Many folks use the terms efficiency and productivity interchangeably.
They are not interchangeable. They are not equivalent.
Heck, they’re not even synonyms – even though Thesaurus.com thinks so.
Technically, productivity is a ratio of (good) outputs to inputs and efficiency is the ratio of actual output to standard output. Lean practitioners are typically and more appropriately concerned about productivity. As the famous Art Byrne, former CEO of Wiremold, said, “Productivity = Wealth.”
BUT, in this post, we are talking about efficiency! And it’s important to understand the basic math around efficiency.
Efficiency is the ratio, typically reflected as a percentage, of actual output to the standard expected output. The measurement therefore provides insight into how well a resource(s) is performing relative to a standard.
Lean practitioners know that traditional standards are often not well maintained and do not always closely reflect reality. Accordingly, efficiency measurements may provide an inaccurate view of performance and may mask improvement opportunities. Standard work rigor, integrated with kaizen, should help reduce these risks and appropriately focus the organization.
Efficiency ratios can be categorized as follows (APICS Dictionary, 13th ed.):
- actual units produced or processed to the standard rate expected within a time period (hour, day, week, etc.),
- standard hours produced or “earned” compared to actual hours worked, and
- actual dollar volume of output to a standard dollar volume of output within a time period.
The math follows:
Related post: Productivity (and not efficiency)