Efficiency is everything. It’s the key to reducing costs, staying competitive, minimizing waste and keeping up with customer demand, all without sacrificing quality. While achieving true production efficiency may be easier said than done, there are plenty of ways that manufacturers — informed by performance metrics that gauge their progress — can successfully take their processes and workflows to the next level.
What Is Production Efficiency?
Production efficiency is a measure of how effectively a manufacturer uses time, materials and labor to create and deliver its products. The goal is to minimize waste in all capacities without compromising product quality. Production efficiency is often measured through metrics such as overall equipment effectiveness (OEE), which determines the percentage of planned production time that was genuinely productive.
Note that production efficiency is different from productivity. Productivity focuses on the quantity of output produced, while production efficiency emphasizes optimal resource use and minimal waste. That said, production efficiency can directly impact productivity — the more efficient a production line, the more productive the company.
Key Takeaways
- Production efficiency measures how well a company uses time, materials and labor to create and deliver quality products.
- Improving manufacturing production efficiency can help companies lower costs, increase output, enhance resource utilization, boost customer satisfaction and stay competitive.
- KPIs, such as overall equipment effectiveness, throughput, cycle time and lead time, help measure production efficiency in the moment and over time.
- Adopting lean manufacturing principles, implementing automation, optimizing workflows and warehouse layouts and investing in employee training and development are all ways to boost production efficiency.
- Advanced tools, such as cloud manufacturing software, can further support an efficient operation.
11 Benefits of Improved Manufacturing Production Efficiency
You’d be hard-pressed to find a company that isn’t interested in becoming more efficient. But what exactly are the advantages of an improved manufacturing process? From reduced costs and increased output to happier customers and more motivated employees, the benefits are vast and can directly support a business’s ability to grow and thrive.
1. Reduced costs: Efficient production aims to make the most of materials, minimize energy usage and cut waste without sacrificing product quality. By nature, this approach can significantly reduce the cost of production. Efficiently run facilities also tend to prioritize preventive maintenance, minimizing the risk of costly equipment breakdowns so that operations can continue to run smoothly.
2. Increased output: Efficiency helps streamline processes to support a manufacturer’s ability to speed up production and improve throughput. The more efficient the production line, the higher the number of products that can be manufactured in the same amount of time without necessarily increasing costs.
3. Optimized resource utilization: At a fundamental level, efficient production aims to minimize waste in every capacity — less scrap, less labor, less equipment downtime and less energy consumption. A primary way to do this is through optimized resource utilization. For example, streamlined processes and targeted training support labor productivity and can help maximize output per work hour, while ongoing equipment maintenance supports the machinery’s ability to work at peak efficiency.
4. Improved consistency and customer satisfaction: When production processes are efficient, the quality of the output is more consistent. This is generally due to standardized production workflows that minimize errors. Higher consistency in product quality also means customers are more likely to receive products that consistently meet their expectations, which keeps them coming back for more and inspires word-of-mouth referrals.
5. Enhanced competitiveness: The more efficient a manufacturer’s production process, the more likely the manufacturer will be able to offer lower prices and/or faster delivery times than its competitors. Efficiency also improves product quality through its emphasis on standardized, repeatable procedures that reduce the risk of errors.
6. Amplified employee morale and safety: Well-run operations can boost employee morale by reducing stress and, ultimately, improving job satisfaction. For example, efficient production processes lessen the likelihood that employees will have to deal with constant problems or patterns of issues, allowing them to focus on performing their core duties to the best of their abilities. Organized, intuitive workflows also support workplace safety and reduce accidents by minimizing clutter and chaos, ensuring that all equipment is maintained properly and implementing clear and effective safety protocols.
7. Less waste: As mentioned, efficient production minimizes various forms of manufacturing waste, such as material scraps, excess inventory, energy and time, etc. Waste reduction is typically achieved through careful demand planning, just-in-time inventory practices that ensure the company keeps only enough stock on hand for production, mindful cost management strategies and reliance on effective technology — all of which go hand in hand with efficiency.
8. Reduced carbon footprint: Another benefit of minimizing waste and optimizing energy usage is a reduced carbon footprint. For example, a manufacturing company can adopt LED lighting and high-efficiency HVAC systems to significantly reduce electricity consumption. The less electricity consumed, the less fossil fuel that needs to be burned to generate energy (unless the company relies exclusively on solar). Strategies that prioritize renewable energy sources and sustainable production practices can also help companies comply with environmental regulations, appeal to eco-conscious consumers and help combat local and global issues, such as pollution and climate change.
