How To Measure Productivity

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A step by step guide of how to calculate productivity (labour efficiency)

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How To Measure Productivity

  1. 1. Productivity and Efficiency and how to calculate it. How to calculate productivity and efficiency. A guide . Finidhyn ltd WWW.FINIDHYN.COM Copyright 2000 - 2010
  2. 2. Productivity and Efficiency and how to calculate it. Production performance measurement - Efficiency Performance in production is normally measured in one of two ways depending on the pressures faced by the business; 1. Efficiency 2. Productivity Efficiency is worked out in the following fashion: (run time of the machine including setup and changeovers) X (total good units produced) / (total production time available – breaks) X (standard rate of machine) Efficiency tends to be focussed on more in a capacity constrained situation as it is entirely focussed on output. Production performance measurement - Productivity Productivity is more complicated as is relies on the principle of Earned Standard Labour Hours in order to give a fair reflection of performance and enable fair comparisons of performance to be made. In order to calculate an ESLH you need to specify what the standard speed for the line is and the standard crew. This can either be done by line if there is no variation in rate and crew for different products, otherwise a standard needs to be defined for each product on each line. A standards database would look something akin to the following: Direct Staff Indirect staff Bottles Boxes Cases Cycle On the Case Plt Plt Total Ware Total per per per SC NO DESCRIPTION Machine Product Time Machine making Stacking /wrap Direct TL Packaging QC Lab Manf house Yard Indirect case pallet minute SC002 4x5Lt PARASAN THICK BLEACH 6 Thk Bleach25 4 1 1 6 1 2 1 2 4 2 7 19 4 40 6.3 SC004 4x5Lt JANITOL NEUTRAAL (C/EUR) numo Utlity 0 1 2 1 2 4 2 7 19 4 40 - SC006 20Lt PARPAK MACHINE D/WASH numo Utlity 0 1 2 1 2 4 2 7 19 4 40 - SC007 1000Lt COLOURED HYCOLIN Utlity 0 1 2 1 2 4 2 7 19 4 40 - SC009 4x5Lt WHITE DISINFECTANT numo Disinfectant 0 1 2 1 2 4 2 7 19 4 40 - SC011 24x500ml NETTO LEMON ULTRA 4 Det 90 3 1 4 1 2 1 2 4 2 7 19 24 54 3.8 SC012 4x4.5Lt FEMPACK GERMICIDE Bxd numo Utlity 0 1 2 1 2 4 2 7 19 4 40 - SC013 200Kg META CRESOL beast 0.5 1 1 2 1 2 1 2 4 2 7 19 4 40 0.1 This database will then drive performance measurement and allow product costings to be factored for labour content with use of the productivity measure. Finidhyn ltd WWW.FINIDHYN.COM Copyright 2000 - 2010
  3. 3. Productivity and Efficiency and how to calculate it. Earned Standard labour hours An ESLH is how many units of product we should be able to produce in 1 man-hour of work. Example : A machine runs at 100 units per minute; The machine needs 6 people to run it; • You run the machine for 2.5 hours with 5 people and achieve 9,800 units – how productive have you been? Calculation: The time it should have taken you to do the job (The standard time) is 9,800 units divided by the standard machine rate of 100 units per minute which gives you 98 minutes. • In order to arrive at how many standard labour minutes you should have used (the minutes that you should have to pay for) you multiply the standard time by the standard crew of 6, this gives you 588 minutes. • However you only used 5 staff and you ran for 150 minutes rather than the 98 you should have done so your actual labour time is 150*5 = 750 labour minutes. Converting productivity to a financial evaluation The benefits of using ESLH’s is that it is possible to calculate what the standard cost of producing a unit is, and this can then be factored according to the productivity. Example : Labour costs £6.50 per hour on the line If the line had run at 100% productivity it should have cost 588/60 = 9.8 hours @ £6.50 which would mean you should have paid £63.7 for your 9,800 units or 0.65 pence per unit. The true cost of the production was 750/60 = 12.5 hours @ £6.50 which means that we will pay £81.25 (£17.55 more than we should have done) or .082 pence per bottle. Another way is to say the standard cost is 0.65 per bottle and we achieved 78.4% productivity so 0.65/0.784 = 0.82 pence per bottle. Finidhyn ltd WWW.FINIDHYN.COM Copyright 2000 - 2010
  4. 4. Productivity and Efficiency and how to calculate it. The benefit of evaluation performance like this is that you can relate your operational productivity % directly to your costing system. Another very important factor is that the measure is not skewed by changes in your product mix or volumes. Evaluating historical performance By using the methodology outlined we can take each of the products produced in a period and by using the standards database can evaluate productivity for the period. This can then be compared with performance today using the same standards. Finidhyn ltd WWW.FINIDHYN.COM Copyright 2000 - 2010

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