What Is Productive Efficiency And How To Achieve It
What does it mean to be truly efficient? A manufacturer might define it as producing the most product at the lowest possible cost. But production has many limiting factors like input material, asset performance, labor efficiency, and product quality. Productive efficiency helps us describe points in which we reached an equilibrium between those factors and there is no room for improvement without increasing costs.
Take a journey with us as we explore what is production efficiency, how to calculate it, and what to do if the calculation results in a number you’re not satisfied with.
What is productive efficiency?
Productive efficiency (or production efficiency) is a term from macroeconomics that describes a point in which a system (restaurant, hospital, manufacturing plant, industry, country) – with its currently available resources – can’t produce more of one good without decreasing the production volume of another good.
This is especially interesting to manufacturing companies as production efficiency is concerned with establishing the optimal combination of inputs to produce maximum output for the minimum cost while retaining product quality. The only way to reach productive efficiency is to eliminate waste and optimally utilize all available resources (material, equipment, labor, production technology, capital).
Productive efficiency is easier to picture when represented graphically on a production possibility curve (PPC) (a.k.a. production possibility frontier). It is a curve that shows various combinations of the amounts of two goods that can be produced with the given resources and technology.
The explanation of the points:
In points A, B, and C the company is maximally efficient. This shows how there are numerous ways in which you can allocate resources and still achieve production efficiency.
In point D, the company is inefficient. In other words, some resources are either idle or misallocated or both.
Point E is currently unreachable. The company would first need to make investments to increase production capacity.
We understand this intuitively on some level. Let’s say you have a manufacturing facility that produces 2 different lines of shoes. Both product lines share the same input resources (rubber, fabric), 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 those resources has to be done with a plan in mind.
So, should you arrange your production processes to produce more of product A or product B? An answer to that hides in allocative efficiency. In the context of a manufacturing facility, it means that you should allocate resources in a way that enables you to produce products in volumes that match market demand. People want more product B – allocate resources to produce additional units of product B. It’s simple, but not always easy to execute in practice.
How to calculate production efficiency
Production has a lot of moving parts so calculating efficiency to a reasonable degree of accuracy can be challenging. The exceptions are highly automated connected factories with plenty of performance data and machine control.
The basic measurement of productive efficiency is given by comparing the standard output rate and the actual output rate.
The actual output rate is self-explanatory. The standard output rate should represent a realistic amount of work that can be achieved per unit of time. 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.
Getting the standard output data is the hard part. The calculation itself is trivial.
Let’s continue the shoe factory example mention above. The factory got an order for 100 shoes. The standard rate for completion time for that volume is 16 hours. However, the factory ended up needing 18 hours to complete the order.
Standard output rate = 100 units/16 hours = 6.25 units/hour
Actual output rate = 100 units/18 hours = 5.56 units/hour
Productive efficiency = (Actual output rate/Standard output rate) x 100
Productive efficiency = (5.56/6.25) x 100
Productive efficiency = 88.96%
This means that production operates at ~89% capacity. Not terrible, but there is room for improvement.
8 ways to improve production efficiency
Production processes can’t be optimized overnight. The most sustainable way looks for incremental improvements that enable everyone to keep up with the changes.
Aside from the productive efficiency calculation given above, companies can use a metric like overall equipment effectiveness to identify problem areas and track improvements. Similarly how maintenance teams can use MTTR and MTBF to track their progress.
Let’s take a look at different steps you can take to improve overall efficiency levels and reach efficient production.
1. Improve workflows by standardizing 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 use the same knowledge to optimize processes at other 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.
The idea is to define the most efficient way to work and make sure everyone follows best practices.
2. Find and eliminate production bottlenecks
A great way to increase throughput without buying more equipment or hiring more people is to find and eliminate production bottlenecks. They are usually split into production line bottlenecks, supply chain bottlenecks, and employee bottlenecks.
play with the throughput of different machines and check if that increases the production level
search for processes/workstations/machines that have the longest queues and are constantly backlogged
look for machines that already work at full capacity or those that have high wait times
When a company identifies a bottleneck, it doesn’t hurt to run root cause analysis to understand what is causing it.