9. A foundation for growth: Done right, efficient production processes provide a scalable model that can handle increased volumes with agility and without a proportionate increase in headaches or costs. For example, if a team is constantly troubleshooting problems, fixing old equipment or managing frequent downtime, there may not be enough available time or resources to grow the business. With improved production efficiency, however, the company can free up resources — both time and money — to invest in exploring new markets, enhancing product lines and/or increasing production capacity.
10. More reliable delivery times: Efficient production reduces variability in the manufacturing process, making it easier to predict and manage production runs and delivery schedules. Efficiency can also minimize disruptions, like equipment breakdowns, further supporting a company’s ability to not only fulfill orders on time, but also shorten lead times. Consistently meeting — and perhaps exceeding — delivery commitments can build a reputation for reliability, which can be a significant competitive advantage, especially in industries where on-time delivery is vital.
11. Streamlined inventory management: Enhanced production efficiency supports smart inventory management strategies. For one, it can lead to more predictable production cycles that enable just-in-time inventory practices. Efficiency can also support better manufacturing forecasting accuracy and production agility, both of which can make it easier to align inventory levels with market demands. In turn, companies can minimize the risk of shortages and carrying excess stock.
12 KPIs Measure Improved Production Efficiency
At the most basic level, tracking the following KPIs can help a manufacturer get a sense of where its production efficiency stands at that point in time. But continual tracking over time will help identify trends and provide a basis for analyzing ways to improve operations, lower costs and keep customers happier. Here are 12 core production KPIs to consider using:
Overall equipment effectiveness (OEE) is the percentage of time the manufacturing facility is producing high-quality products with no downtime. An ideal OEE score is 100%, but it’s unlikely a production line will ever be able to produce only perfectly usable products with zero downtime. A “good” OEE is more likely in the range of 60% to 85%, with scores at or above 85% typically reflecting a world-class operation. OEE depends on three variables, each expressed as a percentage:
- Availability, or the percentage of time equipment is being used in its scheduled operation period.
- Performance, or the percentage of time the machine is working at full capacity during its scheduled operation period.
- Quality, or the percentage of quality units produced in relation to all units produced.
Overall equipment effectiveness (OEE) = Performance x quality x availability
Let’s say a tray sealer is in use for 5 hours per its scheduled 7 hours of a shift (71%) but is only working 4 hours at full capacity for that time (57%). In those 5 hours, the equipment perfectly seals 900 out of 1,000 containers (90%). This means the overall equipment effectiveness is 36%. The higher the percentage, the more effective the equipment.
Throughput is the total number of products manufactured during a specified time frame, such as a single shift or workweek.
Throughput = Total units manufactured / production time per unit
If 500 units are manufactured in a 40-hour workweek, throughput is 500 units per 40 hours, or 12.5 units per hour. Generally speaking, the higher the throughput, the more efficient the manufacturing process — but this also depends on whether the finished goods pass quality assurance tests. If many poor-quality goods are being produced, the process may be prioritizing speed over precision, leading to a high rate of defects.
Cycle time measures how long it takes to complete a single production cycle, from start to finish.
Cycle time = Total production time / Total units produced in that time
If it takes a flashlight company 8 hours to produce a full run of 240 flashlights, the cycle time would be 0.03 hours per unit, which translates to about 2 minutes per flashlight (0.03 hours x 60 minutes = 2 minutes). The lower the cycle time, the faster goods are being produced.
Lead time is the total time it takes for a customer to receive an order after it’s placed. One simple (retroactive) way to calculate lead time is as follows:
Lead time = Date of delivery – date order was placed
If an order was placed on May 15 and received on May 20, the lead time was 5 days.
Here’s another way to calculate lead time:
Lead time = Order process time + production lead time + delivery lead time
If it takes 16 hours for an order to be processed, 8 hours to produce the order and 3 days to ship once completed, total lead time would be 4 days. Faster lead times yield happier customers.
Yield describes the overall volume of products manufactured relative to the input of raw materials.
