There was big discussion on the APICS Board about the single KPI to use to measure the manufacturing operation. This is a great question because the user forces people to think of a single KPI to preclude all others. So the idea is to cull out the most important metric – not a consultant’s omnibus recommendation that provides a laundry list of metrics.
What should it be?
- Cost of production per unit
- TAKT time
- service levels
- Return on Investment
They all look like good measures but none of them would qualify as the single most important metric for manufacturing. I always preach that there should be two metrics for each function-
- A local functional metric – to measure what they do best and how they best they use what they learned in college for their particular operation.
- A holistic organizational metric that they control – This measure is not so obvious and easy to miss.
It so turns out that many organizations measure their functional organizations by the first one but totally miss the boat on the second one. To compensate for this grand miss, they come up with another metric that is really a functional metric for some other function.
For example, they may measure manufacturing by profits or ROI or service levels – which they do not control.
Let us examine service levels or profits. Measures that are noble indeed but manufacturing does NOT control them. They need to be measured on these as well, but these two measures are indeed KPIs for the entire organization. There is no special incentive for manufacturing to achieve these measures.
The holistic organizational metric for manufacturing is Schedule Adherence – the percent of production plan that they achieved on time (may be with some slack say +/- 2 days), in full (may be with some slack say +/- 5%), perfect quality (99% acceptance). Manufacturing fully controls this metric and the rest of the organization is desperately hoping that they will produce to the production plan – a plan that was carefully put together after considering the demand forecast and the degree of the forecast error in the form of safety stock.
If they do not adhere to the production plan, then everything else is a hog wash. Driving to profits or ROI is indeed wasted effort – one that involves everyone in the organization chasing their tails.
Schedule Adherence – YES the one KPI that manufacturing controls almost exclusively.
Schedule Adherence – YES the KPI that tells the rest of the organization that manufacturing is a team player. It reviews and adheres to the demand plan or the demand forecast and the resulting production plan or MRP run that it uses in its detailed production schedule.
Schedule Adherence – YES the KPI that gives confidence, as you rightly mention, to the rest of the organization that they can deliver to the required customer service levels and manufacturing will NOT produce too much or run large batches to improve their efficiency and lower their cost.
Their functional metrics can be costs, throughput and efficiency but their organizational metric should be Schedule Adherence.
A manufacturer’s passion to drive to lower costs and better thoroughput is rightly checked by schedule adherence. Produce the right quantity at the lowest cost possible!