Measuring to Change: How Manufacturers Should Recalibrate Their KPIs

Without a doubt, 2020 will be remembered as the year of the pandemic. Coronavirus has impacted countless lives, businesses, industries, and households, and it has created a new alphabet of abbreviations – COVID, PPE, PPP, EIDL – that most manufacturers know by now.

Let’s try this on for size: what if we got back to other abbreviations that monitor our business, department or team’s health, such as KPIs?

A quick internet search will give you countless definitions of KPI (key performance indicator), most of which center on “quantifiable” or “well-defined” or “crucial to achieving your goal.” Some of the KPI examples for manufacturers I’ve seen include scrap percentage, labor efficiency, and days sales outstanding. As we continue our manufacturing blog series, the headline here is “Measuring to Change.” Why? If you’re not keeping score as change occurs, it can become difficult to adjust as necessary for process improvements.

Creating Greater Customer Value with Manufacturing KPIs

Manufacturers, for the most part, were deemed essential businesses during the height of the pandemic. The government relied on manufacturers to employ millions of people, continue production, ship their products, and even pivot in some cases (production of personal protective equipment – PPE). Congress helped preserve this ecosystem by creating stimulus measures, the most significant being the Paycheck Protection Program, or PPP, which was meant to provide liquidity to small businesses and incentivize them to keep their employees on payroll.

Since PPP funding is no longer available to help shore up businesses (the application window closed on August 8), manufacturers will need to refocus on longer-term internal performance metrics, such as those KPIs established pre-COVID-19, to measure themselves against. Manufacturers also have an opportunity to look back at business and customer lessons learned in 2020 and then reset KPIs accordingly.

KPIs, as stated above, should be objective, quantifiable and measurable…but shouldn’t they also create value? KPIs, much like sporting events, just report the score, so how can they create value? Hint: think “voice of the customer.” If your customer values on-time delivery, should there be a KPI that measures on-time delivery—daily, weekly, and monthly? Do positive trends in on-time delivery create a competitive advantage for your company? In other words, can you beat your competitors by “selling” the KPI of being a reliable supplier?

Employees Have a Stake in KPIs

KPIs can also operate on the premise of “voice” with respect to other key stakeholders, particularly your employees. Employees are looking for the “so what, now what?” or “what’s in it for me?” when KPIs are applied to measure their performance. KPIs should drive change, and especially in the case of your workforce, KPIs should provide objective metrics to evaluate job performance, formulate compensation adjustments, and trigger process training or retraining.

Thinking about the year 2020, businesses were faced with tremendous challenges, across all sectors and industries. As manufacturers get back to making the strategic decisions that will drive their business, motivate their workforce, and grow their customer base, please remember you can always #AskMarcum. Only you know which KPIs are mission-critical for your business, but rest assured, KPIs such as those mentioned above will help your company reach customer growth objectives and improve workforce performance.

For questions about establishing and measuring KPIs for manufacturers, or assistance with strategic planning for your manufacturing business, contact Jon Shoop at 216.242.0820 or email Jon.

Marcum’s Manufacturing & Distribution advisors will continue to update you on the state of the nation’s manufacturing industry. Contact your Marcum professional for assistance.

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