Yield = (Actual number of products manufactured / theoretical number of maximum possible yield based off raw materials input) x 100
If a company can ideally produce a maximum of 360 containers of salsa with its given raw materials but only produces 300, the yield is 83%. This means 60 containers’ worth — 17% of the maximum yield — was scrapped or went to waste (e.g., some ingredients may have been past their prime). The higher the yield percentage, the more raw materials are being used to their fullest.
Capacity utilization is the percentage of a manufacturing facility’s production capacity that’s in use over a specified period — in other words, the extent to which the manufacturer is using its production capacity.
Capacity utilization = (Total capacity used during specific period / total available production capacity) x 100
If a factory has the equipment and workforce capable of producing 1,000 seat belt buckles per workweek but only produces 800, its capacity utilization is 80%. High-capacity utilization typically indicates that the facility’s resources are being used efficiently, while low-capacity utilization might suggest operational inefficiencies or lower demand.
Inventory turns, also known as inventory turnover, measures the usage and replacement rate of stock during a given period.
Inventory turns = Cost of goods sold (COGS) for a specified period / average inventory during period
Suppose a car manufacturer has a COGS of $120 million for the year, and its average inventory value during that year is $30 million. The inventory turn would then be 4, meaning that the manufacturer sold and replaced its entire inventory four times over the course of the year. Higher inventory turnover indicates that a company is quickly moving goods and replenishing inventory often; low turnover could indicate overstocking or challenges in selling the inventory.
Downtime measures the length of time that production lines aren’t in operation within a specified time frame. Downtime may be due to planned maintenance or unscheduled issues, such as machine breakdowns or accidents.
Downtime = Sum of all downtime within a specified period / specified period
If in one 40-hour production workweek, a musical instrument manufacturer has 3 hours of scheduled downtime for maintenance and 4 hours of downtime due to equipment issues, it has a total of 7 total hours of downtime. This means that 17.5% of the total available time in the workweek was not used for production. The less downtime, the better, but note that scheduled downtime for routine maintenance can prevent more serious issues later.
Scrap rate measures the volume of materials discarded during the manufacturing process. This can include raw materials used to create products or even wasted labor hours.
Scrap rate = Amount of scrap produced during production / total materials put into the process
The “amount of scrap” is typically measured in units that are relevant to the materials being used, such as kilograms, pounds, liters or even numbers of items or parts, depending on the type of product being manufactured. Total materials input should be measured in the same units as the scrap.
If a furniture manufacturer uses 1,000 kilograms of wood in a week, and 100 kilograms of that wood ends up as offcuts and sawdust that can’t be used or recycled within the process, the scrap rate is 0.10, or 10%.
The less scrap produced, the more efficient the company is at using its raw materials. This equates to greater cost savings.
Return on assets (ROA): Measures how much profit a business generates from its assets. Note that it’s best to use a business’s average total assets over a period rather than at a single point in time. This provides a more accurate look at the business’s financial performance.
ROA = (Net income / average total assets over a period) x 100
Say a manufacturer reports a net income of $50,000 for fiscal 2023, ended June 30. Its total assets equaled $250,000 for 2023 and $200,000 for 2022, equating to an average of $225,000 for the period. This puts the manufacturer’s ROA at 22%, meaning it generated 0.22 cents for every dollar of its assets.
Energy cost per unit: One way to calculate energy efficiency in manufacturing is energy cost per unit, or how much energy it takes to manufacture each unit within a period.
Energy cost per unit = Sum of all energy costs in a period / number of units manufactured in same period
Suppose in November, a company pays $500 for water, $400 for electricity and $800 for natural gas. In the same month it produces 1,000 units, equating to $1.70 in energy costs per unit. This KPI can be tracked to find areas to improve energy efficiency. It can also be used to adjust pricing strategies.
Labor productivity: There are various ways to calculate labor productivity, one of which is output per labor hour. This gives a clear measure of how much product is being manufactured per hour of work.
Labor productivity = Total output / total labor hours
If a pencil manufacturer produces 40,000 pencils in 8 hours worked, its productivity is 5,000 pencils per hour. Because every business is different, what’s considered “good” output per labor hour will vary. Pencils can be manufactured quickly, but a bespoke furniture manufacturer will produce far fewer finished products in far more time.
