Are your production processes efficient enough to meet business goals, customer demand, and quality standards? You don’t have to wonder. Key performance indicators (KPIs) measure these factors to answer those questions.
Production planning KPIs give you all the data you need to assess and improve your current manufacturing processes. But there’s much more to them than numbers. Here’s a guide to KPIs and metrics to help you make data-driven decisions that boost business success.
What are production planning KPIs?
Production planning KPIs, a subset of manufacturing KPIs, track the performance and effectiveness of planning processes against strategic goals and objectives. You can use these KPIs to assess progress, identify bottlenecks, and take corrective action.
For example, if you operate an automotive manufacturer, your goal might be to speed up production. The cycle time KPI tracks the average timeframe for you. You might discover that one particular stage is slowing you down. Let’s say it’s taking too much time to integrate electronic systems into the vehicles due to a shortage of skilled labor. With that information, you can assign extra resources and invest more in training your technicians to speed up that step and improve your overall cycle time.
Why do production planning KPIs matter?
Whether you’re looking to control costs, increase customer satisfaction, or simply make better business decisions, KPIs are a valuable tool. Here’s why.
Performance assessment
KPIs assess the effectiveness of your pre-production processes, shedding light on issues you might not otherwise notice. For example, by tracking on-time deliveries of production materials, you can determine the percentage of orders delivered on time and if you’re on track to meet targets.
Informed decision-making
KPIs provide historical data you can use to make better decisions — both in the short term and long term. For example, analyzing your inventory turnover ratio over several months tells you how quickly inventory is being depleted. A low ratio may indicate you have excess stock, tying up cash and warehouse space. This information helps you set a goal to reduce excess inventory in the short term and improve procurement strategies over time.
Improved quality control
Certain KPIs provide insights regarding quality control, offering the information you need to develop better products. Scrap and defect rates, testing downtime, and machine usage are all great examples of KPIs that help you track and determine how to improve product quality.
Improved inventory management
Inventory management KPIs identify how well you track and organize inventory. Use this data to maintain optimal stock levels, reduce varying costs, and boost cash flow. For instance, a higher days of inventory on hand (DOH) may indicate overstocking, prompting you to review when and how much you order.
18 essential production planning KPIs
Here’s a list of 18 common KPI examples that track the efficacy of each stage of production.
Production capacity and resource utilization
These KPIs gauge the efficiency of your workforce, machinery, and overall capacity.
1. Workforce or labor utilization
What it measures: How efficient the workforce is in relation to capacity
Calculation: (Hours worked / hours available) x 100
2. Revenue per employee (RPE)
What it measures: The productivity and efficiency of your workforce
Calculation: Total annual revenue / average number of employees
3. Machine utilization
What it measures: How effectively you use a machine’s capacity during a specific time
Calculation: (Hours worked / hours available) x 100
4. Capacity utilization
What it measures: How efficiently you use your production capacity
Calculation: (Actual production / maximum production capacity) x 100. For example, the capacity utilization of an automotive manufacturer that produces 200 cars in a facility that can produce 5,000 is 4 ((200/5,000) x 100).
5. Downtime rate
What it measures: The percentage of total available production time lost due to equipment failures, maintenance, or other disruptions
Calculation: (Total downtime / total available production time) x 100
Process efficiency
These KPIs assess the effectiveness and productivity of specific processes or machines.
6. Production cycle time
What it measures: How long it takes to complete one production cycle or transform raw materials into a finished product
Calculation: Only simple addition required — tally productive (actual manufacturing and inspection time) and unproductive hours (idle time or the time it takes to move materials) required to complete manufacturing.
7. Machine efficiency
What it measures: Productivity levels of machinery and equipment
Calculation: Divide the actual output by what it’s designed to produce. For example, if a machine designed to make 500 units in an hour produces 420, it’s operating at an efficiency of 84 ((420/500) x 100).
8. Planned maintenance percentage
What it measures: The percentage of planned maintenance activities, helping you reduce downtime and improve equipment reliability
Calculation: (Total hours spent on planned maintenance / total hours spent on all maintenance) x 100
Inventory management
Inventory management metrics assess how efficiently you’re managing stock.
9. Inventory turnover ratio
What it measures: The speed at which inventory is sold and replaced
Calculation: Divide the cost of goods sold (COGS) by the average inventory value where:
- COGS = Starting inventory + purchases in current period – ending inventory
- Average inventory = (starting inventory + ending inventory) / 2
10. Days of inventory on hand (DOH)
What it measures: The average number of days it takes to deplete stock
Calculation: Average inventory value / [annual COGS / 365 days]. For example, if your average inventory value is $50,000 and COGS is $150,000, your DOH is $50,000 / ($150,000 / 365) = 121.67 days.
