With the food and beverage (F&B) industry becoming more and more data-driven, it’s important to know which key performance indicators (KPIs) and benchmarks are most worth tracking. Generally speaking, the best KPIs and benchmarks for you to track are those that most align with your organization’s strategic goals.
In this article, we’ll discuss the following:
- The differences between a KPI and a benchmark.
- Why tracking KPIs is important for the F&B industry.
- Which metrics are typically worth tracking.
- How to determine which metrics are best for your organization.
- How to best track and use KPIs and benchmarks.
Difference Between a KPI and a Benchmark
First of all, it’s important to realize that KPIs and benchmarks aren’t exactly the same thing. While it’s true that they both involve metrics that can be used to improve your process, they are completely different types of measurements.
Key Performance Indicators
Key performance indicators are general measurements that indicate how your facility is doing in terms of reaching its goals. For instance, if one of your strategic goals is to reduce wasted product due to packaging defects, you might look at failure rates on your packaging machines or overall product loss as key indicators.
While KPIs are largely measurements connected to your internal processes, benchmarks involve comparing yourself to others to see where you stand in the industry. You might use general benchmarks, in which you’d compare your processes to those of the world at large, or you may focus on competitors or others in similar industries. Some companies even conduct internal benchmarking, in which they compare the processes in one area of their company to those in another, such as between different warehouses or production facilities.
Benchmarks often serve as goalposts that you can use when tracking KPIs.
Why F&B Manufacturers Should Track KPIs and Benchmarks
Essentially, KPIs give you insight into the effectiveness of your processes in terms of reaching strategic goals, whereas benchmarks help you set realistic goals. There are a number of reasons why you’d want to track both, which include the following.
Target Important Objectives
First of all, key performance indicators and benchmarks help you to zero in on important business objectives. Benchmarking in particular helps you determine where certain metrics and practices should be, whether you’re looking at customer satisfaction, streamlining costs, improving product safety, or eliminating waste from your production processes.
By comparing relevant benchmarks to your current KPIs, you’ll be able to identify areas where your company is lacking, and set goals that are targeted to help you attain the highest level of improvement.
KPIs and benchmarks also help you track progress. They give you visibility over your processes, finances, consumer satisfaction, etc. and therefore help you see how you’re doing in terms of reaching strategic objectives. This way, you can see how changes in your processes and practices impact your progress and make adjustments as you go. If something isn’t working, monitoring your progress with KPIs should enable you to correct your course with minimal waste.
Provide Insight Into Problems
If there are problem areas in any section of your company, tracking the right KPIs can help you become aware of them. In addition, some metrics can help you gain insight into how to best solve those problems. For instance, if financial data shows comparatively high maintenance spend in one of your production facilities, along with high unplanned downtime hours compared to similar facilities in the F&B sector, that could point you toward improving maintenance management in that facility.
Keep Tabs on Your Company’s Vitals
By closely monitoring KPIs, you essentially track your company’s vital signs. If something dips, it will be a sign that something has happened to diminish your organization’s health, providing a cue to start tracking down potential issues and solving them. By looking at benchmark data alongside those KPIs, you’ll be able to see whether it’s an internal problem or an issue affecting the food and beverage industry in general, giving you some idea of where to focus improvement efforts.
Ultimately, problems don’t creep up on you as easily if you keep a close eye on KPIs.
11 of the Best KPIs and Benchmarks for Food and Beverage Manufacturers
While most people in the food and beverage industry are well aware of the importance of benchmarking and KPI tracking, it can be difficult to determine which metrics are truly worth using. Some of the best KPIs to track and benchmark include the following.
1. Operating Margin
One of the most foundational KPIs is operating margin. Your operating margin is a measure of how much profit you have left over after variable operating costs (such as wages, materials, operations, administrative costs, etc.) and before paying taxes or interest. This metric can show whether or not your profitability is improving—or even remaining stable—over time, and it gives some context for the other metrics you’ll be measuring.
Operating margin is useful when comparing your company to similar businesses within your industry, but far less so when going outside your market. As such, it’s best used as a benchmark against others in the food and beverage industry who have similar levels of revenue.
2. Unplanned Downtime
One of the various expenses food and beverage manufacturers have to handle is that of maintenance and operations. Keeping those costs down is key to improving profitability, and unplanned downtime is one of the major culprits of high maintenance costs and diminished productivity.
Unplanned downtime is often calculated as a percentage of your total operating time, and high levels of unplanned downtime often result from frequent equipment breakdowns. Preventing those breakdown events can keep downtime—and the lost productivity it entails—to a minimum, so tracking it can help you keep an eye on how your MRO processes are doing.
3. Preventive Maintenance Completion
Another vital maintenance metric is preventive maintenance (PM) completion. PM is key to healthy operations, but if important tasks are being left undone, then you’re likely to see more unplanned downtime events in your production facilities. The percentage of PM tasks that are completed on time will give you some insight into how effective your maintenance management practices are.
If PM completion rates are low, you may need to adjust your maintenance planning and scheduling practices, improve MRO inventory management, or even cut out some PMs that may not be totally necessary.
In terms of production, throughput is a measurement of how much product your manufacturing processes are able to put out over a set period of time. This metric can give you an idea of how much you’re able to produce, and when measured for individual machines, it can give you an idea of where bottlenecks may occur in your process.
