Improving Shop Performance Through Evaluation of KPIs
Shops face increasing pressure to set themselves apart from their customers’ other options – and increasing difficulty in finding ways to do so. When they look for ways to improve operational efficiency, they focus on the shop floor, investing in the latest machine tools to make parts with greater speed and precision and adding automation for unattended operations to increase production without adding more work shifts. All the while, however, inefficiencies from other parts of the business can continue to lurk in the background, sapping the ability to compete, profit and succeed.
Formally, operational efficiency is the ratio between what a business gains from its output and what it must put in to run the business. Key performance indicators (KPIs) define the measurable criteria that contribute to operational efficiency. In the age of digital accountability, shops have abundant access to the information they need to answer KPI questions: How long did that process take? How many parts did we scrap? How much tool life did we gain?
Because much of the data focuses on production performance, shops often load up on lagging instead of leading KPIs in their analyses and reviews. The difference between the two categories involves what they measure: past performance or future predictors. Easy to measure but often difficult to improve, lagging KPIs typically relate to output. They quickly reveal and confirm historic trends but fail to shed light on future developments or problems. Conversely, leading indicators measure behavior and can predict future performance, but they can be difficult to quantify, although they can help avert disaster if shops use them proactively rather than waiting for lagging indicators to reveal their predictions already occurred.
In manufacturing, some of the classic indicators are obvious: tool inventory, part production per shift, tool life, scrap rate, downtime (scheduled and otherwise), setup time, rework, QC failures, on-time deliveries and customer returns. These are lagging indicators, however, that reflect performance rather than predict it. Shops that pay too much attention to any one lagging indicator may alter their front-line behavior artificially. A fixation on reducing tool inventory, for example, may over-reduce it so much that a shop winds up paying rush tool-order fees or leaving machines to set idle.
Just as it’s important to measure KPIs, track performance and find ways to improve efficiency as well as output quality, it’s important to choose the right KPIs to measure. Although leading KPIs can take some time to identify and find a way to measure, they can produce results that lagging indicators cannot offer. Takt time defines how long a shop can afford to spend on a task from start to finish and still meet its production deadlines. The name comes from a German word that means “tempo” or “pulse.” To calculate this KPI, divide available production time by the size of the parts order and find the number of parts per hour.
Another leading KPI helps shops evaluate whether and how much automation would increase their production. How many more parts would they be able to complete if they automated tool verifications and changeovers or palletized part-load/unload cycles? Evaluating this KPI requires a comparison of their current production with the specified output of the automated process.
Would a tool ID system help eliminate incorrect tool usage and thereby reduce scrap rates or improve tool life? Measurement of the impact of decreased tool-selection errors through automation helps shops evaluate whether to invest in tool ID equipment.
How often do suppliers deliver materials on time, and how frequently are these materials out of spec, damaged or otherwise unsuitable? Evaluation of scheduling and performance makes it possible to decide whether to retain or replace a supplier, or at least to initiate conversations about improved performance on a probationary basis.
Given the benefits of performance improvements – and the competitive necessities they accompany – shops that measure KPIs and use their analytical results to increase efficiency can achieve greater productivity on the road to greater profits. Once they look beyond the shop floor itself, they can broaden their understanding of their workflow and find ways to enhance it.
Need help to determine the appropriate KPIs for your shop to measure? Connect with a Seco expert to define the leading and lagging indicators that can optimize your performance.
SHOPS THAT EVALUATE THEIR PERFORMANCE CAN FIND WAYS TO IMPROVE IT
- Today’s increasing focus on digitalization provides ready access to data for manufacturing performance evaluation.
- Choosing the right statistics to evaluate can make or break the value of the analysis itself.
- Focusing only on shop-floor performance can’t reveal a fully rounded picture of a manufacturer’s strengths and weaknesses.
- Focusing only on past performance fails to offer insights into future capabilities.
KEY PERFORMANCE INDICATORS (KPI’S) GIVE SHOPS THE METRICS THEY NEED TO MEASURE AND QUANTIFY HOW PRODUCTIVE THEY REALLY ARE
- Lagging indicators track past performance.
- Leading indicators point to future performance.
- Focusing too much on any single indicator can influence performance negatively.
- Balancing lagging and leading indicators provides actionable data about current and potential performance.