Before the pandemic and the cost of living crisis, the automotive industry was already going through a period of uncertainty and change. The squeeze on consumer spending and bottlenecks in supplier networks have magnified that pressure, and 2023 looks like it's going to be another challenging year for the automotive industry.
Bouncing back is one thing. But to move ahead of the competition, companies must be able to measure their performance accurately and efficiently. Unfortunately, this can often lead to an overwhelming volume of data and a large number of KPIs (Key Performance Indicators) that are tracked. Subsequently, focusing on the right metrics within that mass of data can be difficult.
Reducing the number of KPIs down to 6 or 7 key ones will help gain valuable insights into operations that will promote growth and success in today's dynamic market environment.
This article will focus on the manufacturing side of KPIs rather than safety or financial KPIs. By following these KPIs, automotive companies can ensure they are getting accurate performance data, while also freeing up time and resources for other areas of improvement.
In the following article, we will explore:
- Why does the automotive industry generate so much data?
- So which Automotive KPIs should you focus on?
- How do Automotive companies track their KPIs?
Why does the automotive industry generate so much data?
Automotive companies generate a large amount of data due to the complexity of their production process and the number of components each vehicle contains. They need to track KPIs related to supplier performance, quality control, production effectiveness, inventory levels, delivery times, and energy use. This data is increasingly readily available, with the majority now automated, leading to data overload, missed opportunities, and costly delays.
So which Automotive KPIs should you focus on?
The 7 Automotive KPIs that we would recommend monitoring are:
On-time Delivery Rate
Companies need to know how well they are meeting their customer's needs in terms of delivery. Monitoring the On-time Delivery Rate helps automotive companies identify potential improvement areas, such as late deliveries or slow production processes.
On-time delivery rate is calculated by dividing the number of orders delivered on time by the total number of orders. Automotive companies should strive for an OTD rate of at least 95%.
Supplier Quality Score
To ensure suppliers are providing quality parts that meet the company's standards. Automotive companies use a Supplier Quality Score (SQS). This KPI is based on factors such as delivery performance, quality of service, and price. Automotive companies should aim for an SQS of at least.
Supplier Quality Score is calculated by multiplying the number of parts received on time by their quality grade, divided by the total number of parts. Automotive companies should aim for an SQS of at least 80%.
Monitoring inventory levels ensures there is enough supply to meet customer demand. Inventory Turns measure how quickly the company can cycle through its inventory, which helps them identify any problem areas concerning production or order. Automotive companies should aim for an Inventory Turn rate of at least four times per year.
Tracking Inventory turns is achieved by dividing the cost of goods sold (COGS) by the average inventory held during a given period. Automotive companies should strive for an Inventory Turn rate of at least four times per year.
The time it takes for a product to go from conception to sale is called cycle time. Automotive companies should be aware of this as it can help them identify areas where production processes can be improved. A Cycle Time of 6-9 weeks is considered a good target for this KPI.
Cycle time is calculated by dividing the total number of days it takes to complete a production cycle by the total number of units produced.
Scrap & Rejects
Scrap & rejects are a measure of a company's production quality. Automotive companies should strive to keep these figures low in order to ensure they are producing high-quality products.
Scrap & Rejects is calculated by dividing the number of scrap & reject parts by the total number of parts produced. Automotive companies should aim for a Scrap & Reject rate of less than 5%.
Monitoring energy usage is essential for Automotive companies as it can help them identify areas where they can reduce their costs. Automotive companies should aim to reduce their energy usage by at least 5% each year in order to stay competitive.
Energy Usage/Costs are calculated by dividing the total amount of energy used in production by the total amount of energy consumed in the same period. Automotive companies should aim to reduce their energy usage by at least 5% each year in order to stay competitive.
Monitoring productivity efficiency helps Automotive companies identify any areas where they can improve production processes, leading to an increase in output and a decrease in costs. Automotive companies should aim for a productivity efficiency rate of at least 85%.
Productivity Efficiency is calculated by dividing the total number of products produced in a given period by the total amount of labor used in that same period. Automotive companies should strive for a productivity efficiency rate of at least 85%.
By tracking these 7 Automotive KPIs, Automotive companies can have a better understanding of their performance and identify areas where they can improve.
How do Automotive companies track their KPIs?
Automotive companies use Automotive specific enterprise resource planning (ERP) software and general KPI software systems to track their KPIs. These systems provide access to real-time data, which can be used to measure performance, identify areas of improvement, and as well as generate reports in order to monitor KPI progress.
A mixture of spreadsheets, native applications, and manual tracking can also be combined to provide a simplistic view of performance.
Having this information automated onto a KPI Dashboard or report allows Automotive companies to make decisions and take action quickly, which is essential for a fast-moving Automotive industry.
Automotive companies that track the most critical 7 KPIs are able to understand their performance better and identify areas of improvement. Automating the data onto a KPI Dashboard or report can enable them to make decisions and take action quickly, which is essential for success in this fast-moving industry.
With access to real-time data from Automotive specific enterprise resource planning (ERP) software solutions, combined with spreadsheets and native applications related to plant machinery, Automotive companies are well equipped to measure their progress towards achieving goals more effectively than ever before.
But in order to benefit from the power of KPIs, it is far more efficient to focus on a smaller, more targeted number of indicators.