Manufacturing productivity and efficiency: the difference in 2020

Two key concepts in manufacturing that are often misunderstood or even used synonymously are productivity and efficiency. Do you know the difference? Despite these two words related to the improvement of the production process of a company in the manufacturing, agricultural or service sector, they refer to different things. Once you think about the differences, you can better use productivity and efficiency in your factory.

Productivity

The definition of "productivity" from a manufacturing perspective is "the relationship of output to inputs in production" and is a measure of efficiency. When something happens, how long does it take? What is the quantity, not the quality, of the production rate? Think of it like this: your production line produces 500 units in a week. If you increase the production rate to 700 units the following week, productivity has increased by 200 units. This is an increase in your productivity levels.

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Also, increasing efficiency can lead to higher productivity. Once the manufacturing process is bolstered by better sales, you start making investments to raise the production rate. This can be done by purchasing automated equipment, improving logistics, acquiring more skilled workers, and implementing LEAN manufacturing methodologies. When the line moves faster, your measure of productivity increases.

Also, increasing efficiency can lead to higher productivity. Once the manufacturing process is bolstered by better sales, you can start making investments to raise the production rate. This can be done by purchasing automated equipment, improving logistics, acquiring more skilled workers, and implementing LEAN manufacturing methodologies. When the line moves faster, your productivity increases.

Efficiency

When productivity became more focused on increasing the quantity that is made, efficiency refers to the quality and effectiveness of the work that is done. The definition is "the ability to make something or produce something without wasting materials, time, or energy". This means that efficiency is often expressed as a percentage, with 100% being the ideal target with maximum efficiency.

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However, many manufacturing companies may only operate at 60-80% efficiency. For example, your company produced 40% more units in one month than in the previous period, but then you find out that 30% of those units were defective. Although productivity has increased, efficiency has decreased. Better selection of raw materials can lead to greater efficiency by being easier to work with and improving consistency. You want to make sure you maximize efficiency (or at least not lose it) as you increase your output over time.

Another way to look at efficiency is the number of hours of good quality productive work earned divided by the number of available work hours in a day. You can also refer to this as a payroll performance measure. The right methods and training can help improve efficiency. To gain manufacturing efficiency, you want to produce more output in the same amount of time, so you need to choose the right set of KPIs to help you do that, depending on where you are on your productivity journey as regards your efficiency. 

There are several ways to boost efficiency that also boost productivity: by investing in improvements to the manufacturing line and those responsible for it. Design for Six Sigma was introduced to ensure that processes are designed to be efficient and successful from the initial design stage. You may have heard the statement that you can't build quality into the poor design, and it's very true.

How productivity and efficiency are balanced

Finding a stable balance between productivity and efficiency is essential for your manufacturing company to function at its best. Emphasizing one over the other is a dangerous game. Imagine ignoring the output quality of your items only to produce enough to meet demand and realize that the quality is poor. Now you have lost money and the trust of your customers.

Conversely, being strict about efficiency can result in scaring workers away. This is where we must be careful to implement LEAN methodologies correctly so that employees do not worry about losing their jobs due to increased efficiency.

So how do you merge the two? A common practice is to increase production while simultaneously investing in workers. Whenever changes are made, it is natural for them to feel uncomfortable. Effective training and understanding of the entire production line, right down to how important it is to make the product or provide the service, will help. It is equally important that employees know how the product is going to be used so that they can contribute to improving the product or service firsthand. Employee empowerment is key.

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In short, productivity is all about output versus input. Meanwhile, efficiency is concerned with doing the right things in the right way, minimizing errors and waste, and maximizing the use of valuable resources. When these two concepts come together harmoniously, the company will see an increase in both quantity and quality. Although they are different, productivity and efficiency are highly dependent on each other.