changeover time, typically in minutes or seconds

T∆e = external changeover time, in the same unit of measure as T∆  

T∆i = internal changeover time, in the same unit of measure as T∆"

 

Customer Return Rate 

What is Customer Return Rate? 

Customer Return Rate is the percentage of customers who come back to place another order. It is essential for retaining business and building customer loyalty. 

How to Calculate Customer Return Rate 

Customer Return Rate = (return customers / total customers) * 100

 

Cycle Time 

What is Cycle Time? 

Cycle Time is how long it takes to make a part or how long it takes the machine to complete a cycle. For a comparison between takt time and lead time, read this article. 

How to Calculate Cycle Time 

Cycle Time = total parts produced / production run time 

 

Demand Forecasting 

What is Demand Forecasting? 

Demand Forecasting works to predict customer demand to optimize supply choices. 

How to Calculate Demand Forecasting 

There are a variety of variables to consider when calculating future demand, including historical sales, forecasts from suppliers, seasonal and economic changes, as well as unique business challenges and constraints. Here is a good resource on demand forecasting for manufacturers.

 

Direct Material Usage Variance 

What is Direct Material Usage Variance? 

Direct Material Usage Variance is the difference between the standard quantity of materials that should have been used for the number of units actually produced, and the actual quantity of materials used, valued at the standard cost per unit of material 

How to Calculate Direct Material Usage Variance 

Direct Material Usage Variance = (standard quantity of material allowed for production – actual quantity used) × standard price per unit of material. (standard quantity of material allowed for production – actual quantity used) × standard price per unit of material

 

Employee Turnover 

What is Employee Turnover? 

Employee Turnover is the number or percentage of workers who leave an organization and are replaced by new employees. 

How to Calculate Employee Turnover 

Employee Turnover = (Total number of leavers in a month / average number of employees in a month ) * 100

 

Energy Cost Per Unit 

What is Energy Cost Per Unit? 

Energy Cost Per Unit is a measure of the cost of energy (electricity, steam, oil, gas, etc.) required to produce a specific unit or volume of production. 

How to Calculate Energy Cost Per Unit 

Energy Cost Per Unit = Sum of all energy costs / Units or Volume of Production

 

First Pass Yield 

What is First Pass Yield? 

Also known as throughput yield, First Pass Yield is defined as the number of good units (that do not require rework) coming out of a process divided by the number of units going into that process over a specified period of time. 

How to Calculate First Pass Yield 

First Pass Yield = number of “good” units completed (excluding scrap/rework) / total number of units entering the process

 

Health And Safety Incident Rate (Total Case Incident Rate (TCIR) 

What is Health And Safety Incident Rate? 

Health and Safety Incident Rate, also known as the total case incident rate (TCIR), is the number of work-related injuries per 100 full-time workers during a one year period 

How to Calculate Health And Safety Incident Rate (Total Case Incident Rate (TCIR) 

Health And Safety Incident Rate  =  (Number of OSHA Recordable injuries and illnesses X 200,000) / Employee total hours worked = Total Case Incident Rate. (Provided by OSHA)

 

Inventory Accuracy 

What is Inventory Accuracy? 

Inventory Accuracy measures the discrepancies that exist between electronic records that represent the inventory and the physical state of the inventory. 

How to Calculate Inventory Accuracy 

Inventory Accuracy =  number of counted items that perfectly match every aspect of the record / total number of items counted

 

Inventory Carrying Costs 

What are Inventory Carrying Costs? 

Inventory Carrying Costs are the total of all expenses related to storing unsold goods. 

How to Calculate Inventory Carrying Costs 

Inventory Carrying Cost = inventory holding sum / total value of inventory, then multiplied by 100

 

Inventory Turns 

What is Inventory Turns? 

Inventory Turns is the ratio that measures the number of times inventory is sold or consumed in a given time period .

How to Calculate Inventory Turns 

Inventory Turns = cost of goods sold (COGS) / average inventory during same period

 

Labor As A Percentage Of Cost 

What is Labor As A Percentage Of Cost? 

