As the year's fourth quarter approaches, manufacturers prepare for a crucial production and sales period. Utilizing the power of manufacturing benchmarking is essential for achieving optimal performance. This procedure entails comparing your operations to those of industry counterparts and best practices to identify improvement areas. This article will discuss the different types of benchmarking, how to develop a manufacturing benchmarking framework, the ten most essential metrics manufacturers must benchmark, and how Microsoft Dynamics 365 Business Central can revolutionize this process.
Variations of Benchmarking
Comparing the performance and practices of various departments or units within the same organization. Internal benchmarking assists in identifying areas of excellence within the organization that can be replicated in other areas.
Consider a sizable manufacturer with multiple production facilities wanting to increase energy efficiency. Internal benchmarking can be conducted by comparing the energy consumption of each facility. If one facility consumes less energy than others, the practices and technologies employed can be studied and implemented at other facilities to achieve similar energy savings.
Comparing performance to that of comparable direct competitors or organizations in the same industry. Competitive benchmarking reveals where you stand with your competitors and where you can improve to obtain a competitive advantage.
For example, a manufacturer of automobiles, for instance, may compare its production efficiency and unit cost to those of its principal competitors in the industry. If they discover that a competitor's cost per unit is substantially lower due to more efficient processes, they can use this information to identify areas for cost reduction and improvement.
Comparing particular functions or processes (e.g., production, supply chain, quality control) to those of other organizations. This form of benchmarking helps zero in on specific enhancement areas.
Such as, a pharmaceutical company's research and development (R&D) processes could be compared to those of industry leaders. If they discover that other companies are more effective at bringing new pharmaceuticals to market, they can examine their R&D processes and modify their own to accelerate product development.
This involves comparing performance to industry-wide best practices or standards. It provides a broader perspective on where your company stands in the entire industry.
Like, a food processing company may compare its food safety practices to industry standards and regulations using industry benchmarking. They can modify compliance breaches to align with best practices and guarantee product safety if they identify compliance breaches.
Identifying and comparing performance to the industry's top-performing companies. This establishes a high-performance standard and provides a defined objective to aspire for.
For instance, a technology manufacturer may aspire to attain the highest product quality in its industry. They can compare their quality control procedures to those of industry leaders renowned for producing products of the utmost quality. By emulating their practices, the company hopes to achieve the highest product quality in its industry.
By understanding and applying these various forms of benchmarking, organizations can obtain valuable insights into their operations, establish meaningful goals for improvement, and maintain industry competitiveness.
Developing a Benchmarking Framework for Manufacturing
1. Specify Goals and Scope: Specify what you hope to accomplish through benchmarking. Determine the target benchmarking areas and the scope of the analysis.
2. Choose Comparative Metrics: Select the metrics and key performance indicators (KPIs) most pertinent to your industry and business objectives. These may include metrics concerning cost effectiveness, quality management, cycle time, and more.
3. Collect Data: Collect pertinent information from your operations and industry reports, surveys, and studies of best practices. Ensure that the data is precise, current, and comparable.
4. Identify Partners for Benchmarking: Select businesses for comparison. These companies could be rivals, market leaders, or those with a reputation for best practices. Ensure that they are comparable in size and operation to provide meaningful data.
5. Compare and Contrast: Compare your performance to your benchmarking counterparts. Determine the strengths and areas requiring improvement.
6. Implement Alterations: Create action plans based on the benchmarking insights gained. Improve performance by modifying processes, systems, or strategies.
10 Key Metrics Manufacturers Should Use as a Benchmark
1. Overall Equipment Effectiveness (OEE): OEE measures production equipment efficacy. It considers availability, performance, and quality to provide a comprehensive view of equipment utilization.
Overall Equipment Effectiveness = availability x performance x quality
For example, a plant that manufactures automotive components uses OEE to evaluate the effectiveness of its production line. After an analysis, they determined that the equipment's availability is 80%, its performance efficiency is 90%, and its quality rate is 95%. This results in an OEE of 68.4%. By identifying the specific areas of inefficiency, they can implement targeted enhancements to increase the efficacy of the equipment as a whole.
2. Inventory Turnover Rate: This metric measures the rate at which inventory is sold or consumed. A more significant inventory turnover rate indicates inventory management efficiency.
Inventory Turnover Rate = cost of goods sold / average inventory
Such as, an apparel manufacturer monitors its inventory turnover rate to determine how rapidly its products are moving off the shelves. Over a year, they sell $2 million of apparel, with an average inventory value of $500,000. The calculation for the inventory turnover rate is $2,000,000 / $500,000 = 4. This indicates that the inventory is sold and replaced four times per year on average.
3. First Pass Yield (FPY): FPY assesses the proportion of products that pass initial quality control inspection. It is a crucial indicator of manufacturing quality.
First Pass Yield = number of good units produced / total number of units produced
Like, a semiconductor manufacturer monitors FPY to ensure the integrity of its microchips. 950 crystals out of 1,000 produced passed the quality control exams on the first try. Consequently, the FPY is 95%. This high FPY indicates that the manufacturing process produces high-quality semiconductors.
4. Supplier Quality Index (SQI): SQI evaluates the integrity of vendor-supplied materials and components. It affects the ultimate product's quality.
For instance, a manufacturer of electronic components evaluates its supplier's quality by monitoring the proportion of components that meet specifications. If 95 out of 100 received components meet quality requirements, the SQI is 95%. This metric assists the manufacturer in identifying trustworthy, high-quality suppliers.
