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Posted by Mark Davidson on Wed, Oct 09, 2013 @ 06:00 AM Email*

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When it comes to metrics, it’s

often said that what gets
measured gets done. Part of
this is human nature.
Everyone has more piled on Follow LNS
their plate than ever, and Research
many workers find
themselves constantly re-
prioritizing their work
activities. Therefore, metrics
that have the attention of
business and manufacturing leaders tend to be those that get measured and improved About LNS
upon by their employee teams. Research
LNS Research
Follow @LNSResearch provides executives a
platform for accessing
unbiased research
Effectively measuring, analyzing, and improving manufacturing metrics is not as simple
and benchmark data
as it may appear. While there are certain metrics that work well for specific job roles, it’s
to improve business
often the case that there are multiple combinations of metric indicators needed to ensure
performance
that a larger business objective is being met.

For this reason, metrics need to be aligned to larger goals and objectives. Think
“SMART” goals—Specific, Measurable, Actionable, Realistic, Time-Based. This
mnemonic contains some key concepts.

It’s important to understand the interrelationships between high-level goals and objectives
as well as what actions or methods are required for an organization to achieve them—this
falls under Specific. Measurable and Actionable are when metrics come into play—any
desired result must have a set of defined measurements, targets, and actions that can be
taken in order to “move the needle” on the metrics that are leading or lagging indicators of
results.

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In manufacturing, each major

goal typically requires multiple
About The Blog
The LNS Research
metrics. The list of 28 metrics
Blog provides an
that appear in this post are
informal environment
grouped together relating to
for analysts to share
specific higher-level goals and thoughts and insights
objectives (e.g. increase quality). directly with our
The Realistic component of the community on a range
acronym can present a of technology and
significant area of challenge. business topics
Leaders want teams to stretch
and achieve more than what is
individually perceived as
possible. However, if goals are Latest Posts
too lofty, and workers don’t
All New Analytics
believe they can be achieved, That Matter Survey
they may give up and from LNS
disengage. Since every goal Research and
needs to be driven by some type MESA
of deadline or period to achieve the target, a Time-Based aspect is important to keeping International
everyone focused.
5 Most Asked
Sustainable metrics improvements require a continuous improvement methodology—a Questions from
cycle that is never fully complete. As can be seen, measurement and metrics is a central the Making MOM
pillar of this continuous improvement cycle. Choices in a
Changing World
Webcast
Which Metrics Matter Most?
What does 2018
The MESA (Manufacturing Enterprise Solutions Association) organization has hold for Quality
sponsored research over the past years to help the manufacturing marketplace identify Management?
the most important metrics, and help decision makers understand metrics improvements
and their relationships to metrics programs and the use of software solutions. As part of Change of Guard
at Enablon:
the most recent metrics survey, 28 manufacturing metrics were identified as being the
Implications for
most utilized by discrete, process, and hybrid/batch manufacturers.
the Environment,
Below, we’ve grouped these metrics with the associated top-level area of Health and Safety
improvement/goal for each. (EHS) Software
Industry

Improving Customer Experience & Responsiveness Quality Leaders: 8

Considerations to
1. On-Time Delivery to Commit – This metric is the percentage of time that Improve Your
manufacturing delivers a completed product on the schedule that was committed to Approach to
customers. Compliance
Updates
2. Manufacturing Cycle Time – Measures the speed or time it takes for manufacturing
to produce a given product from the time the order is released to production, to finished 2018 Asset
goods. Performance Management Pred

Oracle Modern
3. Time to Make Changeovers – Measures the speed or time it takes to switch a
Supply Chain
manufacturing line or plant from making one product over to making a different product.

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Improving Quality Experience

Conference
4. Yield – Indicates a percentage of products that are manufactured correctly and to Focuses on Cloud,
specifications the first time through the manufacturing process without scrap or rework. Digital Thread, and
Digital Twin
5. Customer Rejects/Return Material Authorizations/Returns – A measure of how
Digitalization
many times customers reject products or request returns of products based on receipt of a
Getting Bigger
bad or out of specification product.
[ROUNDUP]

6. Supplier’s Quality Incoming – A measure of the percentage of good quality materials 3 Strategies to Get
coming into the manufacturing process from a given supplier. Business
Executives to Walk
Improving Efficiency Their Safety Talk

3 Advanced
7. Throughput – Measures how much product is being produced on a machine, line, unit,
Industrial Cyber
or plant over a specified period of time.
Security Vendors
to Watch
8. Capacity Utilization – Indicates how much of the total manufacturing output capacity is
being utilized at a given point in time.

