In the world of CNC machining, precise measurements are what we do, often to .001”.
Yet, there’s another form of measuring going on, or at least there should be: measuring performance. Manufacturing KPIs (Key Performance Indicators) help businesses evaluate performance in order to make strategic adjustments.
With so many possible KPIs to use, trying to fully understand them can leave your head spinning faster than a PCD insert in a 90° square shoulder face mill (a little CNC machining humor for you). So, this article is an attempt to simplify KPIs by providing an overview of them, not a deep dive.
Leading Indicators vs. Lagging Indicators in CNC Machining
When you think of a CNC machine shop, you may first 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 business and potentially customers. Many of these manufacturing KPIs are only used internally to help improve various CNC machining 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, 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 are more likely to see and/or feel (and care about).
Manufacturing KPIs: Who Should Really Care?
Later, I’ll list 22 KPIs that a CNC machine shop could be measuring. Out of those, however, which do end customers care about?
For the most part, customers have simple needs: a perfectly machined part delivered on time backed by outstanding service. Sure, that’s a simplification, but delivering all of those requires many KPIs, perhaps dozens, within a CNC machine shop.
Of the multiple KPIs necessary for CNC machining success, end customers 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.
Okay, end customers are interested in specific KPIs that have a larger impact on their business. What about within a CNC machine shop?
Leadership may be interested in every KPI, but most people will focus on the ones they directly impact. For example, a manufacturing operator may focus on productivity, a CNC machinist on set-up efficiency, and a quality engineer on quality PPM.
So, select the KPIs that are most relevant and powerful. Also, consider if that KPI is easily communicated. Can shop staff look at an email, bulletin board, or newsletter and see what goals are being reached? Or check on their team’s performance? Or get a pulse of the company’s overall health?
Setting KPIs is Nearly as Important as the KPIs Themselves
Make no mistake: hitting manufacturing KPIs is meaningful, fulfilling, and 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 CNC machining 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, and 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.
How Should Manufacturing KPIs Get Set?
Establish an “owner” for each KPI; someone who knows what the goal is, how the metric is measured, who is involved, and how often it’s measured. Once set, the KPI becomes an ongoing measure with an owner and regular evaluation.
Consistency is vital in CNC machining, and that’s no different for KPIs. A weekly report on one KPI could be fine and allow for immediate action, while weekly is too frequent for other KPIs (no possibility of seeing an actionable trend). Some manufacturing KPI reports are best reviewed monthly or even quarterly.
A typical weekly KPI may be reviewing productivity or another process metric that requires immediate adjustment or action if it’s off target. An example of a quarterly KPI may be the number of quotes generated by the sales department.
If possible, consider sharing a KPI by stating a percentage of the goal. An actual number (912, for instance) may not be meaningful, but knowing that the number is 98% of the goal means a lot and should be a source of pride.
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 action requests, 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 choose KPIs to make them work for you.
Before reviewing the following list, remember that not all CNC machine shops go to these lengths to measure their performance. The ones that do are likely more willing to share them; it all depends on the shop and how they value KPIs.
1. 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.
2. On-Time Delivery — The percentage of parts meeting the “agreed to ship date” for all customers.
3. 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, immediate action is taken to correct recurring issues. Wait 6 months, however, and additional poor-quality products get into customers’ hands, damaging reputations and hurting sales.
4. 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.
5. Sales — The current month’s sales versus the projection; usually shown as a percentage of product revenue.
6. Lost Time Accidents — Based on OSHA’s definition; total number per month.
7. 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).
8. Employee Retention — The percentage of employees that remain employed (retained); typically measured over a rolling yearly period, however, today’s labor shortage is putting more emphasis on this KPI.
9. Hiring Effectiveness — The percentage of new hires that stayed employed beyond a given time period, typically 3 months.
10. Quotes — The number of RFQs processed; separate active customers and prospects; measured each month.
11. Win/Loss — The percentage of projects gained versus attempted; measured each month.
12. New Customer Sales — Total amount of product revenue from new customers; measured monthly.
13. On-Time Start Date — The percentage of all jobs started on or before the calculated operations start date.
14. Reported Injuries — The number of reported injuries; measured weekly.
15. Safety Hazards Identified — The number of reported hazards to the Safety Committee; measured weekly.
16. Labor Capacity Utilization — The capacity of available CNC operators; measured as a percentage of hours projected.
17. Machine Utilization — The capacity of available machines being used; measured as a percentage of hours used.
18. 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.
19. Set-Up Efficiency — Measured as a percentage of time versus projected time.
20. Productivity — Measured as efficiency (percentage) x direct labor (percentage)
21. Preventative Maintenance — Measured as percentage of on-time maintenance performed.
22. 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 proactive and 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 manufacturing 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.