The Financial Metrics for Action in Demand-Driven Manufacturing
Every organization has general financial metrics used to gauge the overall financial health of the organization. Separately, there is one manufacturing financial metric that should be used to measure the factory’s performance: Throughput. Increasing production flow – which increases Throughput – is the cornerstone of Demand-Driven Manufacturing and realizing true profitability.
Business Value to Demand-Driven Manufacturers:
Simply put, the ability to ship more for less drives profitability.
Global Measurement
Tracking Throughput against Operating Expense measures net profit and productivity.
- Throughput: The rate at which the system generates money through sales
- Operating Expense: The cost of running the manufacturing facility over the same, specified period of time
Net Profit = Throughput – Operating Expense
Productivity = Throughput / Operating Expense
Action:
Work toward increasing Throughput while maintaining Operating Expense at a constant level to drive up your net profit margin.
Increase Throughput by effectively managing constraints and synchronizing all elements necessary – people, materials, machines, method – to achieve on time delivery. Use your constraints to set the pace of work released into production to achieve a constant rate of flow. (Watch/listen to the podcast, The 5 Key Elements that Drive Flow, for more information.)
