Top 15 KPIs For Operations Department

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Welcome to the world of KPIs For Operations! It’s like trying to navigate a ship in stormy seas – you need to have a clear idea of where you’re headed and how well you’re doing, or you might end up crashing into some rocks!

KPIs, or Key Performance Indicators, are lighthouses that guide your ship through the rough waters of business operations. Just as a lighthouse warns sailors of potential danger, KPIs warn us of potential problems in our operations.

Think of KPIs as the gauges on your car’s dashboard. Just like how you keep an eye on your speedometer to make sure you’re not driving too fast, KPIs keep track of important metrics in your operations, such as production efficiency or customer satisfaction.

Without KPIs, you’re like a blindfolded person trying to navigate a maze. You might get lucky and stumble upon the exit, but you’re more likely to wander around aimlessly and waste valuable time and resources.

So, if you want to stay afloat in the jerky waters of the business, make sure you have a good set of KPIs in place. They’ll keep you on track and help you steer clear of any obstacles that might be lurking just beneath the surface. Let’s set sail!

KPIs For Operations :

1. Current Accounts Receivable

Do you remember the feeling of waiting for your allowance as a kid? You just can’t wait to get your hands on that sweet, sweet cash. Well, in the world of business, Current Accounts Receivable is the allowance that keeps the cash flowing and the business humming!

Current Accounts Receivable KPI measures the amount of money owed to your business by customers who have yet to pay their bills. It’s like a game of “Who Owes Me Money?” – and the winner is the one who collects the most cash!

But why is this KPI so important? Well, just like how you need your allowance to buy candy or toys, businesses need their cash to pay for expenses like rent, salaries, and supplies. If too much cash is tied up in unpaid invoices, it can seriously impact a company’s ability to operate and grow.

Calculating the Current Accounts Receivable KPI is simple.

Just add up the total amount of money owed to your business by customers who have not yet paid their bills. Divide this by the total amount of sales you have made over a given period, and multiply by 100 to get a percentage.

2. The Current Accounts Payable

It’s like a fishing net – it helps you catch any outstanding payments that might be slipping through the cracks. Just like how a fishing net catches fish, the Current Accounts Payable KPI catches any unpaid bills or invoices that are due.

Why is this KPI so important, you ask? Well, if you’re not keeping track of your accounts payable, you could end up with some seriously angry vendors knocking on your door. And nobody wants to deal with angry vendors – they’re like seagulls that won’t stop squawking until they get their fish!

To calculate the Current Accounts Payable KPI, you’ll need to take the total amount of outstanding bills or invoices and divide them by the total number of invoices due. This will give you a percentage of how much of your accounts payable are current and up-to-date.

3. Operating cash flow

Operating cash flow is like the beating heart of your operations – it pumps the blood of your business through the veins of your organization. Without it, your operations would be as lifeless as a zombie apocalypse movie set!

So, why is operating cash flow such an important KPI? Well, simply put, it tells you how much cash your operations are generating. This is important because cash is the fuel that keeps your operations running. If you don’t have enough cash, you won’t be able to pay your bills, pay your employees, or invest in new equipment or technology. It’s like trying to drive a car without gas – you’re not going to get very far!

So, how do you calculate operating cash flow? It’s pretty simple. You start with your net income (which you can find on your income statement), and then you add back any non-cash expenses (like depreciation and amortization) and subtract any increases in working capital (like accounts receivable or inventory).

Operating Cash Flow = Net Income + Depreciation and Amortization – Increase in Working Capital

4. Quick Ratio

Also known as the Acid Test, it’s like the ninja of KPIs for Operations – it’s quick, it’s precise, and it packs a punch! This KPI is a great indicator of a company’s short-term liquidity, meaning its ability to pay off its current liabilities using its most liquid assets.

Think of Quick Ratio as the superhero that swoops in to save the day when you need cash in a pinch. The KPI tells you whether you have enough liquid assets, such as cash, to cover your short-term debts without having to sell off any of your other assets.

But why is Quick Ratio such an important KPI in Operations? Well, it’s simple – having a high Quick Ratio means that your company is financially healthy and has the flexibility to handle unexpected expenses or a sudden drop in revenue.

The quick ratio KPI is calculated using this formula: (Cash + Marketable Securities + Accounts Receivable) / Current Liabilities

5. Gross profit margin

If your business isn’t making a profit, then it’s just a hobby. This KPI helps you figure out if your operations are making money or not. It’s like checking your pirate map to see if you’re on course to treasure.

