Manufacturing Performance Measures Really Count

In business, you can't improve what you can't measure. Many small manufacturers are content looking at the "bottom line" and measuring their company's performance based on whether they are making money.

Columns From: 4/1/1997 Modern Machine Shop,

In business, you can't improve what you can't measure. Many small manufacturers are content looking at the "bottom line" and measuring their company's performance based on whether they are making money. However, as important as this bottom line is, it is equally important to measure key factors that contribute to this number. If you do not already do so, give serious consideration to using the following performance measures.

  • Sales booking performance to sales plan (current month and year-to-date): 
    This measure allows you to determine how you are performing in comparison to your sales plan. The measure of the current month provides information at a particular point in time. The year-to-date measure is typically more meaningful as it smoothes out sales peaks and valleys and provides useful trend information. Knowing how your sales bookings are performing in comparison to your sales plan is important to your production plan.
  • Sales booking projection to sales plan (three month projection): 
    The sales booking projection for the next three months may vary from the original sales plan. The results of sales booking performance measurements, either current month or year-to-date, may cause you to alter your projections for the near future. Reviewing and up-dating sales booking projections helps refine your production plan.
  • Shipment performance to sales plan (current month and year-to-date): 
    Measuring the dollar value of every-thing you complete, ship and invoice is critical to understanding how your company is performing. This shipment performance, especially when compared to the original sales plan, provides information on the overall health of a company and indicates whether changes must be made.
  • Shipment projection to sales plan (three-month projection): 
    Reviewing and modifying your shipment projection for the upcoming three-month period will help you make good decisions on staffing and critical business expenses.
  • Backlog: 
    Tracking the backlog on a monthly basis provides important trend information, which is needed to effectively plan your production activities.
  • Capacity by workcenter (three-month projection): 
    A workcenter can be defined as a machine, group of machines or department. The capacity reflects the most you can expect to produce in a given period of time. The best indicator of capacity is history, especially recent history. It's a good bet that, without major changes in the operation of the workcenter, your capacity will remain constant. If history shows that your equipment runs 70 percent of the time, then this should be your planned capacity for the next three months.
  • Workcenter performance: 
    It is important to know how your workcenters are performing. Are they completing jobs on schedule? How many jobs are completed over a specific period of time? Is output up, down or relatively constant? Once you capture this information, you can begin to explore reasons for any workcenter performance that is below expectations.
  • Quotation conversion (current month and year-to-date): 
    This measure compares the number of quoted jobs awarded to the total number of jobs quoted. Knowing the quotation conversion percentage can reveal a great deal about your prices, leadtimes and customers.
  • Quoted prices versus actual costs (job-by-job basis): 
    This is one of the most important performance measures, especially for contract manufacturers who do many different jobs. Although not every job will be profitable every time, the majority of jobs should be. Completing too many jobs at a loss is a sure path to disaster for any company.

As you can see, a prerequisite for measures is a basis for comparison from some type of plan (for example, a business plan, marketing plan, production plan, and so on). Obviously, developing plans is critical to the success of any business and time must be dedicated to doing this. Only when you have a plan, and make the effort to measure actual performance and compare it to that plan, will you be in a position to improve your manufacturing performance.

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