If you can’t measure it you can’t improve it?! How many times have we heard that before? But when we go into manufacturing companies looking for ERP systems and ask some of the basic questions, like “what is your on-time shipment accuracy?” or “what is your machine efficiency?” or “what is your daily cost of scrap?” we get blank stares or answers like “it’s over 90% I think” or “it’s in the 70 to 80% range I think” or “we don’t have that much scrap.” That would be like an ERP software company responding to the question of “how many of your customers meet the target go live date” with the answer “most of them”. “Most” can mean a lot of things – 95%, 75% or 51% which is a big difference in the bottom line.
For most businesses today the difference in a couple of percentage points on machine efficiencies, OEE, or scrap rates can mean thousands of dollars per day. IQMS customer Plastic Components Inc. has detailed their costs to the point of knowing exactly how much profit they make – on every product they make – and conversely how much it costs for every piece of scrap they make. This information is published to the employees so that they can know and take ownership of exactly how much it costs when they make bad product. So instead of saying “this scrap is costing us money” they go to the chart and say this scrap cost us “x” number of dollars and we have to make “y” number of extra product to just break even. This type of accuracy is not only something that their employees understand but provides a more tangible target for success.
Defining Manufacturing Metrics
The PCI example is just one example of how a company can define their business metrics. The first step in the process is to determine which metrics are important to you as a manufacturer. Companies usually know what they want to measure already and most ERP software companies will have published sets of key performance indicators (KPIs) that you can use to select the most important metrics for your business.
Once you have selected the metrics you want to measure for your business, you need to set your benchmarks of where you are today. Unfortunately, in many cases the data may not be readily available in most ERP systems and therefore it becomes cumbersome and time consuming to gather the data. If you have an ERP system with the built in KPIs the process becomes simpler than if you have to gather the data from spreadsheets or other sources within your operations.
The next step is to make the objectives and results available to your team. In the case of PCI they published the metrics on bulletin boards on the shop floor so all their employees can see how well they are doing against their goals and how their contributions are affecting the bottom line of the company. Once your employees can see how their efforts make a difference within the company and the rewards of profitability – whether they are job security or performance bonuses – then you have truly achieved the goal of measuring for improvement.
For more information on PCI, please review their case study.