How the Best Factory Owners Determine Overall Factory Productivity. By:- Mr. Vishal Gupta

In the dynamic world of manufacturing, processes are intricate and multifaceted, encompassing various stages like machines, tooling, routing, and more. To effectively manage these complexities, operations are typically divided into distinct departments or sections, with specific machines and tools allocated under each.

To gauge productivity, we often rely on metrics such as OEE (Overall Equipment Effectiveness), quantity per hour, quantity per person, rejection percentage, etc. But here’s the critical question: After implementing numerous improvement initiatives and kaizens, how do you determine if your factory’s overall productivity has genuinely increased?

The Key Metric: Contribution-to-Operating Expenses Ratio.        

The best way to evaluate productivity holistically is by monitoring the ratio of Contribution to Operating Expenses.

Definitions:

• Contribution = Selling Price – Raw Material Cost
• Operating Expenses = All other expenses (e.g., wages, energy, travel, repairs, rent, etc.)

Example Scenarios

Let’s break it down with an example:

Sales = Rs 10cr.

Material cost = 8 cr.

Contribution = 10-8 = 2cr

Operating Expense = 1.5 cr.

Productivity = 2/1.5 = 1.33

Scenario 1: Contribution increases to 2.5 cr and expense to 2 cr. Then productivity = 2.5/2=1.25. Hence productivity has decreased.        

Scenario 2: Contribution increases to 2.3 cr and expense are same at1.5 cr. Then productivity 2.3/1.5=1.53. Hence productivity has increased.        

Takeaway for Factory Owners

Keeping track of this simple yet powerful ratio ensures that your improvement efforts and initiatives are genuinely enhancing productivity. It provides a clear, quantitative way to measure the impact of your actions on the overall efficiency and profitability of your factory.

By focusing on the Contribution-to-Operating Expenses ratio, you can:

• Identify areas that need further optimization.
• Ensure your kaizen efforts are delivering tangible results.
• Make more informed decisions about resource allocation.

A Humble Effort for a Competitive Edge

This approach is my small contribution to making manufacturing more competitive. By adopting this metric, factory owners can achieve sustainable growth and operational excellence. Let’s work together to elevate the standards of manufacturing and drive innovation in our industry.