What is production efficiency? Calculations & Tips]
Answered October 01 2019
Production facilities recognize the importance of being cost-effective. However, this can become problematic when the priority of the facility becomes too focused on purely reducing costs. Production efficiency, in most cases, is a more useful guideline for facility managers to ensure that costs are optimized, without sacrificing the quality of products.
What is production efficiency?
Production efficiency, also known as productive efficiency, is a state where a system can no longer produce more goods, without sacrificing the production of another related product. Its purpose is to identify the conditions in which goods can be produced at the lowest possible unit cost. In order to achieve production efficiency, one should utilize resources and minimize waste, which in turn, translates to higher revenues.
The importance of production efficiency
Production efficiency looks at the maximum output you can achieve, using the same assets that you already have. Instead of just measuring productivity levels, efficiency also considers the amount of resources required for production. This allows companies to achieve a good balance between minimization of costs and maximization of resources, while maintaining good quality of products.
Productive efficiency vs. allocative efficiency
Both productive and allocative efficiencies compare how closely the demands meet the outputs. They mainly differ in the specific aspects of production that they describe. Productive efficiency relates to whether a company has the right production processes in place to make goods with optimized costs. Allocative efficiency, on the other hand, refers to whether a company has the right amount of goods to meet demands.
How to calculate production efficiency
Production efficiency is calculated by comparing the actual output rate to a standard output rate. In the case of measuring the productive efficiency of a worker, for example, an employee’s completion rate is compared to the baseline standard.
In this calculation, the standard output rate is defined to be the amount of work that can be done per unit of time. This value can be measured using historical data, or through a time study process.
In equation form, production efficiency can be expressed as:
Production efficiency = (Actual output rate / Standard output rate) x 100%
Take the example of a job to paint the walls of an office with a total painting area of 100 square meters. If the standard rate of completing 100 square meters is 30 hours, and the worker you have hired took 34 hours to complete the job, production efficiency can be calculated as:
Actual output rate = 100 square meters / 34 hours = 2.94 square meters/hour
Standard output rate = 100 square meters / 30 hours = 3.33 square meters/hour
Production efficiency = (2.94 / 3.33) x 100% = 88.29%
An example of improving production efficiency
It can be very difficult to improve production efficiency if your company is not aware of their wastes to begin with. This is usually the case for small businesses transitioning to scaling up operations, while still using traditional production processes. A simple solution to viewing the opportunities to improve is by using a CMMS system.
Take the case of Rug Pros, a carpet cleaning company that used to manage their workflow with Excel sheets. Sure, the job was being done – but not with the same level of information that a modern CMMS could provide. The company later identified the inefficiencies of the old processes, after realizing time and effort saved by transitioning to a mobile-friendly CMMS app.
How to increase production efficiency
To ensure efficient production, a facility must first have a reliable baseline dataset. A facility can more easily identify opportunities to improve, if facility managers know the current efficiency levels. After completing the first step, companies are more effectively at quantifying the effects of process improvements. Some key ways to increase production efficiency include:
Workflows are procedural steps that tend to be taken as an established standard. While this could be true for some cases, note that developments in the team’s skillsets and technological capabilities may provide opportunities to update the existing workflow. Examine your current workflow and look for potential steps that can be simplified.
An employee’s learning and development is a continuous process. As advancements in technology become more readily available, companies should find value in training employees. Knowledge and wisdom are valuable tools for getting rid of inefficiencies.
Incorporating preventive maintenance processes
Unwanted surprises can set the team back in terms of productivity and efficiency. By employing a preventive maintenance strategy, the team is more effective at planning out resources ahead of time.
Being organized significantly cuts unnecessary movements. This allows for a more efficient allocation of time to activities that actually matter.
Production efficiency is a measure that describes the conditions to produce goods at the lowest possible cost. This does not only consider the number of units produced, but also how waste is minimized in the process. While having an inefficient production line is not always obvious, tools such as CMMS systems help to paint a more accurate picture.
Production efficiency FAQs
How is optimal efficiency achieved in production?
One achieves optimal efficiency by eliminating all waste from the production process as much as possible. In turn, one can produce optimal products with the least amount of resources.
What is inefficient production?
Inefficient production is the state of producing goods using more resources that required.
How do companies measure efficiency?
Companies can measure efficiency by comparing the actual rate of output, for example of a worker, to the standard or best-practice rate of output.