Calculating the Gross Profit Margin KPI is easy. Just take your total revenue and subtract the cost of goods sold, then divide that number by your total revenue. For example, if you sold $100,000 worth of merchandise and the cost of goods sold was $50,000, your gross profit margin would be 50%.

(Gross Profit Margin = (Total Revenue – Cost of Goods Sold) / Total Revenue)

6. Net profit margin

Let’s talk about Net Profit Margin – one of the most important KPIs in Operations. It’s like the treasure map that helps you find the gold in your business!

The Net Profit Margin tells you how much money you’re making after you’ve paid all your expenses. It’s like taking a peek at the treasure chest after you’ve subtracted all the costs of getting it – the map, the ship, the crew, the supplies, and so on.

Why is it important, you ask? Well, without a good Net Profit Margin, your business will sink faster than a cannonball in the ocean. It’s the lifeblood that keeps your business afloat and allows you to reinvest in new opportunities and growth.

Calculating the Net Profit Margin is as easy as pie! Just follow these steps:

  • Calculate your Gross Profit by subtracting the cost of goods sold from your total revenue.
  • Subtract all your operating expenses from your Gross Profit to get your Operating Profit.
  • Finally, divide your Operating Profit by your total revenue and multiply by 100 to get your Net Profit Margin percentage.

7. Working capital (net working capital)

Working capital is like a gym membership for your business operations – it might not be the most exciting thing in the world, but it’s essential if you want to stay healthy and strong. Net working capital is a key performance indicator (KPI) that measures your business’s ability to meet its short-term financial obligations.

Think of it this way: just like how you need to have enough money in your bank account to pay your bills each month, your business needs enough working capital to cover its expenses, such as salaries, rent, and inventory. Without enough working capital, your business might not be able to operate smoothly or grow effectively.

So, how do you calculate net working capital? It’s simple! Just subtract your current liabilities (such as accounts payable and short-term loans) from your current assets (such as cash, accounts receivable, and inventory).

Net Working Capital = Current Assets – Current Liabilities

8. Return on equity (ROE)

If you’re looking for a treasure map to guide your business operations, look no further than Return on Equity (ROE)! Just like a pirate’s map leads them to treasure, ROE leads you to profitability and success.

Why is ROE such an important Operations KPI, you ask? Well, it measures how efficiently a company is using its shareholder’s equity to generate profits. In other words, it tells you how much money you’re making for each dollar of equity invested in the company.

“How do I calculate this ROE ye speak of?” It’s simple, really. ROE is calculated by dividing your net income by your shareholder’s equity. Here’s the formula:

ROE = Net Income / Shareholder’s Equity

9. Throughput

Throughput is like the speedometer on your car – it tells you how fast your operations are moving. But unlike your speedometer, Throughput isn’t just about going fast. It’s about going fast while still maintaining quality.

Think of it this way: Throughput is like a conveyor belt at a sushi restaurant. You want the belt to move quickly enough to get the food to the customers in a timely manner. But you also want to make sure the sushi chefs have enough time to prepare each dish properly. If the belt moves too fast, the chefs will be overwhelmed. Also, the quality of the sushi will suffer. If it moves too slowly, the customers will get impatient and the restaurant will lose business.

But how do you calculate Throughput, you ask? Just take the total number of units produced in a given time period, and divide that by the amount of time it took to produce them. This will give you your Throughput of units per hour.

For example, let’s say you produced 100 units in 5 hours. Your Throughput would be 20 units per hour (100/5=20).

10. Total Cycle Time

Total Cycle Time is an important KPI for any business. It measures the time it takes to complete a process, from start to finish. Think of it as a stopwatch that tells you how long it takes to go from “We need this thing” to “Here it is, ready to use”.

Why is Total Cycle Time important, you may ask? Well, imagine you’re a pirate and you need to attack a merchant ship. If it takes you too long to prepare your ship and crew, the merchant ship might sail away before you even get close! Similarly, if your business takes too long to deliver a product or service, your customers might go to your competitors instead

Now, let’s talk about how to calculate Total Cycle Time. It’s pretty simple, actually! Just add up the time it takes to complete each step in the process. 

11. First pass yield (FPY)

First pass yield (FPY) is a fancy term used in the world of operations to measure the efficiency of a process. But let me tell you, it’s not about passing your driving test on the first try. However, if you do that, kudos to you!

