How to Measure Production Efficiency

by Drian Glyde; Updated September 26, 2017
Determine how much time is needed to achieve given level of production.

Measuring production efficiency is an important basic business metric used to gauge overall production trends and monitor the business performance relative to the resources invested in production. Production efficiency is an expression of the relationship between resources used and the respective result. The calculation can be very simple if there is one particular cost that is closely correlated to output. A typical calculation compares the number of hours worked with the dollars in product produced over a specific time period or the units produced per machine over a specific time period.

Units per Machine

Step 1

Repeat step 1 for a second time period equivalent to the first and compare the results. Production was most efficient during the period with the highest number of units per machine.

Step 2

Review production records for number of machine setups, machine down time, maintenance issues or other occurrences that could explain the difference. Once the root cause is discovered, plans to mitigate the impact or eliminate the problem can be developed.

Tips

  • Depending upon your industry and your product or service, there are a variety of relevant ways to view efficiency. What is your most expensive resource, equipment, people or marketing? Aggregate metrics such as dollars per hour can be a quick check. Beyond that, it can be useful to have other unit- or operation-specific measures such as output per person, output per machine or unit costs. Production efficiency measures can be useful for setting specific goals and can be applied to an entire company or specific departments,

Warnings

  • Do not include any figures in your calculation that are not related to real production time or outputs.Remove any interest, depreciation, amortization or other multipliers and adjustments. These intangible factors can distort production efficiency measures.

About the Author

Drian Glyde has been writing for various websites since 1997, specializing in business, management, finance and education. His work also has appeared in "Ceramic Industry Magazine." Glyde teaches several business and finance courses online. He holds a BS in ceramic engineering from Penn State University, a MBA from Colorado Technical University and is a certified fraud examiner.

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