10 Ways to Improve Manufacturing Production Efficiency
Fortunately, there’s no one way to improve manufacturing production efficiency. While automation and robotics can go a long way for businesses with the capital to invest in such technologies, even growing companies with shallow pockets can find ways to train employees, optimize workflows and layouts and enhance energy efficiency to benefit production.
Adopt Lean Manufacturing Principles
Lean manufacturing principles aim to minimize waste and maximize value for customers. Core principles of lean manufacturing include eliminating non-value-adding activities, which don’t increase the worth of a product; creating a smooth and streamlined workflow; leveraging a “pull” system based on customer demand; and prioritizing continuous improvement.
To successfully adopt these principles, a manufacturer must first examine every aspect of its operations to identify and eliminate resource-wasting inefficiencies. For example, issues such as overproduction, idle time and raw material waste can all increase costs and make the overall operation less efficient. But through strategies like demand planning and just-in-time inventory management, companies can align production with actual customer demand to limit overproduction, create better schedules and minimize scrap. By ensuring that resources are used only as needed, costs are reduced and the production process becomes more agile, leading to faster production cycles and a reduction in the amount of capital tied up in unused inventory and carrying costs.
Implement Automation and Robotics
Automation uses programmable or autonomous software and machines to perform repetitive tasks previously carried out manually by human workers. As long as it’s applied to an efficient operation, automation is all but guaranteed to magnify an operation’s efficiency, usually by helping to streamline processes, reduce errors and improve overall quality and consistency. For example, a food and beverage company might install automated bottling lines that can consistently fill bottles faster and with greater precision than manual methods. This reduces spillage and waste, speeds up production and helps make sure that every product will meet company standards.
Robotics is a subset of automation. Various types of robots can be used in manufacturing to perform a wide range of tasks, including handling dangerous or heavy materials and executing precise assembly work — without fatigue and with fewer, if any, errors. In terms of production efficiency, direct benefits include enhanced worker safety, as staff can be removed from high-risk environments and tasks. Robots can also operate continuously over long periods, which not only reduces body strain on workers but also can significantly increase production throughput.
Use Advanced Manufacturing Technologies
Robotics is just one type of advanced manufacturing technology. Others include computer integrated manufacturing, 3D printing, laser machining and nanotechnology, all of which can significantly enhance production efficiency and product quality. These technologies go beyond traditional labor and conventional factory machines to increase customization capabilities and manufacturing precision while cutting costs. Laser machining, for instance, uses high-powered lasers to cut and shape materials with extreme precision. Faster and more accurate than manual cutting tools, lasers can lead to faster production times and fewer errors, thus reducing waste and costs associated with material imperfections and rework.
Going a step further are modern smart factories, which rely on the integration of operational technology systems, information technology systems and the Internet of Things (IoT) to enable data-driven decision-making and proactive maintenance, all in real time. With the ability to adjust production processes on the fly, manufacturers can improve machine efficiency and minimize downtime. For instance, by predicting when a machine is likely to fail and scheduling maintenance before the failure occurs, smart factories can avoid unexpected disruptions and ensure continuous production flow.
Optimize Workflows and Layouts
Facility layout shapes how workers, materials and equipment move throughout the space. A smart layout can directly enhance manufacturing productivity by logically streamlining workflows while reducing the risk of lost inventory, damaged goods and worker accidents.
To optimize workflows and facility layouts, manufacturers should carefully examine their processes to identify areas that diminish efficiency, even if only by seconds, which add up over time. Then, they must determine and implement changes that will unclog these bottlenecks. For example, consider how proximity can be used to decrease unnecessary movement. Work areas and tools should be placed in nearby, easily accessible areas that make it natural for employees to complete tasks more quickly.
Companies must monitor their performance over time, noting whether the situation is improving or declining and reassessing from there. Production efficiency KPIs, like labor productivity and travel time, can play a key role.
Enhance Quality Control
Consider a production line that thoroughly inspects raw materials before beginning the manufacturing process versus one that runs quality checks only on finished products. By detecting and addressing quality issues early in the process, major issues can be identified before they snowball. This reduces rework, prevents defective — or even harmful — products from reaching customers and minimizes waste.
Indeed, comprehensive quality-control measures should include regular inspections throughout production. Manual inspections are effective, but advanced technologies, like automated inspection equipment, can make it easier to identify defects faster, more accurately and with greater consistency than humans. Such tools can also provide valuable data that can be used for root cause analysis and continuous improvement efforts. For example, high-resolution cameras and sensors can be implemented along a production line to continuously monitor products that are being manufactured. Teams can be alerted to any irregularities in real time, preventing the progression of flawed products through the entire production cycle.
