Materials and Components Expense as a Percentage of Plant Revenue

Materials and Components Expense as a Percentage of Plant Revenue

KPI Details

Materials and Components Expense as a Percentage of Plant Revenue measures the expense incurred through purchasing production materials and components (i.e., raw materials) in relation to the dollar amount of revenue generated by the plant, or production facility, over the same period of time. Excessive expenses spent on materials and components may be related to multiple factors, including inefficient procurement processes (i.e., purchasing unneeded or overly expensive materials), low quality of materials and components purchased (such low quality materials can cause in increase in rework due or scrap rate due to defects), inaccurate demand forecasting methods and sub-par production employee training and performance. High values for this metric can drive up the prices of the finished products which can make them that much more difficult to sell to customers. Such unmanageable prices can, furthermore, expose the company to reputational and financial risks born from not being able to pay off its liabilities on time and high degrees of customer dissatisfaction.

KPI Definition

The expense incurred through purchasing production materials and components (i.e., raw materials) divided by the total revenue generated by the plant, or production facility, over the same period of time, as a percentage.

KPI Best Practices

• Perform periodic process audits to reduce scrap rate of raw materials
• Accurate and up to date demand forecasting to minimize stagnant raw materials inventory
• Build relationships with suppliers and negotiate discounts for bulk/repeat purchases

KPI Calculation Instructions Materials and Components Expense as a Percentage of Plant Revenue?

Two values are used to calculate this KPI: (1) the expense incurred through purchasing production materials and components (i.e., raw materials), and (2) the dollar amount of revenue generated by the plant, or production facility, over the same period of time. Production materials and components should be defined as the parts directly used to manufacture a product (e.g., lumber, paper, etc.). Do not include indirect raw materials (e.g., wood finish placed on a manufactured chair, etc.) in this calculation.

KPI Formula :

(Materials and Components Expense Incurred / Plant Revenue Generated) * 100