Production Efficiency

Also known as productive efficiency, production efficiency in manufacturing is a state where a system can no longer produce more goods without sacrificing the production without sacrificing production of another good. Facility managers often use this metric to ensure costs are effectively optimized without the quality of goods and services being sacrificed.

How is production efficiency calculated?

The equation for production efficiency can be expressed as:

Production efficiency = (Actual output rate / Standard Output Rate) x 100

Production efficiency is then expressed as a percentage—with 100% being the ideal target, meaning goods are being produced at the lowest average total cost with all else (including quality) remaining constant. A production rate running 100% is also not wasting materials, time, or extra energy.

Overall equipment effectiveness (OEE) is a 'best practice' metric facilities often used as a benchmark for tracking production efficiency over time. Also expressed as a percentage, a perfect production OEE score of 100% means only good parts as fast possible without any stop time. OEE is calculated with the following equation:

OEE = (Good count x Ideal cycle time) / Planned Production 

Improving Production Efficiency

Productivity and efficiency are interlocked, when one improves the other is effected. For example, a company may improve its productivity by 20% but if half of those units are defective, it shows efficiency was sacrificed for increased productivity. On the flip side, increasing efficiency will typically have a positive impact on productivity.

Here are some ways manufacturing companies can begin to improve their production efficiency:

  • Evaluate the production line and identify any areas of waste that can be eliminated.
  • Identify production bottlenecks and solve any blockages.
  • Get organized (with methodologies like 5S) and standardize processes.
  • Equip employees with with the right tools to stay efficient.

And don't forget to utilize key performance indicators (KPI) to track growth and drive future improvements!


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