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3 benchmarking metrics for manufacturing organizations

May 31, 2016

Benchmarking is like a checkup for your business — it’s how you can tell if it’s healthy or starting to succumb to risk factors. And, just like a personal health assessment, many manufacturers put it off.

Think about it this way: If you’re too busy for a health screening today, then you definitely don’t have time for an illness or injury tomorrow. Prevention pays off. Plus, you need to know where you stand to create realistic strategies and goals.

Benchmarks also provide a new perspective on performance. Just because the floor is “busy” doesn’t mean it’s efficient or profitable. If you’re in a slump, maybe it’s industrywide — or a signal that it’s time for change. You won’t know unless you regularly measure and assess performance.

Not sure where to start? We recommend three metrics for manufacturing organizations:

1. Materials cost per unit

You need control over financials aspects of the business to be profitable, and materials is a big one. Many companies learn this the hard way when they look at reshoring. They try to drive down labor costs without taking materials into consideration — and end up paying more to ship products and materials back and forth from “cheaper” locations.

Track your material costs in detail with an enterprise resource planning (ERP) system. You can analyze forecasted pricing compared to actual costs, as well as differences between suppliers. The point is: you need to collect and analyze cost information to control it.

2. Sales dollars per square foot

Property is one of the most expensive assets for manufacturers, so you need to squeeze as many sales dollars as you can from your footprint. Before you expand or add facilities, you need to understand how much of your space is profitable. Look at your product families and rank them by profitability. If you outsource less-profitable products and use the floor space for higher-profit items, then you can avoid expending capital or depreciation on a larger facility.

3. Units per square foot

How much floor space do your product families fill? Are you using a lot of space to store products and parts with poor profit margins? It may be cheaper to store products at another site. You need to benchmark unit costs per square foot to determine whether you’re using space efficiently and profitably.

While these benchmarks are recommended for most manufacturers, every business is different. Figure out which metrics have the strongest influence on your strategy and decision-making, then get serious about tracking and reviewing them. ERPs and other business tools are available to make data collection and analytics simpler, sometimes even automatic. Consistent and simple are best.

How to use benchmarking data

Don’t waste the exercise. Use benchmarking data to take the guesswork out of your operations. If you pick the right key performance indicators, it should be easy to spot strengths and weaknesses. You can create attainable plans for growth — and track your progress toward those goals.

Benchmarking also helps managers develop stronger business skills and teams. And it’s an effective way to hold managers accountable and ensure leaders are allocating resources wisely.

How Wipfli can help

How’s your business’s health? Wipfli can help you find objective measures of health and establish processes and tools to maximize performance. One size doesn’t fit all, so our manufacturing and business consultants take the time to learn your business. We tailor our advice around your specific goals. Contact us today.

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Author(s)

Mark Stevens
Principal
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