Maintaining profitability is the primary goal of any company. In order to achieve profitability manufacturers must operate within measured boundaries.  Manufacturing companies use Key Performance Indicators (KPIs) to stay within these measured boundaries. KPIs help maintain and improve product quality, improve efficiency, reduce inventory, ensure compliance all resulting in increased profitability and reduced costs. 

Here are 5 steps to creating manufacturing job costing KPIs:

1. Consider your ERP systems’ reporting features – most modern ERP systems have advanced reporting capabilities so that should be the first place you should look to create your KPIs. One advantage, besides the fact that you already have a license for it, is that the underlying data should be available for users to drill into to better understand KPIs that raise questions. Another might be that you can create reports and pivot tables that support additional analysis of trends you spot with your KPIs.
2. Look at the critical numbers – KPIs enable manufacturing businesses to look at the critical numbers. When it comes to monitoring job costing, the first step is to carefully identify the targets and the corresponding source transaction data. Evaluate the historical trends of your KPIs and set the targets you are trying to hit. Understand the corresponding factors that affect how to achieve those numbers, then simply closely monitor the data and report on the progress.
3. Reevaluate the measurements regularly – KPIs should change as the business evolves. If the business automates a production step, then the KPIs should be adjusted to measure the productivity of the equipment, not the labor. Predictive KPIs use leading indicators to project future performance and are based on economic indicators, such as the price of raw materials or exchange rates or shipping costs. When it comes to job costing, many of the indicators are constantly changing based on the industry and economic climate. This is one key benefit to using a cloud-based system which offers the capacity needed to capture data from online data sources to provide up-to-date accuracy for costs and demands.
4. Make sure everybody is on board – Tracking job costing can be a complicated endeavor crossing over multiple departments. To ensure the right data is being collected, involve all the key players in the process of identifying key measurements. You may find that the team will come up with additional KPIs that can be monitored to improve business performance. Train your team in how to read the KPIs and what they mean. It is important that all users understand the system and what measurements are indicating. This is key to having an effective dashboard.
5. Job costing is the focus – To make the most of KPIs, it is important to have just the right amount of data. No one should have to weed through mountains of data to understand how job costing is going. The “Goldilocks principle” applies here. This is where you want to find a measurement that’s “not too hot and not too cold.” KPIs could be different based on the role or industry. Start with 8 -10 KPIs and you can adjust accordingly as you and your team become more familiar with the information. There are virtually no limits when it comes to defining and measuring the data. It’s crucial to focus on only what is needed. If the target is to minimize cost and increase efficiency for job costing, the same thinking should apply for the monitoring of this data.

"Every kind of manufacturing company, in all industry segments including automotive, food and beverage, health and beauty, electronics, industrial machines, metal fabrication, plastics, etc., rely on measurements to monitor business activities and performance, document successes and challenges, and help direct management decision-making. Of course, while we measure a number of parameters simply to comply with mandatory accounting and reporting requirements, smart management will incorporate those measurements into valuable intelligence that helps run the business more effectively and more efficiently."

For more information, please visit our website, call 206-336-9197 or email us.  

Stratotech Partners, LLC. is an Acumatica Gold Certified Partner, headquartered in Seattle, Washington, serving Acumatica customers in the Seattle metropolitan area and Pacific Northwest region. Stratotech’s expertise allows them to focus on small to mid-sized manufacturing companies who are outgrowing existing systems and looking for lower cost cloud-based alternatives. Highlighted solutions offered by Stratotech are the Acumatica Manufacturing Edition and Smartsheet, the leading cloud platform for collaboration and project management.

For more information, please visit our website, call 206-336-9197 or email us.  

Another version of this blog was previously posted on Stratotech Partners' blog - KPI’s for Manufacturing Job Costing – How to Get Started Whitepaper