What Is Production Efficiency?

June 10, 2022

Production efficiency is an economic concept that indicates the maximum level of output a manufacturer can produce without lowering the output of another product

Also referred to as productive efficiency, it’s the level a manufacturer utilizes full production capacity. It also means that the manufacturer would need to lower the production of another product or drastically change the manufacturing process to produce more of a product beyond productive efficiency.

You can achieve production efficiency only when you operate at maximum capacity and without wasting resources. The higher production leads to higher revenue and lower wasted resources, both of which lead to lower costs. Combined, they translate into more profits.

To be clear, production efficiency assumes no change in the quality of the product. It’s relatively easier to increase production and minimize costs when you lower the quality of the product. However, when calculating production efficiency, you must always ensure that the product quality is constant.

How to Calculate Production Efficiency

Production efficiency is the ratio between your actual output and standard output, where standard output is the total units you can produce utilizing the full capacity. To achieve production efficiency, your actual output should equal the standard output.

You can use the following production efficiency formula to analyze your current output for efficiency:

Production Efficiency = (Actual Output ÷ Standard Output) x 100

When the answer to this formula is 100%, you’ll have achieved productive efficiency.

For instance, say you can produce 10,000 units per month of product A when you utilize full capacity. You produced 7,500 units during the previous month. Here is how you’d calculate the production efficiency in this case:

75% = (7,500 ÷ 10,000) x 100

When calculating production efficiency, your inputs for the formula (actual and standard output) will generally be per unit of time. You should ensure that you’re consistent with units of time per output to get an accurate answer. 

For instance, in the previous example, if you had produced 7,000 units in 25 days, you’ll need to convert that number into monthly production:

9,000 = (7,000 ÷ 25) x 30

Comparing the actual and standard output is the simplest way to calculate production efficiency, but you can also use other metrics like OEE scores.

“Advanced analytics help manufacturers solve previously impenetrable problems and reveal those that they never knew about, such as hidden bottlenecks or unprofitable production lines.”

McKinsey

4 Strategies to Improve Production Efficiency

Once you’ve calculated your company’s production efficiency, you can start working towards improving it. You can improve production efficiency in several ways as discussed below.

1. Standardize Your Processes

Your workflows and internal processes are crucial to improving production efficiency. Standard operating procedures (SOPs) directly impact productivity and help maintain product quality across batches.

You can standardize almost every process in your company. For instance, you can standardize the process of bringing ready-to-ship goods into the warehouse, stacking them per purchase orders, and then handing them over for shipping.

You also can standardize the process of communicating these details to managers and workers. Efficient communication fills in information silos across departments and provides management the visibility it needs to improve a procedure’s efficiency.

2. Identify and Eliminate Bottlenecks

Equipment-related bottlenecks are easily noticeable when you’re striving for efficient production. In many cases, though, bottlenecks like equipment downtime are a result of inefficient maintenance procedures rather than anything else. A robust preventive maintenance program is key to minimizing equipment errors, consequently improving efficiency.

You also can analyze the equipment that consistently records backlogs in production. Investigate to find the bottlenecks causing the backlog and create work orders to resolve those issues.

Of course, other potential bottlenecks can result from supply chain issues, unplanned downtime, or poor parts inventory management. For instance, your vendor might significantly delay one of your deliveries, causing the production to grind to a halt.

3. Minimize Waste

You waste production capacity when you produce a defective unit. Those wasted units decrease the overall production efficiency, even without equipment downtime.

Minimizing waste is easier said than done. However, you can use lean manufacturing methodologies to make small, incremental improvements that have significant impact over time.

You can make these improvements by implementing techniques like Kaizen and Six Sigma. They may take a while to bring about a tangible improvement, but you’ll see marginal improvements in your production efficiency right from the early days of implementation.

4. Use Technology

Modern technology automates repetitive tasks, fast-tracks internal processes, and frees up employee time for other, more productive tasks. For instance, if you’re still recording inventory on paper, you’re losing out on the efficiencies that ab online inventory management tool can offer. 

Instead of spending time recording the movement of inventory, let the inventory management software monitor your inventory’s movement and allow your maintenance team to focus on other strategic aspects, such as better storage space utilization.

Technological solutions no longer come with a hefty price tag, and the return on investment (ROI) is usually worth it. 

For instance, a computerized maintenance management system (CMMS) like MaintainX helps automate workflows, communicates effectively with your team, and gives you access to an enterprise asset management system for a nominal price. Even with its small price tag, the mobile-friendly CMMS can save you money with its advanced reporting and in-depth KPI insights.

Conclusion

Improving production efficiency isn’t easy, especially when a business is a little too comfortable with traditional methodologies and reluctant to invest in technology. Take a proactive, open-minded approach to improve production efficiency. Integrate robust digital tools to increase production efficiencies and other key performance indicators. 

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Caroline Eisner
Caroline Eisner
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