Efficiency is a word used loosely when discussing organizations and their business processes. In general, a business process is said to be efficient when it is executed absent waste. Conversely, a process that is wasteful is considered inefficient. This begs the question, of course, just what is waste? Over the years, we have seen many different measurement models attempting to measure efficiency. While these measures capture various elements of waste, none capture the totality of process efficiency. The Total Process Efficiency measure offered here is intended to provide a single indicator that measures the extent to which a process performs relative to its full potential. It can be used effectively in any environment, including production and administrative business processes.
What is Total Process Efficiency?
Total Process Efficiency (TPE) measures how well a process delivers products or services without generating waste. Every minute of every day for every unit produced by the process is accounted for in this measurement. TPE should be used as a key performance indicator (KPI) that drives continuous improvement efforts. Increasing TPE requires constantly searching for ways to improve process performance by reducing the different types of waste. Anyone can understand the measurements used in this formula and, more importantly, the formula makes it easy to tie improvements on the front lines to overall organization performance improvement.
How to Calculate Total Process Efficiency
Total Process Efficiency = (Utilization)(Reliability)
Example: Total Process Efficiency = (71% utilization)(70% reliability) = 50%
Utilization = (Scheduled Hours)/(Total Available Hours)
Example: Utilization = (120 scheduled hours)(168 available hours in a week) = 71%
Utilization is a measure of processing workload, based on 24-hour/7 days week availability. The utilization goal is to schedule a process to work only as required to meet the actual customer demand for that process. Factors contributing to the difference between available time (168 hours per week) and scheduled run hours include company downtime, including, holidays, meetings, building closures, etc., weekends, off shifts, and other non-scheduled operating hours. This time occurs because a resource is not needed to meet customer demand and preventive maintenance.
Reliability = (Uptime)(Dependability)(First Pass Yield)
Example: Reliability = (88% Uptime)(88% Dependability)(91% FPY) = 70%
Reliability measures the extent to which a process is delivering its required demand without waste. Reliability losses include unscheduled downtime, actual run rates lower than designed, and yield loss/rework.
Uptime = (Actual Run time)/(Scheduled Run Time)
Example: Uptime = (105 actual operating hours)/(120 scheduled operating hours) = 88%
Uptime is the ratio of the actual operating time of a process versus the scheduled operating time. Factors contributing to uptime losses include unplanned breakdowns, support-related downtime including production schedule changes, lack of materials, inspection waiting, and communications, and changeovers and set-ups.
Dependability = (Actual Run Rate)/(Design Run Rate)
Example: Dependability = (140 actual units/hour)/(160 planned units/hour) = 88%
Dependability is the ratio of the actual output rate of a process versus the potential output rate. Factors contributing to a loss of dependability include unplanned minor equipment stoppages and adjustments, actual process production speed that is less than the designed speed, material, and product jam-ups.
First Pass Yield = (Good Outputs First Pass)/(Total Input)
Example: First Pass Yield = (147 good outputs)(162 total inputs) = 91%
First Pass Yield is the ratio of good products produced by a process versus inputs received by the process. First Pass Yield measures the percentage of products that are made right the first time through the entire process. Factors contributing to yield loss include scrap, rework process yield losses, quality rejects, and material losses.
What are the benefits of measuring TPE?
Measuring TPE provides a host of positive organizational benefits, including
- Aligning process outputs to customer demand
- Reducing process costs
- Defining mission-critical objectives for problem-solving
- Reducing process cycle times
- Improving products and services quality
- Increasing ROI on assets acquired to support the process
Total Process Efficiency can provide a Key Performance Indicator in assessing organizational performance and also serve as a driving force when prioritizing improvement opportunities. The organization that delivers high TPE performance will realize lower costs and less waste than its competitors, ultimately creating a competitive advantage that is substantial and sustainable.