Invest in Employee Training and Development
With comprehensive and ongoing training, manufacturers can make sure their employees have the knowledge necessary to work efficiently. This includes the skills necessary to properly operate equipment, independently solve problems and adhere to company benchmarks and standard operating procedures (SOPs), which set forth guidelines that ensure that everyone across the organization performs tasks effectively and consistently. SOPs help reduce errors and increase productivity.
Investing in cross-training also offers numerous benefits. For one, cross-training builds a more flexible workforce because it empowers employees with greater skill sets to fill vacancies in other departments as needed. In turn, production flow is maintained, reducing bottlenecks caused by staffing shortages. Cross-training also promotes better collaboration and communication among team members by breaking down silos and contributing to a deeper understanding of the relationships among distinct roles in the production process. This can enhance problem-solving and process innovations that lead to more efficient operations.
Improve Supply Chain Management
From sourcing and procurement to warehousing and distribution, supply chains play a core role in the manufacturing process. The better a company can manage its supply chain, the more it will support production efficiency, largely through better lead times that guarantee timely availability of materials and components required for production.
To improve supply chain management, companies can focus on monitoring such factors as inventory turnover, storage costs and transportation efficiency, each of which provides valuable insights into how effective current practices are, what could be improved and how improved processes are working out over time. Big data analytics also play a transformative role by predicting trends in raw material availability, optimizing delivery routes and honing inventory levels.
It’s also vital to develop strong, mutually trusting relationships with suppliers; close partnerships can lead to benefits including priority access to hard-to-get supplies, lower costs and more reliable deliveries. Manufacturers should be sure to conduct regular supplier assessments to make sure suppliers are meeting standards requirements in terms of reliability and quality. If any suppliers aren’t up to snuff, even after steps are taken to ensure that needs are understood, it might be time to consider alternative suppliers to maintain a smooth and responsive supply chain.
Adopt Energy-Efficient Practices
Energy-efficient practices can reduce waste and improve profitability while enhancing overall production efficiency. One way to start is by conducting waste reduction and energy audits, which can help manufacturers pinpoint where they can optimize resource consumption, adopt lean processes and responsibly cut costs. This might involve assessing the efficiency of current equipment, like lighting, HVAC systems and production machinery, or monitoring water and energy usage. Once a business knows where it can improve, it can invest in relevant energy-efficient technology. Upgrading to LED lighting systems, for example, can lead to a substantial reduction in energy consumption, which, in turn, lowers operational costs. That money can then be reinvested in new technology or processes that will improve production efficiency.
Manufacturers might also want to explore renewable energy options, such as solar panels or wind turbines, to further cut energy costs, but even simple measures like turning off equipment when not in use, optimizing temperature settings and reusing scrap or water can improve production efficiency. When energy resources are used more effectively, a company can increase its capacity for production while improving the sustainability of its operations.
Use Data Analytics and Performance Metrics
Manufacturers can collect data in many ways, including through the use of IoT sensors, machine logs, quality-control systems and enterprise resource planning (ERP) systems. Such data provides a holistic view of production processes and can be analyzed to determine how to best solve problems, make strategic decisions and, ultimately, improve manufacturing production efficiency. Real-time data analytics capabilities, for example, can identify bottlenecks or equipment failures on the spot to inspire immediate corrective action. Meanwhile, predictive analytics can help manufacturers improve efficiency by analyzing historical demand patterns, market trends and seasonality to forecast future product demand. With this information in hand, companies can more easily optimize inventory levels and plan production schedules, making it less likely that companies will be blindsided by sudden swings.
In addition to data analytics, KPIs including OEE, cycle time and throughput all provide valuable insight into the impact of efficiency initiatives, as well as areas in need of improvement. Data visualization tools, like dashboards, can make KPI insights more accessible for decision-makers at all levels of the organization, from shop-floor managers to operations managers and chief operating officers.