11. Excess inventory rate
What it measures: The percentage of surplus stock
Calculation: Follow these four steps:
- Calculate optimal inventory value. Determine each item’s ideal or necessary quantity to meet demand and multiply this by the unit cost.
- Determine current inventory value. Calculate the current value by multiplying the current quantity of each item by the unit cost.
- Calculate excess inventory value. Use this formula: Current inventory value – optimal inventory value.
- Calculate excess inventory percentage. Divide excess inventory value by current inventory value.
12. Stockout rate
What it measures: The percentage of time certain products were out of stock
Calculation: (Number of stockouts / total time period) x 100. For example, if baked beans were out of stock seven times in one month, the stockout rate would be (7/30) x 100 = 23.33.
Production scheduling
Production scheduling metrics measure your ability to meet delivery commitments.
13. On-time delivery rate (OTD)
What it measures: The percentage of orders delivered on time
Calculation: (Total on-time deliveries / total deliveries) x 100
14. Customer lead time
What it measures: The time between when a customer orders and receives a product
Calculation: Delivery date – order receipt date
Quality control
Quality control metrics determine your testing and quality processes’ efficiency.
15. First pass yield (FPY) or throughput
What it measures: The percentage of products that pass quality checks on the first attempt
Calculation: (Quality units produced on first attempt / total units produced) x 100. For example, if 980 units out of 1,000 pass quality checks on the first go, the FPY is 98.
16. Scrap or defect rate
What it measures: The percentage of units produced that are defective and never reach the market
Calculation: (Defective units / total units produced) x 100
Cost management
Cost management metrics help you keep a firm handle on production expenses.
17. Production unit cost
What it measures: The manufacturing cost for one unit of a specific product, including everything from direct materials and labor to packaging and utilities
Calculation: (Total production cost / total units produced) x 100
18. Cost variance
What it measures: The difference between budgeted and actual production costs
Calculation: Actual cost – standard cost, where the actual cost is the true cost of an item and standard cost is the predetermined cost set for the item.
9 tips for improving production planning KPIs
Meeting production planning KPIs requires the right combination of strategy, communication, and resources. Here are nine best practices to follow.
1. Use the right technology
Choose software that manages production steps, parts, and people from a single platform. The real-time insights help you improve processes and gather data efficiently.
2. Optimize throughput
Identify and address bottlenecks in your production process to increase the flow of products and data. Streamlining workflows, improving machine efficiency, and reducing changeover times all improve throughput.
3. Prioritize impactful KPIs
Focus on metrics that significantly impact production goals, like quality control or cost management. This is key if you don’t have extensive resources and can only track a few KPIs at a time.
4. Set baselines and targets
Without a goal, you won’t know what to work toward. Determine current values for each KPI and set achievable yet challenging targets according to current numbers, like reducing cycle time from five hours to four.
5. Establish clear KPI objectives
Define measurable success for each KPI. Instead of aiming for a “higher” on-time delivery rate annually, aim for a 75% higher rate. The clearer the objectives, the more likely you are to hit them, and the easier they are to track.
6. Invest in training
You can’t reach goals if employees don’t have the resources for the job. Empower them with the necessary skills and tools to meet KPI targets.
7. Regularly review and adapt KPIs
As your company changes over time, so will its KPIs. Assess relevance and effectiveness at regular intervals to remove outdated metrics, modify existing ones, and add new ones. For example, if higher on-time delivery is a KPI, add a metric for specific areas with low rates. If you’re finding that the KPI doesn’t accurately show why delivery times are slow, see if another data point is more helpful and adjust accordingly.
8. Encourage cross-functional collaboration
Communication is key to KPIs that work across the company. Hold all-hands meetings and collect feedback from every department to leverage collective knowledge and gain a holistic view of your business.
9. Visualize progress
Use a KPI dashboard to create a visual representation of production planning metrics. Include graphs, charts, and tables that display KPI values and historical data. It’s also a good idea to place goals front and center to motivate people by showing how their efforts lead to progress. Plus, you can check whether the team is on the right track.
Use KPIs to drive business success
Production planning KPIs help you do it all — from controlling costs and increasing customer satisfaction to boosting product quality and making better business decisions.
If you’re ready to level up your ability to analyze and improve your KPIs, schedule a Fishbowl demo. It’s an intuitive, scalable, and user-friendly inventory management platform that tracks data for you and takes your business to the next level.