In a commercial context, productivity is defined as the time and energy spent on the creation of a product or service, especially one that generates revenue. Put a different way, productivity is the ratio of input to output. A company’s productivity is intrinsically tied to its efficiency, both of which are often cited in the same breath as an indicator of competitiveness.
Here, we offer some concrete steps to improve operational efficiency in manufacturing and increase your production rate without jeopardizing quality.
What Is Manufacturing Productivity?
Manufacturing productivity refers to the combined work and output of a single worker, department, plant or company in the manufacturing sector. High levels of manufacturing productivity tend to result in better financial performance, less waste, greater profit margins, higher employee engagement and overall more satisfied end customers.
How to Calculate & Measure Productivity
Productivity can be quantified using a simple equation: Output ÷ Input.
“Input” refers to any resources used in the production of a desired output, such as:
- Raw materials
- People / talent
- Expertise / technical knowledge
“Outputs” are goods, services, work or anything else produced in a given period by a machine, an individual, a team, a factory or an entire company. Output is usually measured by quantity, as in volume of product or hours of service.
In a simplified example, a car manufacturer might produce 10,000,000 cars over 2,000 hours of its workers’ combined efforts. We can measure the manufacturer’s productivity by the volume of its output:
10,000,000 cars ÷ 2,000 work hours = 5,000 cars/hour
Or we could measure the company’s productivity in terms of hourly revenue, if we know the company made $245 billion last year alone:
$245B ÷ 2,000 work hours = $122.5M per hour
One caveat to this equation is that it does not account for expenses like employee wages, overhead or other costs of running a business. However, it does enable businesses to track trends in productivity over time and implement appropriate changes if there are glaring disparities between input and output. As long as businesses prioritize quality as a cornerstone of increased productivity measures, the output should not decline in value.
To gain a more nuanced view of its output, a manufacturing company can measure its Overall Equipment Effectiveness (OEE) to assess how well its equipment is performing based on availability, performance and quality.
- Availability = the amount of time equipment is available to perform its function
- Performance = how long it takes to complete one process or cycle
- Quality = the number of units with acceptable quality
We can measure OEE by multiplying Availability x Performance x Quality. This equation generates a more accurate view of productivity than using labor hours alone, since changes in other inputs can affect the volume and cost of that labor.
It’s critical that manufacturing plants measure their productivity accurately, since the ratios involved will inform everything from their training programs to vendors to pricing. The goal is not to make employees “pay” for lost productivity; managers should focus on the content and quality of the labor, rather than the cost.
What Is Manufacturing Efficiency?
Efficiency calls to mind the principle of lean manufacturing — producing a high-quality output while wasting as little time, material or energy as possible. The emphasis on “high-quality” means that manufacturing efficiency does not entail producing a unit as quickly as possible regardless of quality — rather, efficiency should account for the quality and the effectiveness of the finished product.
Efficiency is measured by a percentage of 100; the higher the percentage, the more efficient the operations and (ideally) the higher the productivity.
There is, however, a point at which productivity and efficiency reach their peak: Once a manufacturing plant can no longer produce one output without lowering the quality or production of another, it has reached 100% production efficiency. In this scenario, the plant is making full use of all of its resources without jeopardizing the quality of its input or output.
How to Calculate and Measure Efficiency
To increase manufacturing efficiency, the goal is to increase the volume of quality output in a given amount of time, such as a standard 8-hour workday. Efficiency can be quantified using the following equation:
# hours of (good quality) productive work
# work hours available in a day
This should result in a percentage. For example, say a fabrication team producing parts for MRI machines puts in a total of 6.5 hours of quality, productive work in an 8-hour workday:
———————————————— x100 = 81.25
This team therefore has an efficiency rate of 81.25%. Considering the ideal is 100% before product quality (or the workers’ experience) starts to decline, 81.25% is fairly acceptable while leaving room for improvement.
Productivity vs. Efficiency: What’s the Difference in Manufacturing?
Think of manufacturing productivity as a measure solely of input vs. output, while efficiency adds the nuanced condition that the input is correctly executed with minimal waste, resulting in a high-quality output without errors.
Technically, if a workforce is able to produce twice as much output as usual in a given amount of time, such as a single workday, they are considered more productive. However, this scenario includes no consideration of the quality of that output. If productivity is high but leads to increased customer complaints and returns, the metric is moot.
