Benchmarking with KPIs Benefits Manufacturing Businesses- How?

If you are running a business and desiring to stand out among your competitors, you are on the right track. Being competitive in nature is a good quality, especially when you belong to the manufacturing industry. However, it is also important to determine if your business is competitive in the respective industry.  A term is widely used in LEAN manufacturing; the term is “Benchmarking”.  It is a method of comparing your business, its processes, and success against your competitors.  Here comes a question- why should you be benchmarking your business?  You need benchmarking to:

• Determine your current state in the industry

• Hold the management employees more accountable

• Develop a culture of continuous improvement

• Produce good quality data

• Generate new customers

If you are all set for benchmarking, start the process by identifying similar businesses. If you are producing food items, comparing your business with a high volume device manufacturing shop will not be useful for you. These two businesses are of different kinds and drawing conclusion from such comparison will be not only difficult but also futile. Therefore, it is important to identify the right businesses against which you should benchmark your business. 

Once you have decided on the businesses against which you will compare your business, you should head towards the next step. In this step, you should determine the Key Performance Indicators or KPIs.  You should set up KPIs which are relevant to your business and industry. You can ask your industry associations to acquire data about the KPIs you need.  Utilising business network helps you learn more about your similar businesses so that you can understand what data your peers are tracking and how they are using the tracking results.

Here we are going to discuss a few KPIs which manufacturing businesses are using to benchmark their business performance.

Finance is one of the crucial departments within a business set up.  The parameters that can help you evaluate your finance and compare it against your peers include:

• Profit

• Earnings before Income and Taxes or EBIT

• Revenue per Employee

• Earnings per Labor Hour

Every manufacturing company counts on its inventory performance. After all, inventory is the heart of a manufacturing business. Listed below are the parameters you should use to evaluate your inventory:

• Inventory Turnover

• Inventory Accuracy

• Cost of Carrying Inventory

• On-time delivery

Many production KPIs demonstrate how effective your business processes and operations are and how they are performing. Key production KPIs include:

• Scrap

• First Time Quality (FTQ)

• Defective Parts per Million

• Parts per Labor Hour

• Renowned Parts

• Overall Equipment Effectiveness (OEE)

Apart from the aforementioned KPIs, there are some additional KPIs that may help you. These KPIs are:

• Annual Training Hours per Employee

• Turnover Rate

• Days to fill an Open Position (DPPM)

• Cost of Recruiting per Position

Always remember that the success of your business benchmarking will depend on the right selection of competitors against which you should benchmark and the set of KPIs you have chosen. The right choice will help you reap all the benefits of benchmarking. 

Dylan Munro is an experienced business analyst. He has expertise in business benchmarking and market analysing.  For benchmarking your business, you can follow his informative blogs on benchmarking. 

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