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Seven must-have efficiency KPIs for manufacturers

manufacturing KPIs for plants and production@4x

Understanding how production is performing

Manufacturing is one of the areas of business that typically leads the way with KPIs. Efficiency and yield measures have been used by firms for many decades. Because these measures are so common it's easy to overlook how powerful and useful they are. Here's a quick rundown on the seven that are likely to give you the most 'bang for your buck'. If you measure only two, go for OEE (efficiency) and Material Yield. These are not easy measures to put in place, but they will tell you most of what you need to improve performance.  

OEE Efficiency@2x

Efficiency: OEE - Overall Equipment Effectiveness

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OEE stands for ‘Overall Equipment Effectiveness’. It is a commonly used efficiency measure. What do we mean by efficiency? Put simply, it is ‘How much did we make, compared with how much we could have made.’

To work out OEE we multiply together the three numbers..

  • Availability
  • Quality
  • Rate

There is an alternative (quick) way to get the OEE. It doesn’t show you what type of losses you have, but does give you a very useful ‘Sanity check’ on the OEE figure. The alternative method is...

Optimum hours to produce actual output/Actual hours run

The optimum hours is just [Good output]/[Optimum bottleneck speed]

Example from Mayhem Manufacturing

The OEE for Volcano pen pots is the Quality Rate x Performance Rate x Availability

= 87.5% x 66.7% x 40% 

= 23%

Definition or formula

OEE = [Quality Rate] x [Performance Rate] x [Availability]

Typical data sources

  • Production records
  • Quality records

Common problems and mistakes

If you get an OEE of more than 100% do not be delighted, be critical. It normally means that your Performance Rate is based on too low an output rate. If this happens, it’s time to recalculate using a more realistic performance rate (don’t forget to go back and recalculate your historic performance).

Producing something is not the same as selling it. Be wary of having an efficient and productive workforce filling a warehouse with product that no-one wants to buy.

Ref: O1.2.2.3

Material Yield@2x

Material yield

Description

Material yield is the ratio of how much material we should have used to how much material we did use. It shows us how well we converted our raw material into good quality finished product. It’s tempting to think that yield is just another way of representing scrap or waste product, but it also includes things such as ‘giveaway’. Giveaway would include things such as putting 13 biscuits in a 12 biscuit pack, including excess product in a pack or overfilling a can of paint. These barely-visible losses tend to be systematic (happen on lots of your output) and can have a serious impact on your profitability if not spotted and fixed.

Example from Mayhem Manufacturing

Each Volcano pen pot should use 100g of material. By the end of production, we had 35 saleable pen pots, so in an ideal world we should have used 3.5kg of polymer.  We actually used 4.2kg of polymer granules.

Yield= 3.5/4.2 = 83%

We know that around 500g of material was wasted when we had to throw away five defective pen pots. The remaining 200g might be worth investigating if the material is expensive or we start to produce a lot of them.

For more complex yield example, see sheet L2

Definition or formula

Yield = [Optimum quantity of material for good finished products]/[Actual quantity of material for finished goods]

Typical data sources

  • Production records
  • Quality records

Common problems and mistakes

Yield can get a bit tricky if you have multiple raw materials involved in a product. Knowing the ‘bill of materials’ (BoM, or ‘ingredients list’) can make the calculation a lot easier. The hardest yield calculations are where you have complex groupings of ingredients or components and losses part way through the process (i.e. you don’t lose a ‘whole’ finished product, rather part of it).

Ref: O1.3.1.2

Production Downtime@2x

Production downtime

Description

Where you have a production process, one of the most visible losses of productivity is where the machines are stopped because of process problems, mechanical failure or staff shortages. Every minute lost to downtime is a minute of output lost.

It’s a little more complicated than minute of downtime=lost production minute, it depends on whether the broken machine is the ‘bottleneck’ of the process. If it’s not then you might be able to catch up, but it’s by no means guaranteed.

Example from Mayhem Manufacturing

Production of the Volcano pen pots relies on an injection moulding machine. This machine was unable to run when it should have for 3 hours last week.

Production downtime (Volcano line) = 3 hours

Definition or formula

Sum of [Process bottleneck lost time]

Typical data sources

Downtime logs at bottleneck (either manual or automatic - for some machinery)

Common problems and mistakes

If you think you have a downtime issue with a process that is not the bottleneck, then, by all means, measure downtime at that point, but the ‘lost production hours’ should always be measured at the bottleneck to see what output impact the downtime is having.

Ref: O1.2.1.1

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Labour Efficiency@2x

Labour efficiency

Description

Labour efficiency is the measure of ‘optimum output’/’actual output to produce a given amount of ‘good’ product’, where your optimum output rate is primarily determined by resource level.

Put simply, if you put two people on the job, should your production rate double? If the answer is ‘yes’ then use labour efficiency. If the answer is ‘no’ then use OEE.

