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How to measure the performance of a manufacturing plant?

Posted by Abhay Dhall, Associate Consultant (Manufacturing Vertical), Infosys Limited

In my previous blog, I spoke about the need for companies to create a value stream map for their processes in order measure, control & improve their processes. To preach is one thing but to perform is something else. Is it as easy to execute as being said?

A simple way of ensuring that a process is adding real value is to ask the internal customer of each process to provide feedback and recommendations to improve the outcome of that particular process. There are some important metrics which help make informed decisions on improvement initiatives. One doesn't always have to visit the shop floor to gather such information.

A basic yet powerful metric that usually is a good indicator of operating performance of a manufacturing business is the cycle time.  This metric serves to enhance overall customer experience which comprises other key metrics - some of which are discussed here.

A simple metric to start with would be to determine the On-time delivery to commit. This simple metric gives the percentage of time that a company has managed to deliver its products and services within the time that was committed to the customers. The same activity has to be done for the suppliers as well by measuring the percentage of orders that are received in time. Once measured, one can start looking backwards to find areas that are introducing waste into the entire supply chain.

The second important metric in the cycle time category is the manufacturing cycle time. This is nothing but the amount of time it takes to convert raw materials into the finished product once the order is released to production.

Then there are ways to measure productivity within the four walls of operations. A good metric to estimate equipment utilization is the Overall Equipment Effectiveness or OEE. It is usually formulated as a function of various efficiencies to quantify various types of productivity losses and is a way to indicate how efficient is the firm in utilizing its inputs to produce outputs. For example, in a manufacturing environment, the most common factors responsible for low operational efficiency are downtime losses, speed losses, reduced yields and defects. In such an environment, the OEE can be a function of availability efficiency, performance efficiency and quality efficiency each of which is directly linked to downtime losses, speed losses and reduced yields, quality defects and rework, respectively. In simple words,

Operational efficiency=f {availability efficiency, performance efficiency, quality efficiency}

Measuring supplier quality is critical as well. When companies source their raw materials from far across the globe, it can take weeks for a raw material to reach the manufacturing facility. As a result, any issue in supplier quality can quickly turn into stock outs. The quality of incoming material from the supplier is also to be measured consistently. By looking at scrap, rework, sorting, MRB inventory costs, one can easily gauge the cost of poor supplier quality. These costs are further magnified by addition of freight costs and line shutdown. Supplier audits are one of the best ways to ensure that the supplier is confirming to the best practices that you agreed upon during selection.

It is worthwhile to take into account all these simple metrics in the entire supply chain than just falling into the common pitfall of focusing on the shop floor. The aforementioned areas of improvements have a direct effect on customer satisfaction and retention. In the 1960s, Toyota pioneered this methodology of total quality control (TQC) which shaped the modern day approach to quality improvement. Most importantly, it began to understand the crucial link between customer satisfaction, supplier, quality and profit. It does not always require implementing complex procedures and methods to know how efficient your processes are. Sometimes, a simple approach like the one mentioned here can save a lot of pain.


what a great educational blog i learned a lot thanks

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