Key Performance Indicators (KPIs)

Quick Definition

Key Performance Indicators are measurements and metrics that support and facilitate achieving critical goals of the organization. KPIs are very important for understanding and improving manufacturing performance; both from the lean manufacturing perspective of eliminating waste and from the corporate perspective of achieving strategic goals.

Expanded Definition

Every company measures themselves to some degree. Often these measurements are based on historical information. While there is certainly value in historical analysis, it is a fundamental principle of Key Performance Indicators to be current or forward looking metrics. It is also critical that KPIs be closely aligned to strategic company goals and implemented in such a way as to support positive change.

Key Performance Indicators can be highly effective for exposing, quantifying and visualizing muda (the lean term for waste). The essence of lean manufacturing and the central theme of the Toyota Production System (TPS) is to eliminate waste – in other words, to relentlessly eliminate all activities that do not add value for the customer. Effective KPIs quantify waste, provide an early warning system for processes operating outside the norm, and offer important hints as to where improvement efforts should be focused.

Key Performance Indicators are also highly effective motivators. Motivation theory (i.e. organizational behavior) is a complex field with many diverse opinions; however, there is wide agreement that a central key to effective motivation is setting challenging but attainable goals (e.g. SMART goals, which are Specific, Measurable, Achievable, Realistic, and Time-Specific). SMART goals are excellent candidates for KPIs.

Effective KPIs can energize the plant floor – unleashing competitive spirit and promoting kaizen (the lean term for continuous improvement). How is this achieved? By providing both a “will” (a strong desire for improvement) and a “way” (effective tools). The “will” flows from a culture of trust. The goal isn't simply to improve a number; it is to truly improve performance. Achieving this requires genuine buy-in from the plant floor. The “way” flows from KPIs that can be influenced and controlled by plant floor personnel. After all, if operators can't influence the KPI what value does it provide for them? Collectively, this “will” and “way” create information democracy; empowering plant floor personnel with actionable information and a meaningful level of control over the process.

KPIs must also provide meaningful, reliable, and accurate information. Thus, it is important to carefully define and document the methodology of measurement before implementing a given KPI. Goals and desires are often vague, whereas Key Performance Indicators are very specific. And, since KPIs are indicators of progress and performance, it is vital that everyone that uses them be able to trust in their accuracy.


Can you imagine driving your car without a speedometer or gas gauge? Driving solely based on your rear-view mirror? This is exactly the situation that exists on most plant floors today. Effective KPIs enable managers and operators to keep their fingers on the pulse of the plant floor.

Here are five steps to creating and maintaining effective Key Performance Indicators for your manufacturing plant:

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