In the world of DTC brands, efficient production planning is crucial for success. Without proper management and organization of inventory and manufacturing processes, businesses can face delays, overstocking, missed deadlines, and, ultimately loss of revenue.
To ensure your production planning and inventory management is on track, it’s important to monitor certain metrics and key performance indicators (KPIs). These measurements can help you identify areas for improvement, make informed decisions, and track your progress over time.
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Want to skip to a specific Production KPI? We’ve got you covered:
- Inventory Turnover
- Lead Time
- Cycle Time
- Capacity Utilization
- On-Time Delivery
- Stockout Rate
- Order Fulfillment Time
- Work-in-Progress (WIP)
- Production Cost per Unit
- Yield Rate
- Understanding Production Planning KPIs
So let’s get started: here are 10 production planning metrics and KPIs that every DTC brand should know:
1. Inventory Turnover
Inventory turnover (otherwise known as Inventory Velocity) measures how quickly a company’s inventory is sold and restocked within a given period. A high inventory turnover rate indicates efficient production planning and management, while a low rate can suggest overstocking or lack of demand.
Calculating inventory turnover can provide invaluable insights into your production planning efficiency. Here’s how you can do it: Inventory Turnover = Cost of Goods Sold (COGS) / Average Inventory Value
Cost of Goods Sold (COGS) represents the cost of producing the goods sold during a specific period. The Average Inventory Value is the average value of your inventory during the same period.
By using this metric, you will gain a clearer understanding of how quickly your inventory is turning over. Remember, a high turnover rate could mean your production planning is effective and you are meeting demand accurately. But, a low turnover rate might suggest issues like overstocking or low product demand.
Read more: What is Inventory Velocity? Examples and Formulae
2. Lead Time
Lead time is the amount of time it takes to complete a production cycle from start to finish. For DTC sellers, this usually is the time from beginning the manufacture to delivering to the customer.
Tracking your lead times can help you identify bottlenecks and streamline your manufacturing process for more timely order fulfillment.
Calculating lead time is straightforward but crucial for your production planning. To do this, you simply measure the time between the commencement of the production process and the moment the finished product is ready for delivery.
This includes any and all steps in your production cycle, such as sourcing materials, manufacturing, quality control, and packaging. By tracking this metric, it becomes easier to identify any inefficiencies or bottlenecks in your process.
Read more: Reorder Points and Why You Need Them
3. Cycle Time
Cycle time is similar to lead time, but it specifically measures the time it takes for one unit to be produced from start to finish. This metric can help you identify productivity issues and optimize your production processes.
Calculating Cycle Time is a straightforward but insightful process. It begins by noting the moment production starts for a unit and ends when that particular unit is complete.
Specifically and simplistically, Cycle Time = Finish Time - Start Time.
By using this metric, you can pinpoint how long each stage of your production process is taking, which can help identify areas for increased efficiency and productivity.
4. Capacity Utilization
Capacity utilization measures how much of your production capacity is being utilized at a given time.
This metric can help you assess your production efficiency and make necessary adjustments to maximize output.
Calculating Capacity Utilization is a key step to gaining insights into your production efficiency. To calculate this metric, you need to divide your actual output by your potential output and multiply by 100 to get a percentage.
This formula could look like this: Capacity Utilization = (Actual Output / Potential Output) * 100.
The higher the percentage, the more effectively your production capacity is being utilized. Meanwhile, a lower percentage might indicate underused resources or inefficiencies in your production process.
5. On-Time Delivery
On-time delivery is a measure of how often orders are fulfilled within the promised timeframe. This metric is crucial for maintaining customer satisfaction and loyalty.
You can track this metric by ensuring that you have a system that tracks both shipping dates and also the customer ETA date. This system should be designed in a way that you can see at a glance any orders that are overdue (i.e. the shipping date is later than the customer ETA date)
6. Stockout Rate
Stockouts occur when a business runs out of a particular product or item due to insufficient inventory. Tracking your stockout rate can help you determine the optimal level of inventory to maintain for efficient production planning.
To calculate stockout rates, one needs to divide the number of stockout events by the total number of sales orders during a given period, then multiply the result by 100 to get a percentage.
The calculation would look like this: (Number of Stockouts / Total Sales Orders) * 100 = Stockout Rate (%).
Monitoring this key production planning metric provides clear insights into the frequency of stockouts, enabling you to optimize your inventory management strategies and minimize disruptions to your manufacturing workflow.
7. Order Fulfillment Time
Order fulfillment time measures the time it takes for an order to be processed, manufactured, and delivered to the customer. This metric is important for meeting customer expectations and minimizing delays.
