What is Production Efficiency (PE)?
Production efficiency is a term used to describe the level in which a company, or factory, can’t manufacture any more products without affecting and lowering the production level of other goods. Thus, the term maximum production efficiency only occurs when a factory is able to produce as much output as possible without sacrificing any other resources. When it comes down to manufacturing optimization, improving production efficiency is a top priority.
Productive Efficiency vs. Allocative Efficiency
Productive efficiency and allocative efficiency refer to different areas of production. Productive efficiency focuses on the optimal method of producing goods at the lowest cost. Whereas, allocative efficiency is focused on the optimal distribution of goods and services.
Production Efficiency Formula
Prior to tracking production efficiency, it’s important to understand how exactly this process is calculated. Production efficiency is measured by comparing the actual output rate to a standard output rate, which is the total amount of work that can be completed per unit of time.
The equation is as follows:
Production efficiency = (Actual output rate / Standard output rate) x 100%
How to Improve Production Efficiency
Achieving maximum production efficiency is not easy to attain. Manufacturers must keep in mind that in order to produce as much output as possible without damaging the goods, various measures must be adopted. Here are several methods that can be used in order to increase production efficiency in your factory:
- Eliminate waste – one of the most effective ways of improving production efficiency is to reduce as much waste as possible. Methods of reducing waste such as recycling scraps and optimizing production can significantly affect production efficiency.
- Measure everything – beyond keeping track of material costs, allocating a value to each aspect of production makes it simpler for manufacturers to pinpoint areas that need instant attention.
- Understand your processes and technology inside-out – without full transparency and recognition of the flow, you may be missing major inefficiencies in your operation.
- Train employees – this is an on-going process that should be implemented in every manufacturing business. As technology continues to advance, employees must be able to keep up with the tools. A knowledgeable and skilled team is more likely to find defects in the production flow.
- Adopt a real-time production efficiency software that can provide multitude of reports and dashboards that can be customized to meet the needs of individual users.
Companies seeking ultimate optimization of their factory must focus on production efficiency. Though optimizing efficiency is no simple feat, it can be completed with the assistance of a real time manufacturing analytics software – one platform that can help reduce costs, eliminate waste, track machines and processes, and much more.