9. Overall Equipment Effectiveness (OEE) – This multi-dimensional metric is a

Posts by
multiplier of Availability x Performance x Quality, and it can be used to indicate the
overall effectiveness of a piece of production equipment, or an entire production line.
Category
#MondayMusings
10. Schedule or Production Attainment – A measure of what percentage of time a (63)
target level of production is attained within a specified schedule of time.
#Roundup (117)

Reducing Inventory About LNS

Research (14)
11. WIP Inventory/Turns – A commonly used ratio calculation to measure the efficient
use of inventory materials. It is calculated by dividing the cost of goods sold by the Artificial

average inventory used to produce those goods. Intelligence /

Machine Learning
(AI/ML) (12)
Ensuring Compliance
Asset Performance
12. Reportable Health and Safety Incidents – A measure of the number of health and Management
safety incidents that were either actual incidents or near misses that were recorded as (APM) (165)
occurring over a period of time.
Asset Reliability
13. Reportable Environmental Incidents – A measure of the number of health and (9)
safety incidents that were recorded as occurring over a period of time. Benchmarking (18)

14. Number of Non-Compliance Events / Year – A measure of the number of times a Big Data (143)
plant or facility operated outside the guidelines of normal regulatory compliance rules over
Business Process
a one-year period. These non-compliances need to be fully documented as to the specific
Management
non-compliance time, reasons, and resolutions. (BPM) (4)

Case Study (6)

Reducing Maintenance
Cloud (137)
15. Percentage Planned vs. Emergency Maintenance Work Orders – This ratio metric
is an indicator of how often scheduled maintenance takes place, versus more Compliance (12)

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disruptive/un-planned maintenance. Continuous

Improvement (10)
16. Downtime in Proportion to Operating Time – This ratio of downtime to operating
Cost of Quality
time is a direct indicator of asset availability for production.
(CoQ) (21)

Increasing Flexibility & Innovation Culture (27)

Digital
17. Rate of New Product Introduction – Indicates how rapidly new products can be
Transformation
introduced to the marketplace and typically includes a combination of design,
(162)
development and manufacturing ramp up times.
Enterprise Asset
18. Engineering Change Order Cycle Time – A measure of how rapidly design changes Management
or modifications to existing products can be implemented all the way through (EAM) (34)
documentation processes and volume production.
Enterprise Quality
Management
Reducing Costs & Increasing Profitability System (EQMS)
(327)
19. Total Manufacturing Cost per Unit Excluding Materials – This is a measure of all
potentially controllable manufacturing costs that go into the production of a given Enterprise
manufactured unit, item or volume. Resource Planning
(ERP) (39)
20. Manufacturing Cost as a Percentage of Revenue – A ratio of total manufacturing
Environment,
costs to the overall revenues produced by a manufacturing plant or business unit.
Health and Safety
21. Net Operating Profit – Measures the financial profitability for all (EHS) (106)
investors/shareholders/debt holders, either before or after taxes, for a manufacturing plant Food Safety /
or business unit. HACCP (7)

22. Productivity in Revenue per Employee – This is a measure of how much revenue is Industrial
generated by a plant, business unit or company, divided by the number of employees. Automation (9)

Industrial Energy
23. Average Unit Contribution Margin – This metric is calculated as a ratio of the profit
Management (IEM)
margin that is generated by a manufacturing plant or business unit, divided into a given
(42)
unit or volume of production.
Industrial Internet
24. Return on Assets/Return on Net Assets - A measure of financial performance of Things (IIoT)
calculated by dividing the net income from a manufacturing plant or business unit by the (328)
value of fixed assets and working capital deployed. Industry 4.0 /
Smart
25. Energy Cost per Unit – A measure of the cost of energy (electricity, steam, oil, gas,
Manufacturing (12)
etc.) required to produce a specific unit or volume of production.
Information
26. Cash-to-Cash Cycle Time – This metric is the duration between the purchase of a Technology (11)
manufacturing plant or business unit’s inventory, and the collection of payments/accounts
ISO Standards (3)
receivable for the sale of products that utilize that inventory – typically measured in days.
IT/OT (7)
27. EBITDA – This metric acronym stands for Earnings Before Interest, Taxes,
Lean
Depreciation, and Amortization. It is a calculation of a business unit or company's
Manufacturing (3)
earnings, prior to having any interest payments, tax, depreciation, and amortization
subtracted for any final accounting of income and expenses. EBITDA is typically used as Manufacturing
top-level indication of the current operational profitability of a business. Execution System

