Setting goals is an important first step toward owning a successful business. But goals aren’t reached by chance. Without measuring your progress with data, it can be difficult to ensure you are on the right track. In short, that’s why key performance indicators (KPIs) are so important to small and medium-sized business owners.
KPIs are a quantitative road map that tells owners whether or not their strategy is working and their goals are achievable. Owners of food manufacturing companies should pay special attention to KPIs. Product quality and production efficiency are so important in the food and beverage industry.
What KPIs should these owners be tracking, though? In this article, we will discuss how exactly KPIs help food manufacturing owners determine and stick to a strategy, and then discuss specific KPIs that are especially valuable for this purpose.
Why Food Manufacturers Care About KPIs?
KPIs are the most important tool that food manufacturing owners have to set and achieve goals. Among other things, they help:
Detect problems or inefficiencies.
Food manufacturing is a complex process. Owners aren’t able to easily determine what is causing a problem without data to investigate. Imagine that you have set a goal to cut production waste by 50%. Eventually, you want to find out how you are progressing toward this goal. You can’t watch every production machine to monitor efficiency. You need KPIs that show you how much product is being wasted and the trend in that waste over time. Then, you will be able to adjust your strategy, if necessary.
Determine a strategy and track its success.
Business owners can’t simply set a goal like “become successful”. Without a way to measure success, these kinds of goals are meaningless. KPIs both help you set a strategy and track how successful that strategy is.
You might, for example, set a goal of reducing inventory costs by 10% over a certain time period. Studying KPIs like fill rate will help you see how often you need to replace inventory, so you can form a strategy — and KPIs like inventory turnover will tell you if that strategy is succeeding.
Which KPI Traits to Track
As a business owner, it can be easy to feel like you are drowning in data. There are thousands upon thousands of KPIs available to owners, and it is often difficult to determine which ones are important. While this list isn’t exhaustive, it will help describe the most important KPI traits for food manufacturers:
Throughput
Often thought of as the be all and end all of manufacturing KPIs, throughput is the measurement of how much product you can produce in a certain amount of time. Monitoring throughput will help you set realistic production goals, and it can be used to find problems in the production process. You’ll want to know, for instance, if a certain machine is holding back production, and throughput can show you that.
Yield
As opposed to throughput, yield is the amount of usable product your manufacturing produces. Tracking yield in combination with throughput will show you how much product you are wasting as a result of production mistakes or inefficiencies. In the food industry especially, monitoring yield can help identify and reduce inventory waste before it becomes a major problem.
Downtime
Put simply, downtime is the amount of time you aren’t producing product. You may find that a certain machine is constantly breaking down, for instance, or that a production bottleneck exists on a certain line. Monitoring downtime will help you save money on maintenance costs and improve production efficiency by reworking problematic processes.
Your Next Step
You may be understandably overwhelmed by the idea of KPIs. Without the proper training, understanding graphs and data can be difficult, and your expertise may not be in accounting.
Consider outsourcing the services of a professional accountant, like a virtual CFO or bookkeeper. These professionals are trained in gathering and interpreting data, and they can help you get a grasp on important KPIs without breaking the bank.
How Krieger Analytics can help
Krieger Analytics specializes in outsourcing accounting services for small businesses, from bookkeeping to virtual CFO consultations, and our background in entrapuernship and finance means we know what running a business entails. Our goal is to meet your small business accounting needs without burdening you with the costs of a full-time accounting staff. And, we understand your position as a franchisor, because we have experience running franchising businesses ourselves.
Have questions about anything discussed in this article, or interested in what valuable insights a CFO and former franchisor has for your business? Conversations are free, so don’t hesitate to reach out at [email protected], and let us explain how our services could be the right fit for you.