Process Cycle Efficiency is a commonly used metric by those who are following Lean and/or Six Sigma principals. It is calculated by taking value-added time and dividing it by lead time. The answer will be a percentage, which is the process cycle efficiency of any product that is being made. The goal is to get the number as close to 100% as possible.
A perfect process where everything that is done is a value-added activity would have a process cycle efficiency of 100%. This is quite rare to achieve a 100% process cycle efficiency in any type of production environment.
Measuring Value-Added Time
When determining process cycle efficiency, it is important to be able to accurately determine what is value-added time, and what is not. The simple working definition is that any activity that is changing the product in such a way that a customer is willing to pay for that change is value-added.
Depending on the product in question, this can be more difficult to evaluate than it seems. A classic example is painting a product. On the surface, offering products in multiple colors seems like a good feature, and in many cases it is. If the actual customers don’t care enough about color to pay for the costs of the painting process, it is not value added time. For example:
- Automobiles – Customers demand color options in vehicles, so all the expenses associated with the painting process can be factored into the price of the car, and customers will pay it.
- Computer Cases – Customers like color options on computer cases, but most won’t pay a premium for them. Niche computer manufacturers find that it is value-added because their audience likes custom looks. Most computer manufacturers, however, stick with the same color scheme (typically black/silver or gray) for all their models because customers won’t pay extra for different options.
- Machine Parts – The internal parts of a machine aren’t seen and most customers wouldn’t be willing to pay anything extra for a cosmetic improvement. If a parts maker started painting parts, it would not be value-added time.
Just because customers won't pay for something does not mean it is optional. The time spent cleaning the paint machines in an auto manufacturing plant is not value-added, but it is necessary. If it isn’t done, the machines won’t last as long and the paint jobs won't be as clean. Despite that, however, customers won’t directly pay for that process so it is not value-added.
How Does Process Cycle Efficiency Help?
Knowing the process cycle efficiency of an activity can help companies make decisions in many ways. First, when working on process improvement, those involved can focus their efforts either on adding to the value-added time, or reducing lead time. When adding value-added time it must be with the intention of expanding value, not simply adding to the total time.
By improving the process cycle efficiency of any product, the profitability will go up and waste will go down. This can be applied to small process improvements or large changes to the way work is done. In the end the results will help ensure a product becomes as profitable as possible.