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28. Customer Fill Rate/On-Time delivery/Perfect Order Percentage - This metric is the (MES) (43)
percentage of times that customers receive the entirety of their ordered manufactured
Manufacturing
goods, to the correct specifications, and delivered at the expected time.
Operations (1)

LNS Research and MESA International Bring You the Manufacturing

Operations
Biennial 'Metrics that Matter' Research Survey
Management

In order to continue to uncover valuable industry trends of manufacturing metrics, in (MOM) (251)

partnership with MESA International, LNS Research has re-launched the biennial ‘Metrics Metrics (36)
that Matter’ research survey. The 2015-2016 survey and research report is focusing on
Mobile / Mobility
the trends and correlations between specific operational metric improvements, the use of
(47)
Manufacturing Operations Management (MOM) software applications, role-based metrics
reporting, and the effect of emerging technologies such as mobility, big data, and cloud- New Product
computing on metrics programs. Introduction (NPI)
(2)
Access this brand NEW EQMS Solution Selection Guide to get a closer look at 18
Operational
key EQMS vendors with a side-by-side comparison!
Architecture (20)

Operational
Excellence (131)

Overall Equipment
Effectiveness
(OEE) (15)

Performance
Management (10)

Tags: Metrics, Manufacturing Operations Management (MOM) Predictive

Maintenance (PM)
(30)

Product Lifecycle
Marty Etzel Management
10/9/2013, 8:01:57 PM (PLM) (25)

Nice summary. Quality 4.0 (8)

Reply to Marty Etzel Risk Management

(63)

Smart Connected
Marty Etzel
10/9/2013, 8:01:57 PM Assets (88)

Nice summary. Solution Selection

Guide (19)
Reply to Marty Etzel
Solution Vendor /
Software Vendor
Michael McClellan (51)
10/10/2013, 1:14:28 AM
Statistical Process
Mark Control (SPC) (7)

Supplier Quality
This is an excellent recap of metrics concepts. Nice job.

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Reply to Michael McClellan Management

(SQM) (27)

Supply Chain
Dave
Management
10/10/2013, 4:05:56 AM
(SCM) (18)
While a good summary and most items are reflected in our current
Sustainability (57)
metrics, Item #13 is a LOT more than "health and safety incidents"
Traceability (17)
Reply to Dave

Mark Davidson
10/10/2013, 4:46:18 AM

To dmsmith@transformauto.com

Thank you for your comment - and fair enough, there is a lot more that
goes into health & safety metrics that our simple summary did not
indicate. Feel free to post further, your thoughts and explanation on this.

Reply to Mark Davidson

Mark Davidson
10/10/2013, 4:46:18 AM

To dmsmith@transformauto.com

Thank you for your comment - and fair enough, there is a lot more that
goes into health & safety metrics that our simple summary did not
indicate. Feel free to post further, your thoughts and explanation on this.

Reply to Mark Davidson

Paul Goodstadt
10/10/2013, 5:40:12 PM

Hi. Many thanks. Excellent summary.

Can translate straight from Manufacturing to Construction.
Will be useful at a Board Strategy Meeting this coming week.
Keep up good work. Regards

Reply to Paul Goodstadt

Stuart Rosenberg
10/12/2013, 12:59:10 AM

Interesting and very informative how the 28 metrics are divided into
specific areas of measurement.

Reply to Stuart Rosenberg

Stuart Rosenberg

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10/12/2013, 12:59:10 AM

Interesting and very informative how the 28 metrics are divided into
specific areas of measurement.

