Production Efficiency Formula & 8 Tips to be More Efficient

Manufacturing companies have multiple systems that impact their overall performance. From sourcing raw materials to shipping, there are many processes to consider when trying to improve efficiency.

By improving production efficiency, manufacturers can reduce material waste and increase productivity to maximize production outcomes and profits.

What is Production Efficiency?

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Production efficiency is the stage at which a system cannot produce any additional goods without compromising another product's production. In other words, a company with optimized production efficiency is unable to manufacture more units of one product line without sacrificing the quality of resources of another product line.

Production efficiency is often used synonymously with productive efficiency, which also means a system is operating at its maximum capacity.

The purpose of reaching production efficiency is to manipulate a system to manufacture goods at the lowest cost. This requires companies to optimize their resource usage to reduce waste and boost profits.

For a company to reach productive efficiency, they need to calculate the maximum yield they can receive using their existing resources. Rather than just considering productivity, efficiency also measures the number of resources required for the production line.

By improving production efficiency, manufacturers can balance costs and resources to maximize outcomes while maintaining quality.

How to Calculate Production Efficiency

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To calculate productivity, companies must compare their actual output rate to a standard output rate. This can be applied to manual or automated work.

Measuring an employee's production efficiency would consist of comparing the worker's average completion rate against the standard benchmark. In this scenario, the rate would be determined by the amount of work completed per unit of time, such as units finished per hour. Management can typically find these metrics in their employee software.

The actual production efficiency formula is written as-

Production Efficiency = (Actual Output Rate / Standard Output Rate) x 100

For example, a manufacturing company has received a new order of 200 units. The standard rate of completion is 200 units per 12 hours but the company took 15 hours to complete the request. In this case, the production efficiency formula can be broken down as-

Actual Output Rate = 200 units / 15 hours = 13.3 units/hour

Standard Output Rate = 200 units / 12 hours = 16.7 units/hour

Production Efficiency = (13.3 / 16.7) x 100 = 79.6%

This shows that the production line is significantly behind its maximum capacity, reducing its output and productivity levels.

8 Tips to Improve Production Efficiency

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Increasing production efficiency can be a challenging task if the business is unaware of which systems are lagging. By pinpointing and adjusting internal processes, companies can reduce their operational costs and environmental impact.

Manufacturers should consider improving their production efficiency using the following best practices-

1. Improve Resource Usage

One of the highest costs for manufacturers is material waste. By reducing waste, companies can boost their yield and resource usage. Businesses should consider-

  • Evaluating Production Design - The most effective way to reduce waste is to limit the material pool to begin with. By redesigning the production line using value engineering and design for manufacturability (DFM), businesses can significantly reduce waste and improve the volume of output.
  • Recycling Scraps and Defective Units - Every production company handles excess materials from scraps or defective items. Even if the business cannot use these units, they can sell the materials to turn a profit.
  • Optimizing Processes to Use All Materials - Every tool and piece of material discarded represents an opportunity to improve production efficiency. Therefore, management should determine how to elongate the life of machines, tools, and supplies.
  • Evaluating the Shipping Department - Although shipping costs are less significant in relation to the manufacturing process, it presents an opportunity for businesses to reduce costs. By switching material providers or redesigning packaging, companies can find more cost-efficient means to boost their profits.

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2. Improve Training

There is no better alternative for proper, hands-on training. Employees gain experience and skills from several processes, enabling workers to interchange positions to offer relief on repetitive tasks. It also allows proactive brainstorming to monitor and mitigate risks that may occur in the production line.

3. Measure Performance

Management should assign a comprehensive metric, such as a dollar amount or key performance indicator (KPI), to every internal process to gain better insight into efficiency levels. By quantifying everything from labor hours to equipment operation, businesses can determine which systems need improvement.

4. Organize the Workspace

Organization is essential for a smooth workflow in any environment, especially manufacturing. Factories should have an open floor for easy travel, shelving units for materials and tools, and labeled workspaces. By organizing workspaces, businesses can ensure employees can easily find materials, reducing operation time.

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5. Standardize Processes

Standardizing processes ensure procedures have repeatable steps that all employees can replicate to yield consistent results. Management can begin by creating checklists and standard operating procedures (SOP) that outline each task's techniques, steps, and objectives.

6. Implement Cellular Manufacturing

Cellular manufacturing is a method that divides workspaces into cells and designates tasks to improve production efficiency. While each workspace may consist of employees and machinery capable of performing multiple tasks, focusing efforts on a single process improves consistency and quality.

This method also requires management to break down the production process, enabling them to discover which operations need improvement to reduce waste and downtime.

7. Proactively Monitor Equipment

Preventative maintenance requires companies to proactively maintain their equipment to elongate its life and prevent breakdowns. While this is a more hands-on approach than reactively resolving malfunctions, it prevents supply chain disruptions.

By keeping a consistent maintenance schedule, from routine cleanings to diagnostics, companies can improve their production efficiency and return on investment (ROI).

8. Strengthen Supplier Partnerships

A significant element of production efficiency is securing the supply base. Businesses need to strengthen their relationships with suppliers and establish backup vendors for emergencies.

Suppliers that provide consistent, high-quality service and goods should be rewarded with more business to maintain a symbiotic relationship.

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