3. Implement proactive equipment maintenance
Unexpected machine downtime is one of the greatest, if not the greatest cause of manufacturing inefficiency. The sad truth is that most machine breakdowns are preventable. More often than not, breakdowns are the direct consequence of reactive maintenance. In other words, the asset does not receive regular checks and maintenance that would keep it in good working condition. It has to fail before it can get proper attention.
This is easily avoidable by implementing a proactive maintenance strategy. From our experience, manufacturers have the most success by implementing a CMMS system and using it to start doing more preventive maintenance work. Later on, when they feel ready, they can transition to more advanced strategies like predictive maintenance.
Take Midwest Materials, one of our clients that produces sheet finished steel products. They were losing 1 million dollars per year in downtime for lost production. They’ve decided to implement Limble CMMS and start doing more preventive work, effectively improving their production efficiency. You can watch their journey here.
4. Invest in employee training and engagement
A disconnected manufacturing workforce lowers overall productivity and increases turnover. In fact, the manufacturing industry has one of the highest turnover rates with 2 in 5 manufacturing companies reporting a turnover rate of over 20%.
No manufacturing facility should be fine spending a few thousand dollars on training a new hire, for them to leave in a year or two. Cutting down on training is also not an option if you want to maximize productivity and stay competitive in the market.
One of the reasons why plant workers are changing jobs so often is because they are disengaged. According to Gallup’s State of the American Workplace report, only 25% of manufacturing workers feel engaged at work, making it the least engaged occupation in the US. Paycheck and working conditions aside, the cure for the high turnover seems to lie in finding ways to motivate factory workers and showing 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:
Many of these methods can take years to fully adopt but the benefits can be felt from the early stages of implementation.
6. Optimize plant layout using cellular manufacturing
The idea behind cellular manufacturing is to break down the production process into steps by deconstructing the product into pieces that can be produced discretely in a sequence. Based on those steps, you arrange workers and machines into cells, using a layout that will facilitate the continuous flow of production at your facility. The most common layouts are a straight line, serpentine, circular, and U-shaped layout.
In contrast to traditional manufacturing where similar types of machines are grouped together, cellular manufacturing arranges machines according to the families of parts produced. This significantly improves the overall flow of materials and reduces the distance traveled by materials, inventory, and machine operators.
If you want to take floor optimization a step further, and especially if you are designing a new production process, you can use manufacturing simulation software like Visual Components to simulate and evaluate different layout configurations, material flows, and other production projects.
7. Optimize your inventory management
Being productively efficient requires you to stay on top of both spare parts management and inventory management. The main scenarios to avoid are having too much input material, having too many products than you can properly store, and not having enough spare parts to perform maintenance and repairs.
We could talk about setting best practices for inventory management, and while they do matter, the reality is that highly optimized inventory can only be achieved by using digital solutions. CMMS with a parts management module can keep track of spare parts and other tools and materials used by maintenance personnel. The rest of the inventory can be handled with decent inventory management software.
The ability to keep track of inventory levels and make accurate forecasts based on past data is simply irreplaceable.
8. Build relationships with your vendors
In general, manufacturing facilities have to deal with three different types of vendors: companies that provide input resources used in the production processes, vendors that provide spare parts and other MRO materials, and outside maintenance contractors that are 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. To reduce these risks, managers can establish long-term relationships with proven vendors (but always have a plan B).
The role of maintenance in achieving productive efficiency
Achieving productive efficiency should be on the wishlist of every manufacturing company. After all, its ultimate goal is to get the most value out of available resources. It is not an easy goal, but it is worth striving for.
Poor and ineffective maintenance practices can quickly become an insurmountable wall. Asset downtime and performance issues will result in bottlenecks and production delays. The end result? Wasted time, increased costs, and loss of profit.
Proactive maintenance plays a crucial role in removing this roadblock, which is one of the reasons we decided to write about production efficiency.
That’s it from us. For any additional information, start a thread in the comments below!
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