KPIs a CNC Machine Shop Should Be Measuring, and the KPIs You Should Really Care About

11/18/2021 | Brad Kurtzweil

CNC Machine Shop Discussing KPIs

CNC machine shops know the value of precise measuring. It’s what they do, often to less than .001” (¼ the width of a human hair) using computer numerical controlled machines and exact programming.

Yet, there’s more measuring going on — or at least there should be — within the walls of CNC machine shops: measuring performance. Key Performance Indicators, or KPIs, for the manufacturing industry are nothing new. They help businesses understand performance in order to make strategic adjustments to improve quality and efficiency.

As you’ll see, there are two main types of KPIs and dozens of metrics that can be used to measure performance. It can leave your head spinning faster than a PCD insert in a 90° square shoulder face mill (that’s a little CNC machining humor). So, this article is an attempt to simplify KPIs and provides an overview to them instead of a deep dive.

Leading Indicators vs. Lagging Indicators

When you think of a CNC machine shop, you may immediately think of production floor KPIs: how efficiently machines are running, actual throughput versus projected, or percentage of pieces that are defects. Those are all worthy KPIs, yet there should be more measuring going on, both in leading and lagging indicators.

Leading indicators look at what causes things to happen; performance that eventually affects the quality and/or value of the end product. Many of these KPIs are only used internally within the CNC machine shop to help improve various processes. For instance, the fewer the number of defects when running a job means reduced scrap, rework, and reliance on point of control and other processes.

More emphasis on leading indicators drives lagging indicators, or numbers that reflect the actual results but aren’t as actionable. On-time delivery is a KPI that customers care about (a lagging indicator). Yet, in order to make that happen, the correct “start date” (a leading indicator) has to be hit within the shop. In general, lagging indicators are metrics that customers will more likely see (and even care about).

KPIs: Who Should Really Care?

Later, I’ll list the many different KPIs that a CNC machine shop could be measuring. Out of those dozens, though, which do end customers care about?

For the most part, customers have simple needs: a perfectly machined part delivered on time along with outstanding service. Sure, that’s a simplification, but to deliver all of those requires many KPIs, perhaps dozens, within a CNC machine shop.

Of the multiple KPIs necessary for CNC machine shop success, end customers really need to know about what impacts them directly. Why would they care about a CNC machine shop’s safety record? As long as the product is great, does safety really matter? Yes, it does!

A focus on safety means that labor issues won’t delay products and that legal matters driven by safety concerns won’t interrupt product availability. Perhaps most important of all: there’s an alignment of cultures; putting people at the center of processes elevates the integrity of the relationship.

Speaking of safety, how many companies want to find safety hazards during facility-wide audits? The good ones do, because then their safety committee can be proactive before an injury happens and not have to react to one.

One way to share a KPI is by using percentage of the goal. An actual number (912, for instance) may not be meaningful, but knowing that the number is 98% of the goal does mean a lot and should be a source of pride.

With customers interested in certain specific KPIs, the internal staff of a CNC machine shop may be interested in all of them but will focus on ones they directly impact. For example, production employees focus on productivity, quality PPM, and set-up efficiency. Communicated through emails, an intranet, bulletin boards, or a newsletter, shop staff should see what goals are being reached and get a pulse of their team’s performance and the company’s overall health.

Setting KPIs is Nearly as Important as the KPIs Themselves

Make no mistake: hitting KPIs is meaningful, fulfilling and, hopefully, inspirational across the organization. Yet, simply setting them — letting the entire team know what is valued — gets everyone on the same page and breaks down silos that can prevent optimal communication.

Engineers can celebrate alongside the quality control department when goals are achieved; they’re all reminded that everyone is on the same team. Plus, KPIs can be aligned with the strategic goals of the entire organization, so all can feel proud when the shop wins.

That said, numbers can be foolers. One or two results usually shouldn’t be cause for concern or celebration on their own. What to watch for are patterns. Long-term, measurable trends that develop over time and are quantifiable are red flags for which action should be taken as quickly as possible.

Taking action cannot be stressed enough. When numbers reveal something, it won’t get fixed just by being aware of it. KPIs that are backed by actionable plans of attack are the ones you want to set. Not only is that efficient, it conveys to the group that anything less than perfection will be targeted for improvement.

So, how do KPIs get set? One proven way is to establish an “owner” for each one. That person knows what the goal is, how the metric is measured (ensuring there's no data manipulation), who is involved (including a backup owner), and how often it’s measured. Once set, the KPI becomes an ongoing measure with an owner and regular evaluation.

Timing is important, and it needs to be consistent. A weekly report on one KPI may be often enough to allow for immediate action, while for other KPIs, weekly is far too frequent (there’s no possibility of seeing an actionable trend). Some KPIs happen so infrequently that they’re best done monthly or even quarterly.

