Want proof? Just look at Ford and McDonald’s. When Henry Ford reduced the amount of time it took to assemble vehicles by more than 75%, he revolutionized the auto industry and ensured the success of Ford Motor Company. McDonald’s later became a global leader in fast food by perfecting the efficiency of their meal assembly design and passing the cost savings on to customers.
On the other side of the same token, inefficient processes cost NASA more than $193 million when they lost the Mars Climate Orbiter in 1999. NASA’s post-mission failure report explained that “the root cause [a conversion discrepancy between metric and standard calculations] was not caught by the processes in place.”
Process Efficiency (Video 16)
Types of process efficiency
There are a few types of process efficiencies, including:
Overall production
This is the sum of all the days production. To calculate overall production, you can divide the value of the days output by the value of the days input. For example, if a business spends $250,000 on supplies to create $310,000 worth of products, the overall production efficiency is 124%.
Labor productivity
Labor productivity is the output created from one hour of labor. This helps a business determine the value of its human labor in relation to the value of the output.
To determine labor productivity, divide the output by the number of hours worked. If an employee produces $20,000 worth of product in an eight-hour shift, your labor productivity is $2,500 per hour. From there, you can subtract the employees salary for the day to create a more accurate estimate. Here, the employee makes $12 per hour, or $96 per day. Subtracted per hour, the new labor productivity estimate is $2,488 per hour for one employee.
Throughput
Throughput is the total measurement of a process, machine or tool for a predetermined amount of time. A manufacturer uses throughput to ensure machines and tools run efficiently and produce a tangible product. You can determine throughput by dividing the value of the output by the number of hours it took to produce it. F or an output of 25,000 units for 3.5 hours, your throughput is about 7,143 units per hour.
Resource efficiency
This is a measure of the efficiency of the raw materials, ingredients or resources needed to produce an output. To calculate resource efficiency, divide the total output in units or dollars by the resource input. If you produce 80,000 units for 3 gallons of fuel, your resource efficiency is about 26,667 units per gallon.
What is process efficiency?
Process efficiency is the total output of a business process for an equal input of effort, capital or resources. This metric is for measuring a businesss production process to see if its efficient. Businesses often perform a process efficiency audit when production has slowed or there are obstacles to efficient production.
For example, a large food processor may look at process efficiency to see which ingredients and labor processes yield the most profitable end product. The company reviews the cost of the ingredients, including shipping and sourcing the ingredients, as well as the quality of its ingredients in relation to the final product. It also examines how much labor it needs to produce the final product and compares that with ingredients and production costs to determine if production costs are yielding a profit.
Why is process efficiency so important?
Process efficiency is important because it helps a business determine how much of a resource is necessary to create an output. There are several reasons a business might measure process efficiency, including:
How to improve process efficiency
Here are some ways to improve your process efficiency:
1. Measure frequently and accurately
The success of your measurements depends on the frequency and accuracy with which youre measuring. Typically, businesses measure process efficiency at specific intervals during the sales year, like quarterly or semi-quarterly. To get the most accurate readings, its a good idea to measure as frequently as resources allow. If you can measure daily, you can get a better idea of how factors like resource delays, labor shortages and sick days affect production in shorter intervals. Then, you can compare these numbers to your end-of-month or end-of-quarter readings for a more complete view of the businesss overall efficiency.
2. Analyze the results
Collecting information on your process efficiency is a great first step to improving it, but analyzing the results correctly helps you make informed decisions. When youre analyzing your process efficiency readings, look for:
3. Create new processes
When a process becomes outdated, inefficient or too expensive to maintain, it may be time to consider creating a new process or overhauling the old one. This can mean going back to the planning phase to create a better, more efficient process. It also may mean investing in new machinery or experts to help update the process.
4. Review and gain feedback
After measuring, analyzing and overhauling the process, consider a weekly or monthly review to ensure everything works as intended. Its also important to gather feedback from the production employees and supervisors to learn more about the new process and how teams have responded to it. Employees working on the production line have a closer perspective to potential problems, and production supervisors see things from both management and labor perspectives.
FAQ
What is process efficiency and effectiveness?
Why are efficient processes important?
