What Is Productive Efficiency And How To Achieve It
May 6 2021
What Is Productive Efficiency And How To Achieve It
In manufacturing, the stakes are just too high not to use your resources wisely. Productive efficiency is here to help.
How do you know whether you are using all your production resources efficiently? Productive efficiency (PE) is a calculation that helps you make the hard choices about how best to use your limited resources.
This post will cover the basics of productive efficiency and show you how to start improving your manufacturing production process today.
What is productive efficiency?
The world of economics may not be something you concern yourself with every day, but it has a lot to say about efficiency. And productive efficiency is what connects the macroeconomics (the big picture like overall cost savings and market needs) to the microeconomics (the little things like saving a few minutes during every changeover) of manufacturing.
Productive efficiency is when you are using your limited resources to their fullest potential. Waste is at its lowest point possible. Production cannot increase without adding more of those resources.
Just like other economic efficiency measures, resources are central to the idea of PE. They are limited. In this world (or in your company), there is only so much:
Those limited resources force us to make decisions about the quantities and types of products we make. The goal is to use our inputs efficiently to create products that best meet the needs of the people who eventually end up using them. PE can be applied to any industry that has finite resources.
Productive efficiency in real life
If you think about it, PE can apply to non-industries as well. You may not realize it — and the idea of measuring it may be ridiculous — but every day, you make similar decisions.
How much time you spend at the gym, the office, or on hobbies — even what you have for dinner — depends on a complex constellation of factors.
How much time do you have?
What other obligations are on your schedule?
Did you get a decent night’s sleep and have the energy for a workout?
How important is it to you that you get to the gym today?
You probably do not use a personal productivity formula to figure out what to have for dinner. But for a production line that uses a large number of inputs and has big impacts on the supply chain, you definitely want to!
Why calculate productive efficiency?
The measurement of productive efficiency gives you an idea of how efficient you are with your resources. It gives you an easy-to-understand number or score that you can track over time. And it is the gateway to making significant improvements in your process.
If you are looking for more balance in your production process, PE is a great place to start. It makes the most of your inputs, produces the highest amount and quality of outputs, and minimizes average total costs. If that doesn’t tick the boxes on your buzzword bingo card, we don’t know what will!
The only way to reach PE is to get rid of waste and use all resources to their fullest.
How to calculate productive efficiency
First things first. Before we can calculate anything, we need numbers. Numbers that actually measure things.
Below are the metrics you will need to calculate your productive efficiency.
Actual output rate
The actual output rate is the number of products you can produce in a certain period. Naturally, to get your actual output rate, you will need to have the number of products and the amount of time it takes you to produce them.
For example, if you produced 100 pairs of shoes yesterday during your 18-hour shift, your actual output rate is 5.56 units per hour. Mathematically, it looks like this:
100 pairs of shoes (units) / 18 hours = 5.56 units per hour
For machines, the easiest way to measure it is by looking at historical production data. For machine operators and other workers, the organization might need to run time studies to acquire the baseline data.
Standard output rate
The standard output rate is very similar, but the “standard” you set for productivity is your goal or ideal. How long should it take you to make the same amount of products if your process was running at peak efficiency? If our process was designed to make 100 pairs of shoes in 16 hours, it brings our standard output rate to the following:
100 pairs of shoes (units) / 16 hours = 6.25 units per hour
Productive efficiency calculation
Your productive efficiency score will be simple if you can calculate your actual output rate and your standard output rate. It is the ratio of your actual output rate to your standard output rate and looks like this:
Actual Output Rate / Standard Output Rate = Productive Efficiency
5.56 actual output rate / 6.25 standard output rate = 88.96% productive efficiency
If you are looking at a single production process for one type of item, this single score can tell you a lot. You are doing well, but there is still plenty of room to improve.
Now, let’s add a twist. What if you needed to make more than one kind of product? How do you choose to divide your resources and remain as resource-efficient as possible?
PE on the curve: the production possibility frontier
Now that you know how to calculate your point-in-time PE, let’s zoom out (way out) and look at it in the bigger picture when we need to make more than one product: the production possibility frontier.
The production possibility frontier (PPF) has lots of different names:
production possibility curve (PPC)
production possibility boundary (PPB)
You do not need to remember any of that word salad, but it is good to be aware of these terms. When you come across them, remember that they are all talking about the PPF.
Productive efficiency is easier to picture when represented graphically on a production Production Possibility Frontier (PPF). The curve shows various combinations of the amounts of two goods that can be produced with the given resources and technology.
The company with the PPF shown above can be maximally efficient with many different scenarios.
Point A on the graph shows that more boots are produced than shoes, but there is no waste.
Point B shows the company making about the similar amount of boots as shoes — but just a moderate amount of both. Point B is still on the curve so no resources are wasted.
Point C on the graph shows more shoes produced than boots, but there is still no waste.
Point D is showing that, with the available resources, you should be able to produce more shoes or boots. There is waste somewhere in the process — some resources are either idle or misallocated or both.
