It’s a problem I hear over and over when meeting manufacturing leaders who want to begin a digital transformation process: it’s very hard for them to predict how changes in manufacturing operations will affect overall corporate profitability.
At a time when top managers can instantly drill down to any level of data about their finances, sales, customer relationships, supply chain and other functions, one crucial set of data — manufacturing productivity data — still exists in isolation, separated from the rest of the enterprise by a virtual air gap.
Business intelligence tools built on robust mathematics let corporate leaders see how small changes in any area of their operations flow to the P&L statement. Any area except manufacturing, that is.
Manufacturing and finance people often speak different languages. Plant managers are focused on productivity, but commonly used measurements of productivity aren’t easily connected back to dollars.
To translate across this language gap, Sight Machine has developed a new productivity metric that lets manufacturers directly link productivity data to profitability: the Manufacturing Performance Index (MPI).
Learn more about The Missing Link Between Manufacturing Data and Profitability:
Read the complete article in IndustryWeek
Contrast to OEE
Manufacturers use several metrics to drive performance improvement, with overall equipment effectiveness (OEE) being the most popular. While OEE can be a good measure of the productivity of a machine or production line, however, it is limited in its usefulness beyond that. It isn’t directly connected to profitability, it is hard to measure factory-wide OEE in real time, and it focuses on production line performance, not on factory-wide performance.
MPI defines factory performance as a ratio of actual production achieved compared to the maximum production the factory is designed for. MPI can be used as the foundation for evaluating how a range of possible actions will impact profitability.
MPI = Actual Production / Maximum Production
Sight Machine has built a model that takes the two MPI inputs — actual production and maximum production — and adds a company’s total cost of production, current scrap rate, planned capital expenditure and the volume increase expected from the capital expenditure. The model lets the user change variables to determine the optimal way to capture value.
MPI link to profitability: Every percentage point increase in MPI can be directly converted to profitability improvement. These improvements can come from reducing the unit cost of production, reducing material cost, optimizing labor and overhead cost, and/or avoiding planned capital investment.
An interactive version of this model can be accessed via Sight Machine’s MPI calculator. An extended version of the model can factor in savings in labor and overhead costs. You can also read our white paper on MPI, available for download from the MPI calculator page.
We look forward to working with you to help improve your MPI. Contact us today!