Indicators of Manufacturing Efficiency

Author : Doug Skaggs

Manufacturing efficiency is founded on the simple principle of making or moving a product through a process with no downtime and no defects at an ideal speed.

Manufacturing Key Performance Indicators (KPIs)

The priority of establishing the right manufacturing efficiency and any metric or Key Performance Indicator, is ensuring the input data to generate the manufacturing efficiency is accurate and honest. Good standardized production and quality reporting are critical to know true manufacturing or machine efficiency.  This requires standardized operational definitions that have meaning and provide direction to the plant leaders and personnel tracking downtime and product quality data.  Shortcuts are not allowed! Correct coding has to be established and tested.  Once established, leadership must hold everyone accountable to capture real-time, honest, and accurate data – no matter how ugly the data looks. You will never improve without accurate manufacturing efficiency data.


Examples of Manufacturing Metrics

My manufacturing experience has exposed me to the following manufacturing efficiency formula:  % Utilization x % First Quality x % Rate.  Some refer to this formula as Overall Equipment Efficiency (OEE) and a metric to represent throughput of a product where:

  • Performance represents the machine run time or downtime
  • Quality represents the % first quality generated by this machine
  • Rate is the ideal speed (plate speed) or standard speed

First, let us talk about Rate. There are always great discussions over which speed should be used to capture manufacturing efficiency – Ideal or Standard.  In a true zero loss culture, ideal speed should be the baseline and utilized.  However, in my experience, most organizations utilize standard speed in their machine efficiency calculations as a starting point for continuous improvement.

Standard speed allows the team to compare against an expectation based on current product mix/volume.  This can help provide direct focus of where we are at today and allow incremental step changes that are not heavily influenced by product mix.  As improvements are made, we should adjust the standard speed to reflect increasing throughput and closing the gap to the ideal speed.

Formula for % Rate:  Actual/Standard or Ideal * 100

Next, let’s address performance – simply – you are either running or you are not.  If you’re running, we should run to standard speed and if you are down, you are down for one of two reasons:

  1. Planned Downtime – Scheduled downtime due to changeover, planned maintenance
  2. Unplanned Downtime – Machine stopped due to unplanned activities, such as mechanical downtime, scheduling or staffing issues

Planned downtime should have baseline standard times and metrics established for all events.   Measuring a planned event provides valuable information to the team on how they performed to a standard time.  These metrics should be reviewed with the team.  This allows for recognition of success and opportunities for continuous improvement identified and projects launched to close gaps.

Unplanned downtime includes anything that was not planned or scheduled.  This does not always mean a mechanical breakdown.  Unplanned could be waiting on raw material (supplier), people (late to work), or clearing a jam.

Having good data reporting systems and operational definitions are critical to understanding performance.  These processes capture the planned and unplanned downtime events with a start and end time and an assignment of downtime category. This data is used to identify where to work and improve manufacturing or machine efficiency.

Formula for % performance: Run Hours/Scheduled hours*100.

Now let’s review the quality component.  First, quality is critical because a machine running does not always equate to manufacturing a sellable product.  If equipment is generating product that cannot be sold this is a loss that must be captured, and we must ask ourselves “Why are we continuing to run and generate bad product?”.

The percent first quality goods produced represents how many good units we get out of the total units processed.

Formula for % first quality:  Number of First Quality units/total units produced*100.

Utilizing the three KPIs for manufacturing – performance, quality, and rate – a business can understand their overall equipment efficiency.  This can help the organization understand areas for focused improvement that will drive profitability.

Formula for Overall Equipment Efficiency (OEE) – % Utilization x % First Quality x % Rate


Manufacturing Metrics Dashboard

As the KPIs are aligned and developed, the review and response portion of the Daily Management System must be effectively utilized to track how we are doing.  The purpose of review and response is:

  • Manage process variation for stability and reliability
  • Driving results, accountability, and sustainability
  • Focus on top losses and plans to resolve
  • Alignment of priorities – reduce confusion, conflict, and clarity of communication
  • Ensure resources are working on the most rewarding opportunities
  • Guarantee results – identify & remove barriers. Complete an objective review to ensure results hit bottom line


Creating a visual dashboard can help everyone pay attention to the right things and allow for easy review at each level.  The example below provides the key elements for a daily review & response:

  • Objective
  • Roles & Responsibilities
  • Agenda
  • Tracking System – Short term, Long term, and escalation
  • Key Performance Indicator Performance Tracking
  • Recognition
  • Triggers