An example of a quarterly KPI may be the number of quotes generated by the sales department. A typical weekly KPI may look at productivity or another process metric that requires immediate adjustment or action if it’s off target.

A Long List of Possible KPIs

It's common in CNC machining for customers to bring their own KPIs to the relationship, grading a shop using scorecards for PPM (see below), number of corrective actions required, on-time delivery, etc. Because there are few CNC industry KPI standards, customers’ own systems mean more to them than anything a shop could or would provide. With a long list of options, it’s important to pick and tailor KPIs to make them work for you. 

Before reviewing this list, remember that not all CNC machine shops go to these lengths to measure their performance. The ones that do, are likely the ones who may be more willing to share them; it all depends on the shop and how they value KPIs. When sharing, they may also explain why specific goals are being tracked, what they mean to the finished product, and why they’re important to the long-term health of the relationship.

Lagging Indicators

  • Quality (PPM) — Nobody is perfect. No company, either. So, errors will happen at some point. Tracking the parts per million (PPM) means recording how many defects are present for every 1,000,000 parts made and shipped.
  • On-Time Delivery — The percentage of parts meeting the “agreed to ship date” for all customers.
  • External Customer Complaints — Negative feedback, even if it doesn't require corrective action or can’t be fixed, is counted as a customer complaint. As mentioned earlier, how often these are addressed is vital. If looked at monthly, perhaps action can be taken to correct recurring issues. If a company waits 6 months, however, additional poor-quality products will get into customers’ hands, damaging reputations and hurting sales.
  • Cost of Poor Quality — The formula: Cost of External Quality Issues + Internal Scrap + Rework. This lagging indicator is a much more focused evaluation of overall quality. Even if a faulty part is caught internally, well before it leaves the building, it still is a concern because it could have been sent out to a customer; the risk was there.
  • Sales — The current month’s sales versus the projection; usually shown as a percentage of product revenue.
  • Lost Time Accidents — Based on OSHA’s definition; total number per month.
  • Inventory Turns — Inventory turnover measures how quickly a shop sells its finished goods inventory (measured monthly), and how many castings and components were purchased (measured quarterly).
  • Employee Retention — The percentage of employees that remain employed (retained); typically measured over a rolling yearly period.
  • Hiring Effectiveness — The percentage of new hires that stayed employed beyond a given time period, typically 3 months.

Leading Indicators

  • Quotes — The number of RFQs processed; separate active customers and prospects; measured each month.
  • Win/Loss — The percentage of projects gained versus attempted; separate active customers and prospects; measured each month.
  • New Customer Sales — Total amount of product revenue from new customers; measured monthly.
  • On-Time Start Date — The percentage of all jobs started on or before the calculated operations start date.
  • Reported Injuries — The number of reported injuries; measured weekly.
  • Safety Hazards Identified — The number of reported hazards to the Safety Committee; measured weekly.
  • Labor Capacity Utilization — The capacity of available operators; measured as a percentage of hours projected.
  • Machine Utilization — The capacity of available machines being used; measured as a percentage of hours used.
  • Overall Equipment Effectiveness (OEE) — The formula: Availability x Performance x Quality = the overall effectiveness of production equipment; an OEE increase indicates more efficient machinery utilization.
  • Set-Up Efficiency — Measured as a percentage of time versus projected time.
  • Productivity — Measured as efficiency (percentage) x direct labor (percentage)
  • Preventative Maintenance — Measured as percentage of on-time maintenance performed.
  • LPAs Resolved — The percentage of Layered Process Audits (LPA) findings resolved within 1 week.

Wow, even this partial list is impressive! So, where do you start? As a CNC machine shop co-owner, I recommend starting by tracking current performance. Don't think about goals yet. See where you're at, and take note of trends. Then, begin pushing to make improvements in certain areas.

Also, set biweekly meetings with leadership to review progress, and assign tasks to individuals who can complete them and follow-up to the group. Again, remember that trends should be sought out.

Lastly, keep the big picture in mind. Goals may change over just a few months, so being flexible about altering KPIs is a great habit to get into. KPIs should be used as tools for improvement, not as proof of what is being done wrong.

Now that you have your KPI questions answered, consider another question: When Do You Know It’s Time to Work With a High-End CNC Machine Shop?. Just click the image below to get your copy of this resource.

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Brad Kurtzweil

About the Author

Brad leads Stecker Machine and the Sales and Engineering team. His hands-on attention drives new capability introductions at SMC (gear/spline cutting is his latest obsession). Brad doesn't enjoy writing about himself, preferring to work closely with customers on new projects. Upon graduating high school, Brad started at SMC and worked his way up the ranks, initially finding his niche in quality control. He grew into the Quality Manager role, moving to (Sales) Account Manager, VP of Sales and Engineering, and now Co-President.

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