Why FPY? Because we only live once and we need to make the most of it, especially in the world of business where every second counts. FPY helps us measure the number of units that pass through a production process on the first attempt, without any rework or correction. This helps us identify any defects in the process and take corrective action, ultimately saving time and resources.

To calculate FPY, we simply divide the number of units produced without rework by the total number of units produced. For example, if a production line produces 100 units and only 90 of them are produced without rework, the FPY would be 90%.

12. Planned Maintenance Percentage (PMP)

Have you ever heard the saying, “An ounce of prevention is worth a pound of cure”? Well, that’s the philosophy behind the Planned Maintenance Percentage (PMP) Operation KPI. It’s all about preventing problems before they occur, so you can spend more time enjoying life and less time fixing things.

By planning and scheduling maintenance tasks ahead of time, we can reduce the chances of unexpected breakdowns and keep our equipment running smoothly. And that means less stress and more time to do the things we love.

How to Calculate PMP: It’s Easy Peasy Lemon Squeezy

Now, I know what you’re thinking. “KPI calculations? That sounds complicated!” But fear not, my friends. Calculating PMP is pretty simple.

Here’s the formula:

PMP = (Planned Maintenance Hours ÷ Total Maintenance Hours) x 100

13. Availability

Availability Operation KPI, or key performance indicator, is a metric used by businesses to measure the reliability of their products or services.

But why is it so important, you ask?

Well, let me put it this way: Availability Operation KPI is like a sourdough starter. Just as a baker needs a reliable sourdough starter to make delicious bread, businesses need a reliable KPI to ensure their products and services are consistently meeting customer demands.

Now, how do you calculate this magical metric? You take the total amount of time your product or service was available to customers and divide it by the total amount of time it was supposed to be available. Then, you multiply that number by 100 to get a percentage. Voila! You now have your Availability Operations KPI.

14. Reportable health and safety incidents

Let’s face it: nothing screams “fun” quite like a reportable health and safety incident. Who doesn’t love the adrenaline rush of realizing that you’ve just narrowly avoided serious injury or illness? Okay, maybe that was a bit of a stretch. In reality, reportable health and safety incidents are no laughing matter. They’re a serious concern for any organization that cares about the well-being of its employees.

So why do we need a key performance indicator (KPI) to track these incidents? Simply put, it helps us measure how well we’re doing in terms of keeping our employees safe. By tracking the number of reportable incidents, we can identify trends, pinpoint areas for improvement, and ultimately create a safer workplace for everyone.

But how do we calculate this KPI? It’s pretty straightforward. Here’s the formula:

(Number of reportable incidents / Total number of hours worked) x 200,000

15. Absenteeism rate

Listen up folks, absenteeism is no laughing matter! This important KPI (Key Performance Indicator) is used by companies to measure how often employees are missing in action. But why is it so important, you may ask? Well, let me tell you a little story…

Once upon a time, in a company far, far away, there was an employee named Bob. Bob was a great worker, always on time and ready to work. But one day, Bob caught a cold and decided to call in sick. No big deal, right? Wrong! Bob’s boss had no idea that Bob was sick and needed to be replaced for the day. The company ended up losing a big contract because Bob’s absence caused a delay in the project. So, you see, keeping track of absenteeism is no joke!

Now, let’s get down to business and talk about how to calculate absenteeism. All you need to do is,

Divide the total number of days absent by the total number of working days in the given period, and then multiply by 100 to get the percentage. For example, if an employee has been absent for 5 days out of a total of 20 working days, the absenteeism rate would be:

(5/20) x 100 = 25%

See, not too difficult, right? So, let’s all take absenteeism seriously and keep track of it to avoid any future mishaps. Trust me, it’s no laughing matter!

Conclusion

Measuring KPIs for operations is like trying to track a squirrel on caffeine. While it’s not easy, it’s essential if you want to improve your business’s performance.

From uptime to downtime, from lead time to cycle time, KPIs for operations are the key to unlocking operational excellence. Also, let’s not forget about the impact of the occasional coffee spill or printer jam on your team’s productivity.

But don’t take our word for it. What are some KPIs for operations that you’ve found to be effective? Share your thoughts and ideas in the comments below, and let’s keep the conversation going. Eventually, if all else fails, just remember that laughter is the best KPI of all.

Also, we have researched and shared KPIs for operations as well as other domain professionals. For e.g., Sales, Marketing, Finance, HR, IT, etc. So, check out our Marketing KPIs.

If you want professional training, you can contact us at partner@edu4sure.com or +91-9555115533.

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