Labor As A Percentage Of Cost is the percentage value of money spent on labor costs against the total revenue of the company during a specific period. 

How to Calculate Labor As A Percentage Of Cost 

Labor As A Percentage Of Cost = Labor Costs / Gross Sales

 

Machine Downtime Rate 

What is Machine Downtime Rate? 

Machine Downtime Rate is any time the equipment is not available for production, including planned and unplanned downtime. Downtime is considered the largest source of lost production time for manufacturing, which makes this an incredibly important metric.

How to Calculate Machine Downtime Rate 

Machine Downtime Rate = (total uptime) / (total uptime + total downtime) 

 

Machine Set Up Time 

What is Machine Set Up Time? 

Machine Set Up Time is the period of time that is required to prepare a machine for its next run after it has completed production of the last part of the previous run.

How to Calculate Machine Set Up Time 

Machine Set Up Time = Time machine is prepared for next run - time completed last part of previous run

 

Maintenance Cost Per Unit 

What is Maintenance Cost Per Unit? 

Maintenance Cost Per Unit is the total maintenance cost divided by the number of produced units in a given period of time.

How to Calculate Maintenance Cost Per Unit 

Maintenance Cost Per Unit = total maintenance cost / number of produced units in measurement period

 

Manufacturing Cost As A Percentage Of Revenue 

What is Manufacturing Cost As A Percentage Of Revenue? 

Manufacturing Cost As A Percentage Of Revenue is the ratio of total manufacturing costs to the overall revenue produced by the manufacturing plant or business unit. 

How to Calculate Manufacturing Cost As A Percentage Of Revenue 

Manufacturing Cost As A Percentage Of Revenue = total manufacturing costs / overall revenue

 

Manufacturing Cost Per Unit 

What is Manufacturing Cost Per Unit? 

Manufacturing Cost Per Unit is the breakdown of all the fixed and variable costs that are encountered in the process of producing a single product 

How to Calculate Manufacturing Cost Per Unit 

Manufacturing Cost Per Unit =  manufacturing costs / total number of units produced during a given period

 

Manufacturing Lead Time 

What is Manufacturing Lead Time? 

Manufacturing Lead Time is the time period between the placement of an order and the shipment of the completed order to the customer. 

How to Calculate Manufacturing Lead Time 

Manufacturing Lead Time =  order delivery date - order received date

 

Material Yield Variance 

What is Material Yield Variance? 

Material Yield Variance is the difference between the actual amount of material used and the standard amount expected to be used, multiplied by the standard cost of the materials. 

How to Calculate Material Yield Variance 

Material Yield Variance = (Actual unit usage - Standard unit usage) x Standard cost per unit

 

Mean Time Between Failure (MTBF) 

What is Mean Time Between Failure? 

Mean Time Between Failure is the predicted elapsed time between inherent failures of a mechanical or electronic system, during normal system operation. 

How to Calculate Mean Time Between Failure 

Mean Time Between Failure = number of operational hours / number of failures

 

Mean Time To Repair (MTTR)

What is Mean Time To Repair? 

Mean Time To Repair is the basic measure of the maintainability of repairable items. It is essentially the average time it takes to repair either failed equipment or a failed part. It is most commonly represented in hours.

How to Calculate Mean Time To Repair 

Mean Time To Repair = sum of unplanned maintenance time spent on repair / total number of failures

 

Non-compliance Events Per Year 

What is Non-compliance Events Per Year? 

Non-compliance Events Per Year is a measure of the number of times a plant or facility operated outside the guidelines of normal regulatory compliance rules during a one-year period 

How to Calculate Non-compliance Events Per Year 

Simply the number of non-compliance events within a given year.

 

On-time Delivery 

What is On-time Delivery? 

On-time Delivery is the ratio of finished goods or shipments delivered on time to customers as a percentage of total units delivered or shipped. It is a good metric to use in ensuring customer satisfaction. 

How to Calculate On-time Delivery 

On-time Delivery = on time units / total units

 

Overall Equipment Effectiveness (OEE) 

What is Overall Equipment Effectiveness?