How to Create Killer KPIs for Your Machine Shop to Drive Performance

October 18, 2023

Written by: Adrian Sansonetti

The machine shop industry thrives on precision, quality, and efficiency. A well-structured set of Key Performance Indicators (KPIs) can be the bedrock for your business’ success. With the help of ProShop ERP , tracking these KPIs and integrating them into your operational workflow becomes effortless.

What are KPIs?
KPIs are quantifiable metrics that help organizations gauge their performance and achieve specific objectives. In the context of a machine shop, KPIs could include financial metrics, quality measures, and the invaluable metric of First Off Part Quality.

Importance of KPIs
Well-defined KPIs offer insights into what is working well and what isn’t. They serve as a strategic compass, steering your operations and guiding realignment where needed.

Examples of Effective KPIs for Machine Shops
1. Gross Profit Margin
Formula: Gross Profit Margin = ((Revenue – Cost of Goods Sold) / Revenue) x 100
Real-Life Example: If your revenue is $500,000 and your Cost of Goods Sold (COGS) is $200,000, then Gross Profit Margin = ((500,000 – 200,000) / 500,000) x 100 = 60%

2. First Off Part Quality
Formula: First Off Part Quality = (Number of First Off Good Units / Total First Off Units Produced) x 100
Real-Life Example: If 5 first off parts are produced and 4 are of acceptable quality, then First Off Part Quality = (4 / 5) x 100 = 80%

Importance in Pre-Machining Processes:
First Off Part Quality is invaluable in ensuring that processes before actual machining—like design, planning, and material selection—are aligned to maximize efficiency. The ultimate goal is for your machines to produce good parts from the get-go, as defective parts cannot be sold and only add to operational costs.

3. Cost Per Part
Formula: Cost Per Part = Total Manufacturing Cost / Total Number of Parts Produced
Real-Life Example: If the total manufacturing cost is $12,000 and you produce 3,000 parts, then Cost Per Part = 12,000 / 3,000 = $4

How ProShop ERP Helps:

  1. Integrated KPI Tracking: Monitor KPIs real-time through ProShop’s dashboards.
  2. Actionable Insights: Extract data-driven insights for strategic decision-making.
  3. Cost of Quality Metrics: ProShop has built-in CoQ tracking, critical for understanding the financial impact of quality metrics.

4. Cost of Quality (CoQ)
Formula: CoQ = Cost of Conformance + Cost of Non-Conformance
Real-Life Example: If the Cost of Conformance is $4,000 and the Cost of Non-Conformance is $1,000, then CoQ = 4,000 + 1,000 = $5,000

Metrics like Gross Profit Margin, First Off Part Quality, Cost Per Part, and Cost of Quality are instrumental in steering your machine shop towards higher performance, innovation, and growth. With ProShop ERP , you get a comprehensive tool that not only tracks these KPIs but also helps you integrate them into your daily operations for transformative results.

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