Reply to Stuart Rosenberg

A H B NARAYANA REDDY
10/12/2013, 4:33:48 PM

Good summary.It is useful.

Reply to A H B NARAYANA REDDY

A H B NARAYANA REDDY
10/12/2013, 4:33:48 PM

Good summary.It is useful.

Reply to A H B NARAYANA REDDY

Jason
10/14/2013, 10:24:34 AM

This summary has some fundamental flaws and I think it is dangerous.

You are missing Sales! It is the fundamental metric.

Measure #24 Return on Assets is misleading as ROI/ROA has to be

assessed at an organisational level not a business unit level. If it is
assessed locally you are vulnerable to distortions due to your transfer
pricing arrangements and how you allocate inventory.

The other measures have their place but to omit sales and miscalulate
how to define ROI will drive incorrect decisions.

Reply to Jason

Andrew Kay
10/14/2013, 12:45:04 PM

Beware the measurement nightmare.

Comments below to be taken as supportive of Marks' paper above - just

with a different perspective and a couple of suggestions

All the measures above are useful when used at the right time in the
right context. The question is which ones when. And equally importantly
can some of these actually become counter productive.

I make a bold claim: The sum of local efficiencies does not add up to
good global (systemwide) result. It simply is not mathematically possible.

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And yet we pursue this with a vengeance leaving so much money on the
table. How so?

The reason: For most manufactured product we have dependencies and

potential variability and uncertainty in each step/process/operation in the
workflow. Nothing is perfectly deterministic, nor perfectly predictable.

We operate as if every link in the chain must be optimised. Surely, if

everything is perfectly efficient then the global outcome must be equally
so. It just ain't.

E.g. 10 step process each step highly efficient each step dependent on
the prior step: Multiply 95% x 95% ten times = 59.8% thats the global
result whilst the local efficiency is 95%. I would rather have a business
with 95% efficiency than one where very operation was 95% efficient yet
the global result only 59.8% efficient!

So, rather than think of local efficiency and measuring and driving
behaviours to be so, consider the efficiency of the whole system. Try to
maximise that. When you do you will see some measures do act
counterproductively.

If business was like a chain, then it is worthwhile considering the

strength of the chain rather than the individual links as cost (efficiency).
When you do hopefully you will see that the strength is determined by
the weakest link. If you want the right behaviours you need to measure
what is going on there. And just spending more $ to add more capacity
to strengthen the weakest link is not the answer.

We need to identify and focus on this weakest link in the flow and
leverage that to the max. You won't get more out of your system till you
focus there. Most of the above measures turn positive immediately when
you do this. The core problem is we measure, but we do not understand
what we are measuring from the context of an entire system.

When we measure system throughput (as measured by money) the

volume and speed of money first and foremost and learn a simple 5 step
process to know where to focus and implement a few simple changes
(and measure) system output can virtually double in a matter of days or
weeks with virtually all other parameters (measures) pointing in the right
direction. Some others will go south and for good reason.

You will find much more on this under the subject of Throughput
Accounting and books on Theory of Constraints.

Haystack Sydnrome: Eli Goldratt, The Goal: Eli Goldratt, Measurement

Nightmare: Debra Smith, The Race: Goldratt, Throughput Accounting:
Corbett,

Reply to Andrew Kay

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Mark Davidson
10/15/2013, 4:23:24 AM

Thank you Jason for your comments.

I do agree that sales is the engine that drives businesses forward,

however most people in manufacturing and production facilities have no
control over incoming sales. All they can do is produce to orders with
great agility, efficiency and schedule.

Admittedly, these metrics are the top controllable metrics used within
manufacturing organizations, and do not look at all of the bigger picture
business impacts. However, these have been proven (by survey) to be
the top ones used to manage the operational side. I don't believe these
are dangerous within this context.

Reply to Mark Davidson

Mark Davidson
10/15/2013, 4:32:25 AM

Thanks Andrew for these additional perspectives.

I too am a believer in linked, holistic goals and metrics across the

business and manufacturing enterpriise. The potential for additive errors
and losses exist, however that is no excuse for not doing the best job
possible on the key metrics that matter within the scope of
manufacturing's control.

I agree that not every metric is equal, and it is important to have the right
business context and to select the subset of metrics that drive
excellence in the areas that matter the most. It's impossible to optimize
operational activities around too many different parameters and metrics.
So this advice is a helpful extension to the piece.