Point E is unattainable with the available resources. The company would first need to make investments to increase production capacity.
As you can see, there is a real “robbing Peter to pay Paul” concept underlying the PPF.
Both product lines share the same inputs (rubber, fabric, stitching), labor, and equipment (sewing machines, cutting machines, outsole pressers, etc.). The more fabric you spend on product A, the less fabric is left to produce product B. Since you have a limited amount of resources that are shared between the two, the allocation of resources must be thoughtful.
There is a lot of fancy math that goes into creating that PPF curve. You do not need to know (and probably do not want to know) the details of that. Still, you might be wondering how to choose the amount of each product to make? Should you arrange your production processes to produce more shoes or boots? The answer to that lies in allocative efficiency.
Productive Efficiency vs. Allocative Efficiency
While PE refers to the efficiency of your process, allocative efficiency refers to how you allocate your resources efficiently across multiple products. The guiding light that helps you determine how to make those allocations is customer demand.
If you make an athletic shoe sponsored by a famous basketball player, it will likely be in very high demand (and fetch a pretty good price). If your other product is a sensibly priced pair of loafers, you have a decision to make. While there is nothing wrong with loafers (they are a classic, after all), your resources are much better used in the product that more people will buy at a higher price.
That is true even if it costs more to produce that athletic shoe. When you allocate your resources correctly, the marginal cost of making more of the product will be worth the marginal benefit to the people buying it. In other words, allocate your resources so that you can make products in volumes that match market demand.
8 ways to improve production efficiency
PE is a simple score of efficiency. To improve it, you will need more information.
Many organizations use metrics like overall equipment effectiveness to find precisely where waste is happening. That is similar to how maintenance teams use MTTR and MTBF to track their performance, but goes much deeper. Those more complex calculations take a little time, but they give you a lot of direction if you want to improve.
However, if you do not want to dive into all that or if your organization just is not ready, there are still changes you can make that can garner major improvements. Here are our top 8:
1. Standardize your production processes
Standardizing business processes comes with many benefits. On the plant floor, the biggest perks are improved productivity levels and consistent product quality.
Manufacturers are in a unique position where they can fairly easily scale their standardization efforts. They can start by standardizing core processes on a single shop floor. When they’re ready, they can expand it to other floors and facilities.
Standardization of the production floor can include everything from the layout of the production lines to how you enter asset information into maintenance software to how you execute visual inspections during quality control.
This is a great use of a CMMS like Limble that guides your team through maintenance activities using work orders and established checklists. PM and WO checklists are easy to create to make sure the whole team is doing the work the right way the first time.
The idea is to define the most efficient way to work and make sure everyone follows best practices. The best way to put workflow standardization in practice is to start writing SOPs.
2. Find and eliminate production bottlenecks
Every process has a few bottlenecks. Eliminating bottlenecks is a great way to increase your productivity without buying more equipment or hiring more people.
Bottlenecks usually come in one of three forms:
production line bottlenecks
supply chain bottlenecks
Search for areas or equipment that have the longest queues and most consistent backlogs. Look for machines that already work at full capacity or those that have high wait times. Map out and dig into these areas and resolve the causes of bottlenecks. One by one, your efficiency will improve.
Unexpected equipment downtime is one of the biggest causes of manufacturing inefficiency. Yet, most breakdowns are preventable. If you are not practicing good proactive maintenance or think you could be doing better, there are simple ways to improve.
Use a CMMS!
The easiest and most effective way to shore up your preventive maintenance strategy is to use a good computerized maintenance management software (CMMS) like Limble.
Limble does not take much to set up, and you can begin using it right out of the box to start tracking and documenting routine maintenance work. It is ridiculously easy to use and has a mobile app version that your techs can conveniently use while they work.
Over time, you may transition to more advanced strategies like predictive maintenance, but CMMS systems can help you with that too. The software can connect to sensors and predictive algorithms to predict failures and help you optimize your maintenance resources.
One of Limble’s clients, Midwest Materials, lost 1 million dollars per year in downtime and lost production. Limble CMMS helped them start doing more proactive maintenance, which improved their PE. You can watch their journey here.
Staff members who are disengaged and unmotivated lower your productivity. And the stats on this for manufacturing companies are not great: 2 in 5 MFG companies report a turnover rate of over 20%.
Paycheck and working conditions are one piece of the puzzle but are not the only factors. One of the most meaningful ways to engage your team members is by investing in them and their skills. Employees want opportunities to grow their skills and to advance their careers. Find ways to motivate factory and maintenance workers and show them that their effort matters.
5. Identify and reduce waste
We can’t talk about reducing waste on a production floor without talking about lean manufacturing. There are many lean methodologies that help eliminate waste through continuous improvement. Some are overarching methods that can be applied throughout the facility, while others are focused on specific areas like inventory management or production flow.