Calculating order fulfillment time involves summing up the time taken for each step in the fulfillment process. Start by noting down the time when an order is received, and end when the product is delivered to the customer. The individual times for order processing, manufacturing, and delivery are added together to calculate the total order fulfillment time.
This allows you to pinpoint any delays or inefficiencies in your production and delivery process.
The formula for calculation would be: Order Fulfillment Time = Order Processing Time + Manufacturing Time + Delivery Time.
8. Work-in-Progress (WIP)
WIP measures the amount of unfinished work in your production process. This metric can help you identify areas for improvement and ensure smooth workflow.
To calculate Work-in-Progress, you need to quantify the value of all materials, labor, and overhead costs committed to the production process but not yet converted into completed products.
This includes all raw materials, semi-finished goods, and unfinished products that are still in the production line.
The general formula for calculating WIP is: WIP = Beginning WIP + Manufacturing Costs – Cost of Goods Manufactured (COGM).
It can be helpful to calculate this as a percentage to see how much of your stock is currently tied up in the production process. An increasing WIP could indicate inefficiencies, potential waste, or bottlenecks in your production process that need to be addressed.
9. Production Cost per Unit
Production cost per unit calculates the average cost of producing one unit of a product. Tracking this metric can help you identify ways to cut costs and improve profitability.
To calculate the Production Cost per Unit, you need to divide the total production cost by the total number of units produced during a given period. The total production cost includes all the costs associated with producing the goods, such as raw materials, labor, and overhead costs. T
he formula is relatively simple: Production Cost per Unit = Total Production Cost / Total Units Produced.
Regular monitoring of this metric can offer valuable insights into your cost efficiency. By identifying the components that are driving up your production costs, you can implement strategies to reduce these costs, which in turn can enhance profitability and ensure the long-term financial health of your business.
10. Yield Rate
Yield rate is an important production planning metric that measures the percentage of products that are manufactured correctly and meet quality standards.
A high yield rate indicates that your processes are effective and that you’re producing a high number of usable products.
To calculate the Yield Rate, divide the number of acceptable units produced by the total units started, and multiply by 100.
The formula is as follows: Yield Rate (%) = (Number of Acceptable Units / Total Units Started) * 100.
Regularly monitoring this KPI can provide valuable insights into the quality and effectiveness of your production processes, allowing you to implement necessary improvements to increase yield and reduce waste.
Understanding Production Planning KPIs
Before diving into the role of KPIs in production planning, it’s essential to have a clear understanding of what KPIs are. Simply put, KPIs are measurable values that indicate how well a company is achieving its production goals. They provide objective data that can be used to monitor performance, identify areas for improvement, and make informed decisions.
When it comes to production planning, KPIs play a critical role in driving operational success. By tracking these key metrics, manufacturers can gain visibility into their performance and make data-driven decisions to optimize production processes. KPIs provide valuable insights into various aspects of production, allowing manufacturers to monitor their progress, identify bottlenecks, and take proactive measures to improve efficiency.
The Role of KPIs in Production Planning
KPIs play a critical role in production planning by providing visibility into key metrics that drive operational success. By tracking KPIs, manufacturers can monitor performance against targets, identify bottlenecks, and make data-driven decisions to optimize production processes.
One of the primary roles of KPIs in production planning is to measure productivity. Productivity KPIs, such as overall equipment effectiveness (OEE), provide insights into the efficiency of production processes. By tracking OEE, manufacturers can identify areas where production is lagging and take corrective actions to improve overall productivity.
Another crucial role of KPIs in production planning is to ensure quality control. Quality KPIs, such as defect rate, allow manufacturers to monitor the quality of their products and identify any issues that may arise during the production process. By tracking defect rates, manufacturers can implement corrective measures to reduce defects and improve the overall quality of their products.
Cost control is also a significant aspect of production planning, and KPIs play a vital role in this area as well. Cost KPIs, such as production cost per unit, help manufacturers monitor their production costs and identify opportunities for cost savings. By tracking production costs, manufacturers can optimize their processes, reduce waste, and improve their bottom line.
Lastly, KPIs in production planning also focus on delivery performance. Delivery KPIs, such as on-time delivery rate, allow manufacturers to track their ability to meet customer demands and deliver products on time. By monitoring on-time delivery rates, manufacturers can identify any delays or issues in their supply chain and take corrective actions to ensure timely delivery.
So, what is a KPI?
