Manufacturing Cycle Efficiency
Manufacturing Cycle Efficiency is the percentage of time spent on value-added activities in the production process. Not all production processes will provide value to the end consumers. Some activities are just a waste of resources which should be eliminated by Activity-Based Costing.
Value added activities are the activities that are directly attribute to the product quality. They are the activates which convert the raw material to finished product. The customers are willing to pay for these activities. Increasing value added activities will add value to the customers and increase customers satisfaction. However, decreasing them will have negative impact on the customers as well.
Calculating the MCE will help the company to improve the production efficiency. Company can save cost by reduce non-value added as they will not impact the product quality. So it will be able to increase bottom line. On the other hand, they can improve customers satisfaction by improve value added activities, so it will help to increase market share as well as future sale.
Manufacturing Cycle Efficiency Ratio:
To calculate the manufacturing cycle efficiency, we simply total all the time spend on value added activities and divided them by total time spend on production process.
| \[MCE = { {Value\ Added\ Time} \over Manufacturing\ Cycle\ Time}\] |
Manufacturing Cycle Efficiency Example
In the cloth production process, we have found that the time spend would include the following activities:
- Cutting : 2 hour
- Sewing: 4 hours
- Inspection: 1 hour
- Ironing: 1 hour
- Packaging: 1 hour
- Moving and queue: 1 hour
Please calculate the MCE ratio.
Base on our analysis, only some activities are considered as the value added which include cutting, sewing, Ironing and package as they will provide benefit to the customers. Inspection and moving items in the factory is not the value added activities.
MCE = 8 hours / 10 hours = 80%
It means that only 80% of the production process provides real value to the consumers.