Kpis for Operations Managers

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Table of Contents

Introduction
Labor Utilization
Delivery in Full on Time
Supplier Quality Incoming
Internal and External Work Environment
References

Introduction

When examining performance metrics that are the most necessary for operations management, it is important to remember that all measurements can bring benefits, not only those focused on one particular area of operations. Triple bottom line (introduced by Elkington) is a concept that was intended to advance the objective of sustainability in business, in which companies extend their focus and include social and environmental measures to the entire cost of doing business (Jackson, Boswell, & Davis, 2011). External and internal work environment, labor utilization, delivery in full on time (DIFOT), and supplier quality incoming are the most important for operations managers to track.

Labor Utilization

Labor utilization refers to the percentage of available hours for work ‘billable’ to product or service delivery in comparison with actual time spent on that work. This metric was chosen since it provides operations managers to ensure efficiency and financial viability (Ritchie, 2015). To calculate labor utilization, an operations manager should collect the following data:

Amount of payroll that pays for the direct labor of workers;
The total cost of payroll for a specific period.

Most companies have a rate of direct labor utilization of approximately sixty-five percent (McMullen, 2017). It is crucial to mention that the higher the direct utilization rate, the more efficient the business operations are, so it is important for operations managers to track this metric.

Delivery in Full on Time

DIFOT is a metric that shows whether the business meets the expectations of customers. To calculate DIFOT, an operations manager in a company should collect the following data:

The number of orders (units, lines, etc.) in full condition and on time;
The total number of orders (units, lines, etc.).

By focusing on delivering a product or service in full on time, an operations manager can answer important questions regarding customers’ expectations and satisfaction, which means that the company created such an operations management process that always has customers in mind. This metric is directly related to the financial performance of an organization since satisfied customers will contribute to the increase of profit, retention and the increase of new customers.

Supplier Quality Incoming

Supplier quality incoming is a measurement for determining the final quality of a product or service. It was chosen since it is important for operations managers since it allows determining the rate at which good quality materials come into the manufacturing stage (Nichol, 2015). This metric is linked to an organizations’ financial performance because it will allow an operational manager to determine whether the company will have to invest in better quality resources or whether the existing suppliers should be changed for those that provide reliable materials. to measure supplier quality incoming, operations managers should collect data about the number of items of low quality and compare that number to the items of high quality.

Internal and External Work Environment

Measuring the quality of the internal and external work environment will allow operations managers to determine whether the product or service is created in an environment that supports sustainability and ethical practices as to whether any procedures within a company hurt the external environment, which is especially important in the context of manufacturing. To measure the internal work environment, and operations manager should survey workers about their satisfaction with the conditions. To assess the external work environment, the community in which the business operates should be surveyed about the effect the organization has on society. Importantly, the metrics include considerations of workers’ work conditions and labor utilization for ensuring that the available resources are used for sustaining a competitive advantage and ensuring financial prosperity.

References

Jackson, A., Boswell, K., & Davis, D. (2011). Sustainability and triple bottom line reporting – What is it all about? International Journal of Business, Humanities and Technology, 1(3), 55-59.

McMullen, A. (2017). What is direct labor utilization? Web.

Nichol, M. (2015). The 12 most important metrics to measure in manufacturing. Web.

Ritchie, A. (2015). Top 5 KPIs for your operations team. Web.

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Kpis for Operations Managers

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