How to Calculate Product Yield

Business owners and managers are constantly assessing the productivity of their processes. They measure productivity as the ratio between the number of finished products and the amount of resources used to create those products. While this tells you a lot about the quantity of products ready for sale, business owners must also be concerned with the effectiveness of their processes. The product yield measures how many products of a saleable quality the company's processes can create.

Tip

Calculate the product yield by adding the number of good units and reworked units available for sale.

Managers evaluate the productivity of a process by measuring the number of finished products, known as outputs, against the time, materials and energy – the inputs – needed to create them. Businesses often use time as the standard input measure. For instance, workers at Fictional Furniture can assemble 80 chairs in an eight-hour day. The productivity of the Fictional Furniture factory can be calculated as 80/8, or 10 chairs per labor-hour.

Since no production process can produce flawless outputs each time, some products will not be available for sale immediately after production. Some of these products can go through a different process to remove defects and become salable items. A good unit is an output that is ready for sale right away. A reworked unit is an output that goes through the process of removing the defects and preparing it for sale. At the Fictional Furniture factory, a reworked chair may need to have its legs replaced, its back refinished or its seat reinforced to have it ready for sale.

The formula for the product yield is the sum of the good units and the reworked units available for sale. The formula looks like this:

Y = (I)(G) + (I)(1-G)(R)

Where Y = Yield,
I = Planned production units
G = Percentage of good units
R = Percentage of reworked units available for sale

In the Fictional Furniture example, the company plans to produce 80 chairs a day. The production process results in 90 percent of the chairs ready for sale. For the remainder that need to be reworked, 60 percent will become ready for sale.

Y = 80(0.9) + 80(1-0.9)(0.6)
= 80(0.9) + 80(0.1)(0.6)
= 72 + 4.8 = 76.8.

Fictional Furniture's current processes can create 76.8 salable chairs each day.

Managers can also use the product yield formula to calculate how many units their production process must create to deliver a specific number of good units. In this example, Fictional Furniture wants to produce 80 salable chairs a day. The managers can use this equation to determine how many planned chairs their production process must create to reach that number:

80 = I(0.9) + I (1-0.9)(0.6)
80 = 0.9I + (0.1)(0.6)I
80 = 0.9I + 0.06I = 0.96I
I = 80/0.96 = 83.33.

The company must plan to produce 83.33 chairs per day to get a product yield of salable 80 chairs per day.