Performance Measurement in Manufacturing

If you’re in the business of manufacturing, then you understand how important performance metrics are. Lean management principles, inventory control systems, warehouse managers, supply chain management – these are all in place to manage inventory efficiently and maximize profit.

Measure manufacturing success, Fishbowl BlogAs exhaustive as it may sound, in addition to managing all parts of the manufacturing process, you need to measure certain metrics, as well. Keep in mind that not ALL processes need to be measured, just key processes. Bill Waddell, a manufacturing consultant, states that there are five golden metrics that really matter: total cost, total cycle time, delivery performance, quality and safety.

Bill Waddell elaborates on these five metrics:

Total cost

“The only meaningful measurement of total cost is on a cash basis. All money spent on manufacturing must be summarized and the total compared to the previous period – not to a flexible budget or a plan. What matters is whether the total cash spent on manufacturing was more or less than it was in the previous period.”

Total cycle time

“Total cycle time is calculated by studying major purchased components and determining the total days on hand of each one.”

Delivery performance

“Delivery performance is the percentage of customer orders shipped when the customer requested them to be shipped. It is purely a metric of manufacturing’s ability to meet customer requirements.”

Quality

“What is meant by quality will vary by company, but it must be quality in the eyes of the customer. As a result, customer returns or warranty claims are typically the basis for this metric.”

Safety

“The standard metrics of accident/incident frequency and severity are sufficient.”

These five measurements are manufacturing’s bottom line. All efforts must be aimed at improving one or more of them without degrading performance of any of the others. Focusing on the priorities is the only way for a warehouse manager or supply chain manager to keep their sanity.

Monitoring processes and making adjustments for improvements are how a manufacturing organization can exist long term. Overlooking the principle of performance measurement is a grave mistake that will reveal itself as demand changes or as an organization expands. Measuring performance allows you to have a “demand-driven” supply chain and to swiftly respond to shifts in demand.

Robert Russo, a business executive, says it best: “Where performance is measured, performance improves. Where performance is measured and reported, the rate of improvement accelerates.”

About George Nielsen

George Nielsen is an Internet Marketer with Fishbowl Inventory.
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