Here is the list of the most popular lean manufacturing techniques for those who want to research further:
Cellular manufacturing arranges equipment according to the kinds of parts produced. It reduces the distance materials and staff need to travel to complete the process. And if distance equals time (which, in this case, it does), that is a big win.
If you want to take things a step further, you can even use software like Visual Components to simulate and evaluate different layout configurations, material flows, and other production projects.
7. Optimize your inventory management
Staying on top of your spare parts inventory is very helpful if you want to achieve your best PE. You need the right parts at the right time to avoid lengthy breakdowns or expensive shipping costs. But it is difficult to get the inventory just right. It is easy to fall into these lousy inventory habits.
Having too much input material
Having too many products than you can adequately store
Not having enough spare parts to perform preventive maintenance and repairs
In most cases, you will need a digital solution to manage your inventory.
For spare parts, for example, you can use a CMMS with a parts management module. It will help you track parts usage and forecast inventory levels based on past data for a marginal cost. And for large operations, they can help you save money by making the most of economies of scale for parts you use frequently.
Spare parts database inside Limble CMMS
Limble makes it easy. Keep track of what parts you need and keep projects moving on schedule. Purchasing integrates with the parts module, so paperwork bottlenecks are a thing of the past.
Limble integrates spare parts management with purchasing to avoid data silos
Also, no need to waste money or space on parts you are no longer using. Limble CMMS enables you to set a spare parts threshold to let you know when to retire parts that are no longer in regular circulation.
8. Build relationships with your vendors
Manufacturing facilities have to deal with three different types of vendors:
Companies that provide input resources used in the production processes.
Outside maintenance contractors called in to perform specialized repairs.
If any of those vendors fail to do their job, you can end up dealing with prolonged production delays that are difficult to fix.
Reduce these risks by building long-term relationships with proven vendors. And believe it or not, your CMMS can help you here too. Limble has features to keep track of your vendors and their deliverables.
Vendor tracking inside Limble CMMS
Limble also allows you to communicate with vendors and track progress on tasks easily. For work that must be done by your vendor, you can generate a WO in Limble and send it directly to your vendor without any extra steps in your process. As your vendor completes the work, they can update the status of the WO directly in Limble, eliminating clumsy reporting after the fact.
Sharing maintenance tasks with outside vendors
Maintenance vendor logs performed work
Productive Efficiency FAQs
1. How do you achieve optimal efficiency?
There are a lot of ways to become more efficient. They typically involve tracking and measurement of your process and keeping improvement front of mind. Here are a few approaches to start you on that path:
Overall Equipment Effectiveness (OEE) is similar to productive efficiency, but it is a more detailed score. The measurements that go into that score help you find your specific areas of waste so that you know where to start improving. Read more about OEE here.
Lean mfg uses things as broad as your culture, approach to problem-solving, and process design to squeeze out every ounce of productivity. Read more about Lean here.
Standardization and training is also an approach important enough to repeat. If you know you have production lines that operate a little differently than others, this one is for you. Start here, and you will be surprised how much efficiency you gain. Using a modern CMMS like Limble can make this easy with automated maintenance scheduling, customizable work order templates, work request forms, and more.
2. What is inefficient production?
When you aren’t making full use of your scarce resources, you are running inefficient production that negatively impacts your bottom line. Resources like labor, materials, energy, and equipment are expensive. Make sure you’re getting your money’s worth.
3. How do companies measure efficiency?
PE is not the only measurement of efficiency. There are many other productivity indexes depending on how sophisticated you want to get: data envelopment analysis, technical efficiency, Farrell measures, and others that economists love to apply to manufacturing.
But they all start with the same step: having a solid data and tracking process in place. If you don’t have production technology or systems that can track key measures of your production process, you will never be able to calculate efficiency.
CMMS systems like Limble are a great way to start and automate much of the data gathering process for you. For instance, Limble tracks the amount of time between a breakdown report to resolution (and a whole lot more).
Example of different reports inside Limble CMMS
This kind of data can open worlds of opportunity as you begin measuring and improving your process.
The role of maintenance in achieving productive efficiency
PE is a measure that should be on the wishlist of any production line. Its goal is to get the most value out of your limited resources, which is good for everyone.
As you begin to measure Productive Efficiency, you may find that your maintenance strategy is one of the stumbling blocks holding you back. Poor maintenance practices can quickly cause downtime and inefficiency.
PE helps you begin to evaluate how well your production process uses the resources it has. It is the gateway to bigger and better efficiency practices.
If you start measuring efficiency now, it will help you:
Minimize waste in the short run, paying dividends in the long run.
Make more informed decisions about how much of which product to make when.
Pinpoint your place on the PPF, scaling certain products up or down while remaining efficient.
Introduces allocation efficiency into your process, considering the market in your production.
Productive efficiency is a great launching pad for more sophisticated types of efficiency calculations and continuous improvement activities. Limble has tools that can help. You can start a free 30-day trial here, request a demo, or even try out our online self-demo.
Now, if only we had such a tool for how to spend our own personal energy!
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Little Giant Ladders
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