Does your company have a productivity mindset that allows employees to be inspired by their work? Do you have established operational indicators? Do you use scorecards to measure performance over time period to see improvements? What types of metrics can we use to monitor and inspire our team?
Today we are going to focus on those indicators that will help us make our operations more efficient.
What are operational indicators?
A key performance indicator (KPI) is an indicator that companies use to monitor and evaluate the efficiency of their daily operations. In the case of operational indicators, these help management identify which operational strategies are effective and which inhibit the company.
Importance of monitoring operational indicators
The operations department has the arduous task of increasing the efficiency of the company to obtain the greatest possible profit. Leading companies use KPIs and dashboards to measure their efficiency in real time. This allows management to quickly make informed, data-backed decisions.
Examples of operational indicators
These are some indicators that the operations team should use to monitor the performance of the following company departments:
1. Financial KPIs for the COO
While COOs are generally concerned with increasing the efficiency of daily operations, their efforts are often seen directly in financial metrics. Therefore, we have prepared a list of examples of KPIs for operations directors who delve into the financial aspects of a company:
Accounts receivable turnover
This operating indicator is used to quantify a company’s ability to collect its accounts receivable. This measure is often used by CFOs and operations managers as an indicator of market conditions.
Operating cash flow
Most companies are expected to be profitable in their operations. These types of operating indicators track the amount of cash flow that is generated from the company’s daily operations.
Accounts payable turnover
Do you always pay your bills on time? Most people try, just like most companies should try to pay their suppliers on time. This operating indicator tracks the number of times a company pays its bills during a given period. A higher number indicates that the company pays its obligations on time.
Net profit margin
Net profit margin represents how much money the company has made after subtracting all costs and comparing it to revenue. This is probably one of the most important metrics for COOs in determining the financial health of a company.
It is important to always try to improve financial ratios, but that does not mean that you have to obsess over them. Another equally important element for the company is its staff.
2. Personnel operational indicators
Employees are the backbone of any company. You can have the best ideas, but without a team to put them into practice, the ideas are just dreams. Therefore, it is important to know the sentiment of your workforce and their performance. Here are some operational indicators related to your workforce.
How many days a year do your employees call you sick, or simply miss their shifts? These types of operational indicators help identify employees who are not engaged at work so you can turn them back into engaged employees, work harder, have a higher retention rate, and help workplace culture flourish.
Another of the most monitored operational indicators is overtime, since it means more salary. It is worth monitoring this operational performance indicator to identify people who may be overworked or needing to fill in for their colleagues.
Happy employees work more. Obviously, it is impossible for all employees to be happy all the time, but it is important for employees to answer surveys and express what they enjoy at work and what they are not satisfied with. This information is vital for the HR and operations department.
Employee turnover rate
The employee turnover rate can fluctuate from one industry to another, or even between companies in the same industry. However, at the end of the day, it is important to understand why employees need to be replaced. These types of operational indicators are usually best analyzed in conjunction with the employee satisfaction KPI.
3. Operational indicators for a factory
Here are some examples of KPIs for operations managers in the manufacturing industry:
This is one of the most basic operating indicators for the manufacturing industry. Measures the production rate of a machine, line or plant over a period of time. This helps the operations department determine its ability to meet production deadlines.
Operations departments often try to estimate future demand through forecasting. This operations metric is used by companies to estimate the amount of raw materials they will need to meet future customer demand.
Machinery idle rate
Most people associate downtime with a machine requiring repair, however, this operations metric is actually a combination of scheduled downtime and unscheduled downtime. This metric is often used by operations to determine when assets need to be replaced.
The cycle time performance metric tracks the average amount of time it takes to produce a product. This metric can be applied to an entire product or to each of the individual components. When applied to components, it becomes a very powerful tool to streamline production and increase efficiency.