If you operate within the manufacturing industry and want to optimize business profitability, then you must monitor relevant performance metrics. By closely tracking the right manufacturing metrics, you can gain valuable insights into your business and identify ways to improve core processes.
While there are many different metrics that you can track, there are 12 that every manufacturer should be mindful of. These are:
As you know, your revenue is the sum of all products and services sold. In order to gain maximum insight from this metric, you should measure it against your monthly or quarterly sales targets. You will also need to account for market fluctuations, seasonality, and other variables when analyzing revenue data.
Make sure that you monitor recurring revenue and new revenue separately. Adopting a cutting-edge ERP software solution like Acumatica will make it easier to track various revenue sources, but more on that in the final section.
When tracking expense-related metrics, make sure to differentiate between different types of costs. For instance, you will need to track overhead costs, materials costs, and labor costs separately.
This separation will help you determine which set of expenses are on-par with industry standards and which are unusually high. You can use this information to pinpoint potential cost-savings opportunities.
Every business, regardless of the industry it operates within, needs a stable cash flow. However, good cash flow is particularly important for manufacturers.
Manufacturers must invest capital in raw materials and then transform those materials into sellable products. This entire process can take months, during which time much of the manufacturer’s working capital will be tied up in materials.
In terms of staffing-related metrics, we recommend monitoring employee utilization, performance, productivity, and attendance. Tracking these metrics will help you detect concerning trends, such as high rates of absenteeism.
The sooner you can identify these issues, the faster you can take action. Early detection of staffing issues is essential to protecting business continuity.
Your operating margin — alternatively referred to as return on sales (ROS) — refers to your profits after covering variable expenses. Operating margins are calculated before taxes or interest is deducted.
The quote-to-cash cycle measures the amount of time it takes to receive payment after providing customers with an initial quote for products or services. A short quote-to-cash cycle indicates that your fulfillment and collections processes are efficient.
There are many different metrics related to tracking leads. Two of the most important are the total volume of leads generated and conversion rates. While generating a high volume of leads is an accomplishment, this achievement will not benefit your bottom line unless your sales team has a high conversion rate.
If your team is issuing a large volume of quotes, then future revenue will likely be strong. Conversely, a drop in quote volume indicates an impending decrease in demand for your manufacturing services. By monitoring quotes, leads, and conversion rates, you will be able to create more accurate revenue forecasts.
A customer’s lifetime value refers to their total purchases during the entirety of their relationship with your company. Ideally, you want to retain customers for long periods so that they have a higher lifetime value. If your customer lifetime value is low, then your client retention rates will likely also be low.
Your throughput refers to how long it takes to complete a specific process from beginning to end. Throughput can be expressed as a percentage of your production capacity, and throughput efficiency will have a direct impact on overall productivity and customer satisfaction.
The “schedule attainment” metric refers to your ability to complete orders by established deadlines. If schedule attainment rates are low, then your facility is frequently underperforming and missing deadlines.
By tracking machine utilization rates, you can identify inefficiencies in your manufacturing process. You can then address these inefficiencies to decrease operating costs and make your company more profitable.
As you can see, there are many different performance metrics that you should be monitoring. In order to efficiently track these various performance indicators and gain valuable insights into core business processes, you will need to deploy a dynamic manufacturing ERP like Acumatica.
Tracking manufacturing metrics as a way to improve operations is nothing new to manufacturers, but they may be unknowingly sabotaging their efforts. For example, the Playbook suggests that “data issues, lack of strategic vision, missing benchmarks, and a focus on lagging indicators” all contribute to a lack of improvement. Other improvement-stalling contributors include metrics that don’t support corporate goals and too many metrics leading to “paralysis by analysis.”
The Right Manufacturing Metrics for Efficiency and Growth helps manufacturers determine the right manufacturing metrics while fixing some common metric mistakes along the way.
Click here to download now.
We work with manufacturers every day, helping them identify how ERP modules align with their operations and business strategies. Whether you’re outgrowing your current software, finding that your legacy systems aren’t ready to handle your needs, or you’re looking for something more suited to your processes and needs, the right advice, assistance, and support can make or break your ERP journey. At Cloud 9 ERP Solutions, we understand the challenges that manufacturers face in selecting ERP software, and have supported companies just like yours throughout their journey.
Interested in learning more? Watch our Acumatica Manufacturing demo.
Additional Resources
How to Leverage Acumatica Manufacturing - Customer Success Story and Demo
What Is Capable-To-Promise (CTP) Manufacturing? How Cloud ERP Can Help
8 Ways to Know if Your Manufacturing ERP is Really a Cloud Product