Do you want to know the number one problem we see everywhere we go ? 

Here’s how it usually goes: We get the call and in the most general terms, the goal is to increase throughput. So, we get on site, do the plant tour, and a little lean assessment to get a feel for where they’re at. Then the million-dollar question: “Can you show us the historical data on your throughput metrics?” 

That’s when we get the crickets …. 

Almost everyone is watching their financial statements; I recommend it. However, I don’t know if there’s a worse measurement to make decisions on your factory floor than looking at your financial statement. 

First problem, most of us balance the books every 30 days and by the time we get a good monthly statement, it’s 45 days old. Speaking for myself, I can’t remember what I had for lunch three days ago, let alone what went wrong in the factory 45 days ago. So, reviewing your financial statements is like trying to drive a car while looking in the rearview mirror.

What we propose here will work, whether you’re a custom outfit or a component manufacturer. So there are no excuses. 

Like flying an airplane
If financial statements are not good, what is good? The reality is there’s no one measurement. Think of your business like flying an airplane. There isn’t just one gauge that says you’re flying. There are several that tell you how high you are, how fast you’re going, and what direction. All the same principles hold true for your woodworking operation. We have found four metrics that give you a very clear picture of everything you need to know on a daily basis. 

1. Burn rate/over the line chart 
2. Throughput dollars per labor hour 
3. Minutes per piece/point
4. Pieces/points per day

Burn rate/over the line chart
This chart shows you three pieces of key information: the rate at which the company is burning cash on a daily basis, the rate your company is generating cash on a daily basis and the exact moment when your company starts turning a profit on a daily basis.

The left side of the chart shows dollars, Along the bottom of the chart is days. The horizontal line is your break-even point for the month as predicted using historical data. This number includes all of your expenses except materials. (Yes, all of them! Don’t question it.) 

You take that number, divided by the number of days in the month, and you get the burn rate, which goes from zero dollars in the bottom left corner to whatever your break-even number is on the top right. So now you have a visual on where you have to be each day to be on track for a profit. The last piece of information added to this chart is your throughput dollars; these will appear as the blue bars posted cumulatively each day. Throughput dollars are your sales dollars minus material. 

The superpower of this chart is daily financial reporting, giving you the information you need to make immediate changes when something goes wrong. It makes it very easy to rally your team around a bonus system. This also can play a role in educating your team on how the company makes money. We can either post more throughput or reduce expenses. 

Throughput dollars per labor hour 
This is the best measurement I’ve ever seen for depicting your labor effectiveness. To get this number you just divide your throughput for the day by how many labor hours you paid out in payroll, and voilà! T$PLH. The superpower of this measurement is immediate feedback on decisions. 

Example: I bought a fancy new machine. You should see an increase in that number the day you plug it in. I hired somebody, they are being effective. You’ll see an increase in that number. If it was a bad hire, you will see a decrease in that number. If you make some process improvements, you don’t have to wait weeks or months; you should see that the very next day. This is the best decision-making double check, because the numbers don’t lie.

Minutes per piece/point 
This measurement helps us understand how much total time is being put into each part. You get this number by taking the total number of pieces you’ve made in a day divided by how many minutes you paid on payroll that day. This measurement’s superpower is the feedback loop to estimating. It’s also a wonderful double-check on improvements. You should see your T$PLH go up, and if everything is in check, your minutes per piece will go down. 

Pieces/points per day
This is simply counting the number of things you build in a day. The best part about this measurement is it’s easy and excitable. Your team can easily count the number of cabinets or components they build in a day just like keeping score in sports. 
And let me be here to assure you anything that’s easy. It’s probably not right. So, this measurement alone could be very deceiving. If your target is 100 cabinets a day and you hire 1,000 people to do it. Your pieces per day metric will say you’re on track, all while you bankrupt the company immediately. 

But these four measurements together on a dashboard will give you and your team all the ammunition you need to make changes, monitor changes and stay on track.

The last piece of the puzzle is for the custom guys and gals where measuring feels impossible. You all are going to count points, not pieces. So pick a dollar value that makes sense, say $100, and make that 1 point. Take your break-even number, add your profit margin, and divide by the number of days in the month. This will tell you how many points you need to do a day. Your estimator will have to write on the drawings how many total points each custom project is worth. Now you can track it in real time time on the shop floor. You can even have your team estimate how far along they are each day so you can post daily numbers. But they can never post more than what the project is worth so even if they guess a bit wrong, it’ll work out in the end. 

And if all this is confusing and you would like some help, we are here for you. Just email: [email protected], and she would be happy to get you pointed in the right direction.