Production efficiency is a metric that every manufacturer should be monitoring closely. It considerably impacts your bottom line, as it highlights how much production you’re achieving based on your available capacity and resources. It’s important to ask, “How to calculate production efficiency?” to ensure you’re accurately gauging this essential indicator for your operations.
What Is Production Efficiency?
When a factory operates at maximum capacity without wasting any resources, it is working at complete production efficiency (also called productive efficiency). At this level, the factory is using its full production capacity and producing the highest amount of each product that it can. If it were to make more of any given product, that would come at the cost of decreasing the output of another product.
To calculate production efficiency, the values of two variables are needed. The first is “standard output,” which refers to the total number of units that can be produced when the system is used at full capacity. The second is “actual output,” which is the number of units actually produced.
How to Calculate Efficiency
Calculating your production efficiency correctly is vital, as it also plays a role in determining other key manufacturing metrics. Luckily, the production efficiency formula is relatively straightforward:
Production Efficiency = (actual output / standard output) * 100
Here, the actual output refers to production achieved in terms of units, mass, or volume. It’s essential that you have accurate production data to provide the correct value for this calculation. The standard output refers to your benchmark output at maximum capacity. You may draw this value from equipment manufacturer data, but it is better to rely on historical data from your actual factory floor.
Of course, the ideal situation is for actual output and standard output to be equal, providing a production efficiency number of 100%. A number below 100% indicates a need for improvement in production line efficiency to lower costs and increase profit.
A Production Efficiency Calculation Example
Carrying out this calculation is easy when you have reliable data. Let’s look at a hypothetical situation where the team at Company Y wants to take a closer look at their operations by evaluating production efficiency.
When the assembly line is working at full capacity, Company Y’s plant can produce 15,000 units. Last month, the actual production was 10,000 units. The lower actual production could be due to rejected units, unplanned downtime, or subpar cycle times.
Using the manufacturing efficiency formula:
(10,000 units / 15,000 units) * 100 = 66.67%
Company Y is only operating at 66.67% efficiency, which means the company is wasting resources and not operating at peak efficiency. In fact, they risk reaching productive inefficiency, in which production costs per unit are higher than necessary.
How to Improve Manufacturing Process Production Efficiency
Company Y should focus on improving production efficiency in their manufacturing process to increase their production rate and get closer to optimal production efficiency. They should look at different manufacturing metrics in order to determine where there might be bottlenecks and other addressable inefficiencies in their production process.
They’ll need improved visibility over their process to address the issues causing their low production efficiency. To understand the problem at hand and develop effective solutions, it is necessary to inspect operations at a granular level that can provide clear insights into where the problem lies.
In many cases, low production efficiency can be caused by latency in reaction times. Issues are bound to arise in all manufacturing processes. The way to mitigate their impact on production efficiency is to respond quickly. Allowing downtime or reduced production rate to persist for long periods of time brings down average production efficiency, impacting metrics for the batch, day, month, quarter, and beyond.
Transitioning to real-time monitoring can help production teams eliminate that latency. Aggregating and analyzing production data in real-time provides clear insights into the state of production. Teams can identify potential issues and bottlenecks and take action to remedy them. Automated alerts can further streamline the process, instantly notifying the appropriate stakeholders of any problems.
Better Understand Production Efficiency and Other Metrics
Production efficiency is just one of many metrics that define your operations. Being able to leverage these metrics is key to achieving a productive factory floor, and Matics can help you do just that. Our Real-time Operational Intelligence (RtOI) solution aggregates and analyzes your production data to provide a wealth of analysis, data visualization, and management tools.
You can always know what’s happening on the factory floor with real-time production efficiency and other key performance indicators, along with the tools to take action on that data. You can schedule a demo of Matics RtOI for more about how we help you leverage manufacturing metrics.