The challenge in balancing productivity and efficiency is that increasing efficiency can result in a decline in productivity. This is where proper workplace training comes in — if workers are trained in the “one best way” to complete a job that supports optimal product quality, there should be no negative impact on productivity. Workers who are trained to identify and minimize waste in their processes have an overall positive impact on both workplace efficiency and overall plant productivity.
We must not forget though, that the goal of these efforts is to deliver the best possible value to the customer. Meaning that, no matter how well a plant meets its efficiency or productivity goals, it means nothing if the customer’s needs and demands are not met. All efforts to improve productivity and efficiency must be informed and balanced by the people actually receiving the product or service.
Challenges to Manufacturing Productivity and Operational Efficiency
As expected, striving for optimal productivity and efficiency can cause challenges if not approached and executed thoughtfully and strategically. Some common challenges in manufacturing include:
- Emphasizing one over the other, potentially resulting in poor-quality products, loss of sales and dissatisfied customers.
- Workers becoming dissatisfied and uncomfortable with new efficiency or productivity measures that lack explanation or proper training.
- Taking time away from production to develop, iterate and implement new work measures.
- Measuring productivity at the wrong time of year — seasonal events likely have an effect on “normal” production.
- Not accounting for all possible inputs and outputs, especially unseen ones.
- Not translating new productivity and efficiency measures into language workers and their managers can understand (rather than just statisticians or productivity experts).
- Not taking workers’ opinions, ideas and experiences into account when redesigning processes.
- Attempting to measure productivity for less tangible work, such as management, leadership or training programs.
- Resistance from managers or workers who feel they are being micromanaged.
- A feeling of complacency once optimal production efficiency has been reached.
For new manufacturing productivity measures to succeed, leadership needs to communicate the reasons and importance behind any new initiatives. Those in senior-level positions need to convey enthusiasm for the improvement process, since employees look to leadership for direction and behavioral expectations. All parties should feel encouraged to look at new ways of doing things in their organization, which helps to foster an overall culture of improvement.
Ways to Improve Manufacturing Productivity and Efficiency
When plants make successful efforts to improve both manufacturing productivity and efficiency, they are able to achieve higher volumes of quality output using the same standard volume of input. This can result in:
- Higher profit
- Lower product prices
- Lower production costs/overhead
- Wage stabilization
- Increased industry competitiveness
- More sustainable growth
Improving productivity and efficiency shouldn’t require a massive investment of either time or money. Rather than jumping right to investing in new equipment or a larger facility, use the resources you have on hand to improve existing internal processes and infrastructure. Some approaches include:
- Upskilling and reskilling employees to make appropriate use of their existing talents.
- Breaking workflows into discrete elements to identify waste and streamline processes.
- Assessing the physical workspace to improve mobility and eradicate waste (either spacial, temporal or physical).
- Identifying processes or tasks for potential automation.
- Investing in a maintenance program for equipment to help extend its life.
- Rethinking scheduling to ensure work crews are lean while maintaining effectiveness.
- Reviewing job postings and descriptions to accurately reflect the actual work being done.
- Ensuring employees know the importance of the product they are creating, and how their work impacts the lives of your customers.
- Improving communication channels between employees, managers and leadership to relay information, escalate issues and resolve misunderstandings in a timely manner.
- Establishing dedicated owners for all improvement efforts, training programs, audits and other workplace quality controls.
The bottom line: By investing in your people and empowering them to work more efficiently, you are also taking steps to increase and improve productivity.
As technologies improve and measuring productivity and efficiency becomes increasingly more accurate, manufacturers need to be careful not to fall into the trap of optimizing for optimization’s sake.
Likewise, plants should avoid focusing on improvements to discrete processes or departments — classified as batch processes — without understanding the overall customer demand for the final product. With an absolute focus on productivity and efficiency, plants may produce parts that are not needed immediately, drive up work in process inventory and tie up cash unnecessarily.
Looking ahead, we will see more frequent use of training and management software that can have an immediate impact on manufacturing productivity, efficiency and safety. Alongside workplace training that capitalizes on a company’s existing assets, Industry 4.0 is leveraging capabilities like machine learning, automation, advanced data analytics and more to augment and enhance human efforts.
For the certified trainers at TWI Institute, an organization’s people always come before process. Whether our focus is Job Instruction, Frontline Leadership Development or the fundamentals of Employee Engagement, we believe that peak manufacturing productivity and efficiency comes from a workforce that is empowered, competent and innovative.
Explore our training programs here to see how Training Within Industry might serve your organization.