5. On Time Delivery (OTD): OTD measures the proportion of orders delivered on time to consumers. It is indicative of dependability and customer satisfaction.
As an example, a manufacturer of furniture guarantees delivery within 14 days of order placement. Ninety percent of orders are delivered on time. The rate of OTD is 90%. This metric indicates the company's capacity to satisfy and maintain customer expectations and satisfaction.
6. Lead Time: This is how long it takes to fulfill a customer order from the instant it is submitted. Reduced lead periods can increase customer satisfaction.
By way of example, a custom machinery manufacturer calculates lead time from when an order is submitted until the product is delivered. It takes 30 days, on average, to complete and ship an order. They intend to decrease lead time to 20 days by optimizing processes, thereby enhancing customer responsiveness.
7. Rates of Scrap and Rework: These metrics quantify the quantity of production-related material wastage and rework. Reducing refuse and rework can have a substantial impact on profitability.
Such as, a food packaging company monitors rates of waste and rework. Thirty percent of 1,000 produced products are declared unacceptable and must be reworked. This results in 3% waste and 3% rework rates. Monitoring these rates helps identify waste reduction and product quality improvement opportunities.
8. Per-Unit Energy Consumption: Monitoring energy consumption per unit of output helps identify opportunities for improving energy efficiency, which can result in cost savings and environmental benefits.
For example, a steel manufacturer desires to evaluate its energy efficacy. They produce 10,000 tons of steel and consume 100,000 kWh of electricity during a given period. Energy consumption per unit is 10 kWh per produced ton of steel. To reduce this metric, they intend to implement energy-saving measures.
9. Staff Productivity: Calculate the output per employee to evaluate workforce productivity. This can help identify training or process improvement opportunities.
To illustrate, each employee's output is measured daily at a textile factory. An employee generates 100 units of fabric per day on average. The company intends to increase daily output to 120 units through training and operational optimization.
10. Return on Assets (ROA): ROA measures the efficiency with which assets are utilized to generate revenue. It is a vital financial metric for evaluating a business's overall performance.
Return on Assets = net income / total assets
Like, a manufacturing company uses ROA to evaluate its financial performance. With $5 million in total assets and $1 million in net income, the return on assets is 20% ($1 million / $5 million). This metric measures the efficiency with which assets are utilized to generate profits.
By comparing these essential metrics, manufacturers can obtain valuable insights into their operations, identify areas for improvement, and implement strategies to improve productivity, quality, and profitability.
How Business Central Contributes to Benchmarking in Manufacturing
Microsoft Dynamics 365 Business Central offers manufacturing companies a robust platform for streamlining operations and facilitating benchmarking efforts. This is how:
Integration and Analysis of Data
Business Central integrates with multiple data sources, enabling the accumulation and analysis of comprehensive data. This allows for more precise benchmarking comparisons.
Example: A manufacturer uses Business Central to integrate data from its production line, inventory management system, and financial records. This allows them to comprehensively analyze key performance indicators (KPIs) such as overall equipment effectiveness. By storing this information on a single platform, they can readily compare their performance to industry standards.
Personalized Dashboards and Reports
Business Central paired with Power BI provides customizable dashboards and reporting tools, allowing manufacturers to monitor benchmark-relevant vital metrics and KPIs.
Example: A manufacturing manager constructs a customized dashboard within Business Central that displays KPIs pertinent to their benchmarking objectives. This dashboard includes real-time graphs and infographics showing metrics like on time delivery and scrap rates. With this visual representation, it is easy to identify areas that require refinement.
Business Central includes process automation and workflow administration capabilities, enabling manufacturers to implement changes identified through benchmarking.
Example: A manufacturing company utilizing Business Central discovers, through benchmarking analysis, that its lead time is lengthier than industry standards. They use the platform to automate and optimize their production processes, resulting in a 15% reduction in lead time. This increases productivity and customer satisfaction.
Management of Inventory and Supply Chain
Business Central's efficient inventory and supply chain management tools enhance metrics such as inventory turn over rate.
Example: A manufacturer employing Business Central monitors inventory turnover rate and determines that it falls short of industry standards. They use the inventory management features of the platform to implement just-in-time inventory practices, resulting in a significant increase in turnover rate and a decrease in carrying costs.
Financial Reporting and Monitoring
The platform provides comprehensive financial monitoring and reporting capabilities, including crucial performance benchmarking metrics such as return on assets (ROA).
Example: Using Business Central, the CFO of a manufacturing company generates financial reports that include metrics such as ROA. They determine that their return on investment (ROI) is lower than the industry average. Using the insights obtained from benchmarking, they execute strategies to optimize asset utilization, resulting in a 10% increase in ROA.
Utilizing the capabilities of Microsoft Dynamics 365 Business Central, manufacturers can expedite their operations, collect and analyze vital data, and implement targeted improvements based on benchmarking insights. This integrated strategy enables businesses to improve performance, compete effectively, and achieve sustained success in a competitive market.
In the manufacturing industry's competitive environment, Q4 benchmarking is essential for success. By understanding the different types of benchmarking, developing a solid benchmarking framework, concentrating on crucial metrics, and utilizing tools such as Microsoft Dynamics 365 Business Central, manufacturers can increase their efficiency, quality, and profitability during this vital period.
Are you ready to supercharge your manufacturing performance by adopting benchmarking with Business Central as a strategic instrument to position your business for success in the fourth quarter and beyond? Contact us to discover how to drive performance, efficiency, and competitiveness in Q4 and beyond!