Insight: Top 10 digital transformation KPIs for manufacturing

There is the age-old saying ‘you can’t improve what you don’t measure’, so how do you know your Business Transformation journey is on track? Have you defined your Business Transformation KPIs?  A documented list of operational KPIs forms the foundation for successful change; to visualise business performance and long-term strategies alongside elements such as process, security, sustainability, technology and people, and how these factors can affect the chosen strategies. Cimlogic looks at what manufacturers should be focused on.

Firstly, we must select KPIs.  Here are a few top tips from Cimlogic’s experience in Digital Transformation projects:
• Take time to understand the motivations and challenges faced by your company and stakeholders; this ensures the business KPIs support your long-term aspirations and goals.
• Stay clear of ‘Happy Ears’ metrics (ie those measures that make your operations and processes look good but don’t add value). Take the number of end customer interactions as an example. Whilst a significant number of consumers might buy, eat, drink your product(s), this tells you little about how successful your manufacturing process is.
• Avoid analysis paralysis! Don’t measure everything that can be measured. Instead, use the business goals to choose a small number of metrics that truly help you understand how your operations perform. Otherwise, you take the risk of wasting time and effort analysing data that creates little or no insight.  In the worst case, you act on irrelevant data and make the wrong decisions.
• Don’t forget to benchmark while selecting your KPIs. This helps to identify trends, for example, if revenue is increasing, staying flat, or declining. Trends allow you to better understand what’s happening and to take the right actions. If a decline in revenue is a one-off occurrence, for instance, then there is probably no reason to be overly worried. But if it is a trend, then you should investigate how you can stop and reverse it.
• When considering your transformation KPIs, make sure they cover all business functions – Plan, Source, Make, Deliver, Return and Enable. These can then be broken down into: Reliability, Responsiveness, Agility, Cost and Asset efficiency of each business function.

Unsure of relevant KPIs?  Here are some examples of KPIs embedded in the Make and Deliver space:

1 – Perfect Order fulfilment (OTIF)

OTIF is typically related to the Order-to-Cash process and a cornerstone of customer satisfaction.  Did customers get what they ordered, and when it was promised? OTIF consists of two parts:
• On-time: A typical ‘on time’ criterion is that the delivery should not be late. However, equally important is that the delivery should not be too early either.
• Delivered In Full: The most common way to define ‘in full’ is that the customer receives exactly the amount they have ordered.

2 – Order Fulfilment Cycle times

Order cycle time is the sum of all business function cycle times from order to delivery.  The aim is to reduce, automate or standardise the processes to improve the order to pay sequence.

3 – Cost Recovery

With manufacturers being forced to run smaller, more complex batches, it is important to understand the profitability of jobs and what is the minimum job size your operation can run whilst still maintaining target margins.

4 – Employee Net Promoter Score (ENPS)

ENPS is an internal measure that allows you to understand the current mood within the organisation and to check that the changes being made are being accepted or rejected.

5 – Right First Time

RFT measurement counts how many widgets are passed without any defects out of total production quantity. The RFT KPI is displayed as a percentage. RFT = (First time passed units *100)/Total production units

6 – OEE / TEEP

Total Effective Equipment Performance (TEEP) considers maximum time to be All Available Time – that is 24 hours, 365 days a year. Therefore, TEEP = Performance x Quality x Availability (where Availability = Actual Production Time / All Time).

Overall Equipment Effectiveness (OEE) only considers scheduled time. If a machine is down due to maintenance, and it’s not scheduled for work, OEE ignores this time. OEE = Performance x Quality x Availability (where Availability = Actual Production Time / Scheduled Time)

7 – SERVQUAL

(This model is also referred to as the RATER model, which stands for the five service factors it measures, namely: Reliability, Assurance, Tangibles, Empathy and Responsiveness).  As is indicated by the name of this model, SERVQUAL is a measure of service quality.  Essentially it is a form of structured market research that splits overall service into five areas or components:
• Reliability is the firm’s ability to perform the promised service accurately and dependably
• Assurance is knowledge and courtesy of employees and their ability to inspire trust and confidence
• Tangibles refer to physical facilities, equipment, and appearance of personnel
• Empathy is caring and individualised attention paid to customers
• Responsiveness is the firm’s willingness to help the customer and provide prompt service

8 – Carbon footprint & Utilities costs per order

As most manufacturing operations are emissions-heavy across the value chain, organisations recognise their responsibility to address the environmental and social impacts of the business.

9 – Digitalised Processes

This KPI is as simple as it gets, as your transformation project is typically about digitalisation.  How many digital processes are replacing manual, analogue systems?

10 – Inventory as a percentage of sales orders (Inventory turns)

The number of times a business sells and replaces its stock of goods during a given period. This KPI considers the cost of goods sold, relative to its average inventory for a year or another a defined period. Inventory turnover can be compared to historical turnover ratios, planned ratios, and industry averages to assess competitiveness and intra-industry performance.  Inventory turns can vary significantly by industry. For inventory as a percentage of sales, inventory is a numerator: Inv % Sales = (CostofInventory/Sales) x100.

Once KPIs have been selected, a balanced scorecard (BSC) strategic planning and management metric should be applied. Organisations use BSCs to:
• Communicate what they are trying to accomplish
• Align the day-to-day work that everyone is doing with strategy
• Prioritise projects, products, and services
• Measure and monitor progress towards strategic targets

The name “balanced scorecard” comes from the idea of looking at strategic measures in addition to traditional financial measures to get a more “balanced” view of performance. The concept of a balanced scorecard has evolved beyond the simple use of perspectives, and it is now a holistic system for managing strategy.

Cimlogic’s unique RAISE™ process provides a proven methodology through upfront business analysis, solution implementation, support, and ongoing LEAN continuous improvement. All designed to efficiently support manufacturers to achieve their business goals and lower the cost to serve, whilst realising maximum business value.

Click here to learn more about how RAISE™ helps Cimlogic’s manufacturing clients navigate seamlessly through the smart factory journey, ensuring alignment with critical business goals, whilst delivering operational excellence and maximum business value.