Reply to Mark Davidson

Mark Davidson
10/15/2013, 4:32:25 AM

Thanks Andrew for these additional perspectives.

I too am a believer in linked, holistic goals and metrics across the

business and manufacturing enterpriise. The potential for additive errors
and losses exist, however that is no excuse for not doing the best job
possible on the key metrics that matter within the scope of
manufacturing's control.

I agree that not every metric is equal, and it is important to have the right
business context and to select the subset of metrics that drive
excellence in the areas that matter the most. It's impossible to optimize
operational activities around too many different parameters and metrics.

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So this advice is a helpful extension to the piece.

Reply to Mark Davidson

Jason
10/15/2013, 9:59:34 AM

Mark,
The purpose of a factory (my opinion) is to make sales and marketing
look good by giving them such a compelling offer that the product sells
itself. Short lead time etc are partof how a factory does that.

Factories do influence sales. I don't know of a plant manager in my two

decades who wasn't acutely concerned or aware of the forward sales
and was always looking with concern at any drop. A drop in sales has a
huge impact on many of the metrics in your list so we may as well look
at it.

I respect that you have published the survey results, I know that
however many people believe something doesn't make it the best
solution.

The issues of manufacturings decline and outsourcing are directly linked

to local optimum approaches to measurement as Andrew writes in his
post.

ROI for a business unit is a theoretical concept rather than a financial

reality. Any venture capitalist, bank financier, or prospective owner
always looks at the whole of the operation, not a sub section. Why would
we then have the operational people Focus in improving a local area
when it can actually hurt the overall performance?

Reply to Jason

Mark Davidson
10/22/2013, 2:13:24 AM

Thank you Jason for your continued engagement on this topic. Sorry it
has taken me awhile to approve your post and comment back.

I think that you are correct with your comment that just because a survey
states what people are doing, it doesn't mean that there cannot be some
better practices available that people could or should be doing.

As I stated earlier, the Sales metric is the fundamental engine, and you
are also correct to point out most plant managers watch this closely -
given that when sales / volume drops, then many of the other
manufacturing metrics can go badly very rapidly.

On ROI, I can agree that total company 'see through' profitability and
return on investments are what matter the most across the value chains
of business organizations, however I don't think that measuring subsets

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of ROI are necessarily a bad thing when trying to compare the relative
merits of one manufacturing initiative versus another. It often times isn't
the only determining factor, but I do think it is an important comparative
factor for projects / improvement programs (based on my experiences).

Reply to Mark Davidson

Jason
10/22/2013, 5:03:43 PM

Hi Mark,
No problem with using subsets for ROI if you are comparing A or B
alternatives. The ROI subset becomes a problem if it is used to assess
an incomplete system.

For example, if I try and compare the ROI of a make vs buy option on a
purchase cost basis and omit to include the supply chain costs,
expanded warehouses, etc. I think the comparison must be of one
complete alternative vs another.

I look forward to seeing the next data you publish.

Jason

Reply to Jason

Paul Munger
10/23/2013, 6:50:23 AM

Things like capacity utilization are useful, but not in the sense that higher
is necessarily better. If processes are inefficient, then this number will be
high, but output will be low. It can tag bottlenecks.

Reply to Paul Munger

John Sprovieri
11/1/2013, 3:07:27 AM

R&D; spending is a key metric. Manufacturing needs a steady stream of

new products. http://bit.ly/1aJ43EI

Capital spending is another key metric. http://bit.ly/1cqOHpA

Reply to John Sprovieri

Corry
3/4/2014, 1:06:57 AM

Thanks for publishing this. It is a great summary, and useful for

determining and increasing value.

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Reply to Corry

Manufacturing Accountant
10/24/2016, 8:20:12 PM

Manufacturing accounting is another important metric that can really

make difference in proper reporting of your business transactions.

Reply to Manufacturing Accountant

Boom Lift
5/25/2017, 7:54:35 PM

Awesome blog. Thanks for sharing and the best information of

Manufacturing Metrics.

Reply to Boom Lift

jaya singh
5/30/2017, 6:59:44 PM

Nice blog !

Reply to jaya singh

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