In addition, drops in throughput may indicate issues or breakdowns somewhere in your production lines, cluing you in on when to conduct necessary maintenance or to make improvements.
While throughput measures the raw volume of food and beverage products your facilities produce, yield gets a little more specific by telling you how much of it is produced correctly. If you have a consistent throughput but lower overall yield, it’s a sign that one of your machines or processes may not be operating correctly.
As such, constantly monitoring the yield of your processes can let you know about potential issues before they develop into complete breakdowns or inflate operating costs due to waste.
6. Inventory Turnover
Inventory turnover is a measurement of how many times you cycle through your current inventory over a set period of time. In other words, it shows how often everything in your inventory is sold and replaced.
Given that food and beverage manufacturers deal in perishable items, it’s important to make sure your inventory turns over long before your products have a chance to spoil on your shelves. In addition, the higher your inventory turnover, the more product you’re able to sell.
7. Fill Rate
While a high inventory turnover is important, it’s equally important to make sure you’re able to fulfill all orders on time. Your fill rate is the percentage of all orders that you ship on time and in full.
Ideally, this should be at 100%. But given that you need to make sure you turnover your inventory on a frequent basis as well, that can be a difficult balance to maintain. Keeping a lot of product on hand will help improve your fill rate, but too much could result in lost inventory over time. On the other hand, keeping too little inventory will mean it turns over frequently, but at the cost of a lower fill rate.
8. Distribution Cost as a Percent of Revenue
One of the highest expenses food and beverage manufacturers face is the cost of distributing product. As such, a key aspect of your company’s efficiency is keeping those costs down. By tracking distribution costs as a percentage of your total revenue, you’ll be able to see how efficient your distribution efforts are over time and take steps whenever they start trending upward.
9. Days Sales Outstanding
The average number of days it takes for customers to pay invoices is represented by days sales outstanding. The lower the number, the better because it means you’re able to see quicker returns on your operations and administrative expenses. Focusing on this metric can help your company improve its ability to collect on debts.
10. Time to Close Books
Another financial metric is the time it takes your accounting office to close out books and create reports such as Balance Sheets and Profit and Loss statements. By keeping this metric low, you’re better able to respond to financial changes in a prompt and effective manner since your data will be more current.
11. IT Spend as a Percent of Revenue
As the food and beverage industry moves into more automated processes, equipment monitoring, and so forth, there’s a greater need for efficient IT management. A low percentage of IT spend is generally a sign that your information technology management is efficient.
How to Know Which KPIs and Benchmarks You Should Track
While the above key performance indicators can all provide important insights to F&B manufacturers, every business is unique. Ultimately, the KPIs and benchmarks you track will depend on your business objectives.
Start with Your Goals
The KPIs you measure in your business should be grounded in your objectives. Otherwise, you’ll likely end up wasting resources tracking metrics that are less likely to factor into your business decisions or measure progress against your goals.
Find Key Indicators to Support Your Goals
With your business objectives in mind, find metrics that will help you track progress toward those goals. For example, if your goal is to reduce production waste, measuring inventory turns or unplanned downtime will likely be more relevant than time to close books or IT spend.
Focus on What’s Measurable
Finally, key indicators should be measurable within your business. If you lack the means to record important metrics, or if the metrics you’re using are too abstract to pin down with actual numbers, it’s probably not worthwhile to try tracking them.
In addition, don’t try to do everything at once. Select an important few and avoid stretching your efforts too thin.
How to Track and Best Utilize KPIs and Benchmarks
To be effective, you’ll need to make sure you track and use your KPIs effectively. Here are some best practices and tips to follow when doing so.
Use Enterprise Software
Technology and the internet of things have made it much easier to track data. While the food and beverage industry is often slower than others to adopt new technology, there is a growing need to implement software solutions to track your company’s data.
ERP (enterprise resource planning) software is used to track numerous business processes by logging information into a central database. The software used in various departments of your company can be integrated into your ERP system to add visibility to your processes throughout your organization.
When it comes to maintenance and operations data, you’ll need a CMMS (computerized maintenance management system) to log data and help you improve the efficiency of your MRO processes.
Train Your Personnel
Along with technology, you need to make sure your personnel are aware of the KPIs you are tracking, particularly those that are directly impacted by activities in their department. Consistent training on what each indicator means, why it’s important, and how your staff can help improve it can go a long way toward getting everyone on board with your improvement efforts.
Post KPI Information in Visible Areas
In an effort to make your personnel aware of your KPIs and benchmarks, consider posting information about the key indicators you’ve chosen to track—as well as your targets—in visible areas, such as breakrooms or wherever people are likely to log data.
Some software solutions make this easy by including customizable dashboards displaying key metrics. Having a dashboard configured to show metrics pertinent to the user’s department can help keep everyone on track.
Keep KPIs in Context
When tracking KPIs, context is key. For example, if your goal is to sell more product, you may start tracking fill rates. But doing so without remembering the need to keep inventory streamlined can result in large amounts of expired product and increased inventory maintenance costs. It’s important to make sure you look at each KPI’s role in your organization rather than treating them all purely as ends in themselves.
By choosing the right KPIs and looking at them in their proper context, you’ll keep them from working against each other.
By aligning KPIs and benchmarks with your organization’s strategic goals—and focusing in particular on those that are relevant to the food and beverage industry—you’ll be better able to keep a close eye on your business’s processes while improving decision making, reducing waste, and increasing profitability.