A KPI, or key performance indicator, is a measurable value that indicates how well a company is achieving its business objectives and goals. KPIs are used to monitor progress, identify areas for improvement, and make informed decisions to drive success. In the context of production planning, KPIs can help DTC brands track their performance and ensure efficient operations.
Aligning KPIs with your Business Objectives
Once you have identified your production goals, it is important to ensure that the KPIs you choose are directly related to your business objectives. Each KPI should provide meaningful insights into the performance of your production process and its impact on your overall business success.
For example, if one of your main goals is to improve product quality, relevant KPIs might include defect rate, customer returns, or product rework percentage. By monitoring these KPIs, you can identify areas of improvement and take proactive measures to enhance product quality.
Similarly, if your goal is to enhance customer satisfaction, relevant KPIs might include on-time delivery rate, order fulfillment accuracy, or customer complaints. Monitoring these KPIs can help you identify any bottlenecks or issues in your production process that may affect customer satisfaction.
By aligning your KPIs with your business objectives, you can ensure that you are measuring the right metrics and focusing on areas that truly matter to your overall success.
Remember, the selection of relevant KPIs for your production process may vary depending on your industry, specific business goals, and the nature of your production operations. It is important to regularly review and update your KPIs to ensure they remain relevant and aligned with your evolving business needs.
Different Types of KPIs in Production Planning
There are various types of KPIs that manufacturers can track in production planning. Some common categories include productivity KPIs (e.g., overall equipment effectiveness), quality KPIs (e.g., defect rate), cost KPIs (e.g., production cost per unit), and delivery KPIs (e.g., on-time delivery rate).
Productivity KPIs focus on measuring the efficiency and effectiveness of production processes. These KPIs provide insights into factors such as machine utilization, downtime, and cycle time. By tracking productivity KPIs, manufacturers can identify areas for improvement and implement strategies to increase overall productivity.
Quality KPIs, on the other hand, focus on measuring the quality of products and the effectiveness of quality control processes. These KPIs include metrics such as defect rate, customer complaints, and rework rate. By tracking quality KPIs, manufacturers can ensure that their products meet or exceed customer expectations and implement measures to improve product quality.
Cost KPIs are essential for monitoring production costs and identifying opportunities for cost savings. These KPIs include metrics such as production cost per unit, material cost, and labor cost. By tracking cost KPIs, manufacturers can identify areas of inefficiency, reduce waste, and optimize their production processes to achieve cost savings.
Lastly, delivery KPIs focus on measuring the ability to meet customer demands and deliver products on time. These KPIs include metrics such as on-time delivery rate, order fulfillment time, and lead time. By tracking delivery KPIs, manufacturers can ensure timely delivery, improve customer satisfaction, and maintain a competitive edge in the market.
How do I track my production planning metrics?
To effectively track your production planning metrics and KPIs, it’s important to have a system or software in place that can accurately collect and analyze the necessary data, and a manufacturing dashboard to calculate and present the data to you in an easy to read format.
While Excel spreadsheets are commonly used for tracking metrics, they might not be the most efficient or accurate method, especially for growing businesses. Excel requires manual data entry which can be time-consuming and prone to errors. It can also be difficult to generate real-time insights and visual reports using Excel, which can hinder timely decision making.
Free Download: Production planning template for Excel and Numbers
On the other hand, a dedicated production scheduling system like Craftybase MRP not only automates the data collection process but also provides robust analytics capabilities. From precise costing and inventory management to comprehensive production planning metrics and KPI tracking, Craftybase provides an all-in-one solution that’s scalable, reliable, and designed specifically for direct-to-consumer brands. Try us for free today!
Top tips for implementing production KPIs
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It’s essential to establish a robust KPI monitoring system that captures accurate and timely data. This system could involve using software programs, real-time data collection tools, and regular reporting mechanisms. This ensures that the right data is available for analysis and decision-making purposes.
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Effective KPI implementation requires proper training and education for your team members. Make sure your employees understand the importance of KPIs, how to track and interpret them, and how their individual roles contribute to overall production goals.
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One of the most common pitfalls is tracking too many KPIs, leading to information overload. Instead, focus on a select few KPIs that truly indicate the health of your production process. This ensures that relevant data is readily available and actionable.
In Conclusion
By monitoring these key production planning metrics and KPIs, DTC brands can stay on top of their inventory and manufacturing processes, identify areas for improvement, and ultimately achieve scalable growth.
Don’t overlook the importance of tracking these measurements and using them to guide your decision-making for a successful and efficient business. So, keep a close eye on these metrics and watch your DTC brand thrive!