Focus on Sustainability
Prioritizing sustainability doesn’t only enhance a manufacturer’s environmental, social and governance (ESG) standing. It also plays a vital role in improving production efficiency. By reducing carbon emissions, improving energy efficiency and investing in eco-friendly equipment, for instance, manufacturers can prepare for future regulatory changes and meet the growing demand for goods produced by eco-conscious companies. For example, rather than scrambling to meet regulatory deadlines, proactively adopting sustainable practices (e.g., using renewable materials, implementing comprehensive recycling programs and reducing overall resource consumption) can give businesses a competitive edge when new environmental standards are implemented.
Cost-cutting is also a core part of efficiency. Investing in energy-saving equipment, such as high-efficiency machinery and eco-friendly lighting, can pay dividends through lower utility costs and better equipment lifespans, both of which can allow resources to be allocated more effectively to enhance operational flow.
Improve Your Production Efficiency With NetSuite
Leading manufacturers know that improving production efficiency is key to staying competitive and growing their businesses. But with so many moving parts and complex processes, from procurement to the last mile, it can be challenging to identify, address and monitor inefficiencies. That’s where NetSuite for Manufacturing can assist. NetSuite’s cloud-based ERP is designed to help manufacturers streamline operations and boost production efficiency in a variety of ways. Imagine a system that automatically balances supply and demand to ensure that a company always has the right inventory on hand. This is what NetSuite’s Planning and Scheduling feature does. And, with upcoming production displayed via intuitive drag-and-drop tools, teams can easily view, manage and change production schedules and identify potential issues before they make it to the production floor.
Beyond planning, improving efficiency is also about execution. NetSuite’s Shop Floor Control tablet application gives manufacturers real-time updates into the manufacturing process — including when, where, why and how products are being manufactured. This insight makes it easier to quickly identify inefficiencies and make changes on the fly. And don’t forget about quality control. NetSuite’s Quality Management module helps companies ensure that products are consistently top-notch through customizable inspection plans and pass/fail criteria that make it easy to catch issues early.
Manufacturing production efficiency refers to how well a company is able to use its resources — namely, time, materials and labor — to create and deliver its products. The more efficient an operation, the more it can create with its inputs, the less wasteful it is and the more money it can save. Efficient operations also benefit consumers through more consistent products, as well as employees through more intuitive workflows. The good news is, manufacturers have a variety of ways at their disposal to boost their production efficiency, from low-cost options like improving workforce training, rethinking layouts and workflows and prioritizing energy efficiency, to bigger investments, like advanced manufacturing technologies, automation and robotics.
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Production Efficiency FAQs
What is an example of production efficiency?
Production efficiency refers to any way in which a manufacturing production line is made more effective. For example, a manufacturer may decide to adopt lean manufacturing principles to streamline its production line. By doing so, it can identify and eliminate any steps of the process that don’t add value, such as producing more items than demanded by customers and redundant quality checks. In turn, the company can scale back on excess inventory and improve production flow, leading to faster production cycles and reduced costs.
What are the factors affecting production efficiency?
A variety of factors affect production efficiency, including production processes and workflow, the type and quality of machinery used, workplace layout, quality-control systems, workforce skills and training, supply chain processes and energy efficiency.
How do you evaluate production efficiency?
Production efficiency can be evaluated through a number of key performance indicators (KPIs), the primary one being overall equipment effectiveness, which measures the percentage of time the manufacturing facility is producing high-quality products with no downtime. Other useful KPIs are throughput, cycle time, capacity utilization, yield, inventory turns, scrap rate and energy cost per unit.
How can productive efficiency be improved?
Maximum productive efficiency is an economic concept that refers to a circumstance in which a company can’t produce more of one good without producing less of another — in other words, the company reaches its maximum output from its given inputs. To improve productive efficiency, a company needs to optimize its use of resources to make sure its production processes are operating at the lowest cost and highest output possible, with as little waste as possible. More efficient technology, better employee training, enhanced quality control, smart supply chain management and data analytics can also improve productive efficiency.
What does it mean to increase production efficiency?
Increasing production efficiency means a manufacturer is able to get more outputs from its inputs more quickly and with as few wasted resources (time, labor, money, energy, etc.) as possible.
What makes production efficient?
Various factors can make production efficient, including advanced technology systems, like automation and robotics, that streamline processes and reduce human error; rearranging workflows and shop floor layouts to reduce travel time and unnecessary materials handling; and offering training that gives employees the skills they need to correctly and effectively operate equipment and manufacture goods.