It is a measure of how well we use our labour to produce output, versus the ideal resource requirement.

It can be a useful measure in situations where, for example, you have an under-resourced production process - you know you will get less output, but you want to work out whether you have taken more or less of an efficiency hit that expected by reducing the workforce.

Example from Mayhem Manufacturing

Last week the Mayhem workshop devoted the full working week to producing Hobbit chairs. With a full crew (which we had) we should produce 0.625 Hobbit Chairs per hour, per person. Our output at the end of the week was 80 chairs.

Actual output: 80 chairs

Optimum output = Available work hours x crew size x optimum build rate: 8 hour day x 5 day week x 4 staff x 0.625 chairs per hour = 100 chairs

Labour efficiency = Actual output/Optimum output 

= 80/100

= 80%

Definition or formula

Sum of [Actual output]/Sum of [Optimum output]

Note: Optimum output is determined by per-person output rate x number of staff on process.

Typical data sources

  • Production records
  • Time and attendance records
  • Observational studies

Common problems and mistakes

Labour efficiency sounds similar to Staff Utilisation, but it’s measured as how much was produced in a period compared with the ‘ideal’ output for that amount of labour time. The focus here is on output rather than how ‘occupied’ your team is.

Producing something is not the same as selling it. Be wary of having an efficient and productive workforce filling a warehouse with product that no-one wants to buy.

Ref: O1.1.1.2

Performance (Speed)@2x

Performance rate (Speed)

Description

Performance rate shows the output rate a machine or line actually ran at, compare with what it should have run at (ideal speed). Speed losses are often invisible. People like running processes slower and downtime losses often reduce, but normally not by enough to compensate for the loss of output from the speed reduction.

You can “lose” output by machines or lines running slower than they should. So a machine set to make 100 widgets a minutes that was set to only run at 70 widgets per minute would be running at 70% speed/rate/performance (sorry, all these names are used – it’s a bit confusing). This measure would show us problems that caused lost output but were not serious enough to completely stop production.

Example from Mayhem Manufacturing

When the Volcano injection moulder is working, it should produce a volcano every 2 mins - a 30 unit per hour production rate. The operators have problems with the polymer granule feed when they run at this speed, so they have slowed the machine down to a 3 minute cycle - or 20 units per hour.

Performance rate = 20/30 = 67%

Definition or formula

Performance Rate= (Actual bottleneck speed/Ideal bottleneck speed)

Typical data sources

  • Machine/production logs and records
  • Observation
  • Process set-up sheets

Common problems and mistakes

Performance rate (speed) problems are often much less visible when you slow down a machine, so operators and managers often do this rather than solving the actual problem. Where you are getting lower output rates you should speed the machine up (under close supervision, and having risk-assessed doing so) and use a structured problem-solving approach to eliminating the speed/rate related problems permanently.

Ref: O1.2.2.1

Quality Rate@2x

Quality rate

We may manage to make some product that is not good enough to sell. The ratio of bad to good product is called the “quality rate”. If we make 350 widgets, but only 280 of them are good enough to sell then our quality rate would be 80%

Losses through poor quality can be some of the most expensive kind of waste, as raw material and effort are wasted as well as production time.

Example from Mayhem Manufacturing

When the team examined the Volcano pen pots they had produced, they found that 5 of the 40 produced had defects in the moulding, meaning they had to be scrapped.

Quality Rate=([Actual output] – [Scrapped output])/[Actual output]

= (40-5)/40

Quality rate = 87.5%

Definition or formula

Quality Rate=([Actual output] – [Scrapped output])/[Actual output]

Typical data sources

  • Quality records

Common problems and mistakes

Make sure you understand whether poor quality can be fixed or whether you have to scrap the product, this has a big impact on the ‘cost of poor quality’.

Ref: O1.2.3.2

Waste@2x

Waste

Description

Throwing material or product in the bin is an obvious and expensive loss. Recording waste, why it happened and when, is a first step towards tackling and reducing process waste.

Don’t forget, when you throw an item in the bin that has been part, or all, the way through your process, it’s not just the cost of the raw materials you are throwing away. All the energy and labour that has been invested in that product also ends up in the bin.

Example from Mayhem Manufacturing

The Mayhem team threw away 5 Volcano pen pots, or 500g of polymer, when these pots did not meet their quality requirements.

Waste: 500g of polymer

Definition or formula

Sum of [Weight of lost material]

or

Sum of [Value of lost goods/material]

or 

Count of [Finished goods scrapped]

Typical data sources

  • Production records
  • Quality records

Common problems and mistakes

As it is very hard to compare ‘apples’ with ‘pears’ it can be useful to convert different waste figures into financial values. Just be careful about whether your value was on the cost of materials or the lost profit from sales. You can only value waste on the lost profit of a sale if you weren’t able to make a replacement for the scrapped one and sell it - i.e. you are running flat out and are unable/barely able to meet customer demand.

Ref: O1.3.1.3

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