Sometimes, business terms can seem so complicated and boring, and when you hear the word cycle efficiency, you may be ready to tune yourself out from another boring business topic. However, this term is something you should know about because cycle efficiency is all about making your life more convenient. Have you ever spent a lot of time waiting for something and you often ask yourself, “Why is this taking so long?” Cycle efficiency is all about reducing the amount of time that you have to wait for something, whether it is a loan application or the amount of time it takes to get a latte at Starbucks.
Have you ever encountered a business situation where there are tons of employees standing around doing nothing? Everyone has probably seen this scenario with road crews who repair our highways and roads. This labor intensive activity requires workers to stand around for an extended period and then perform short spurts of actual labor. There is nothing to do while they are waiting, so you will see most of them standing around leaning on a shovel. As you drive past in your car, you might hear someone say, “Those road construction workers are the laziest people I have ever seen, and it is such a waste of taxpayer’s money.”
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The scenario mentioned above happens in business all the time. This is where cycle efficiency comes into play because it eliminates waste in your processes and making them more efficient. The trend for most companies today is to strive to become leaner when it comes to production. Cycle efficiency is a lean process where the value-added time in the process is greater than 25% of the total lead time.
When you hear the names of companies and organizations like Starbucks, Coca-Cola, NASA, Amazon, GM, or DuPont, you probably think of other words to describe them such as successful, innovative, world-class, high quality, among many other positive attributes. One of the reasons these companies and organizations have been and continue to be so successful is because they all continuously seek out improvement by striving to make the most use out of their time and eliminating activities that do not add any value and is what Process Cycle Efficiency (PCE) is all about.
Process cycle efficiency is an important measure of internal process performance for business or organization. These performance measures are usually found on a company’s balance scorecard. This performance measure also goes by other names such as Manufacturing Cycle Efficiency (MCE) or Cycle Efficiency (CE). Throughout this article, the topic will be discussed as PCE.
Measuring PCE at the organizational level is extremely useful for anyone seeking improvement in the way things are done. At this level, many dependent factors among various teams contribute to the organization’s value stream. The value stream of the project may involve different departments that work in multiple stages in an interleaved away which makes finding a solution to make the best use of time very complicated. With PCE, management can reorganize these teams to improve project management and workflows.
Calculating Process Cycle Efficiency – Identifying Value Added Activities
To calculate PCE, you must first identify areas that do not contribute to the value of the product. Many companies and organizations use a value stream map. This map identifies activities in a process that uses time, resources, or space. Those activities fall into three categories to include:
1. Value-added activities. These types of events create more value for the product which means they add or contribute to something that the customer is willing to pay for. When evaluating value-added activities, put yourself in the mind of the customer. If the customer is not willing to pay for an activity, this activity is not adding any value.
2. Necessary but does not add any value. During production, several activities are required but do not add any value that a customer is willing to pay for. For example, every month, management has an outdoor barbecue (snow, rain, or shine) with rib eye steaks and baked potatoes for every employee in the company. This is provided for free to all employees as a way of saying thank you for your hard work. A customer is probably not willing to pay for rib eye steaks and baked potatoes for all of your employees every month, but management sees this activity as something that is necessary to keep employees motivated and more productive. Although management may consider these activities as needed, they are classified as waste because they do not add value to the final product.
3. Non-value-added activities. These are wasteful activities that do not add any value to the final product.
Determine Who Your Customers Are
After creating your value stream map, the next step is identifying who a customer is. If you take a look at Google, you may wonder who Google’s customers are. Is it the people that perform searches on Google? The answer is No. Google’s customers are the advertisers that pay money so that you will click on their ads while looking for information on their search engine. When you search for information on Google, you are the product that Google was selling to advertisers. The customers are the people who are buying the ads.
This example illustrates that identifying who your customers are is critical. In many industries, it is often difficult to determine who your customers are as illustrated in the Google example. Knowing exactly who your customers are is necessary to make PCE efficient.
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Transportation - Moving materials around from one location to another without adding any value.
Inventory - More storage that is required for raw materials, work in progress, and finished products.
Motion - Moving people around and shifting them from one work area to another without adding any value.
Wait-time - Nothing productive is being accomplished, and this is just idle time.
Over-Processing - Doing additional work that is a necessary. In production, some companies tend to manufacture to higher tolerances than what customers require.
Over-Production - Producing more than what is needed at any given time.
Defects - Not complying with specifications when rework or repair is necessary to satisfy customers.
Assigning Times to Calculate Cycle Efficiency
Calculating PCE is the next step where you must use the value stream map to determine the amount of time used for each activity. This should be done by calculating the cycle time, which is the total time needed to receive and process and order until that product is delivered to the customer.
Cycle time is most commonly calculated by taking the total number of paid working hours in a month and dividing that by the total number of finished products produced in that same month. This calculation will give you the amount of time required to produce one item, and the value stream map is used once again to divide that time among the activities on the map.
Process Cycle Efficiency Formula
The formula for calculating PCE is very simple:
PCE = Value Added Time / Cycle Time
When a process includes activities that exclusively add value which a customer is willing to pay for, the process cycle efficiency is 100%. This number is realistic in business terms since most companies and organizations have a PCE ranging from 5% to 10%. Once lien methods are implemented to improve the process, PCE may increase to the range of 20% to 25%. 25% is considered world-class, and this is a number that most managers should strive for in their organization.
Since there is always room for improvement, one important aspect for calculating PCE is to establish a standard for how it will be calculated. You must make sure that PCE is calculated the same way each time if you want to know if it is improving. It can also be improved by decreasing the cycle time through the elimination of non-value added activities and minimizing non-value adding activities that are necessary during production.
How 5S Can Help With Your Process Cycle Efficiency
When it comes to lean manufacturing, 5S is one of the foundation principles that you can also use in combination with PCE to help your organization become more productive. If you are not familiar with 5S, it is a method that can be used in almost any organization.
This method was first introduced in Japan and was one of the techniques used in the development of Just in Time Manufacturing. 5S stands for five Japanese words: Seiri, Seiton, Seiso, Seiketsu, and Shitsuke. When translated, these words mean Sort, Set in Order, Shine, Standardize, and Sustain.
Since 5S is also used in lean manufacturing, it has a direct correlation with PCE because many of its principles help improve an organization so that more activities fall into the value-added category of PCE and non-value activities are eliminated.
Steps taken during the 5S method implementation will automatically improve certain areas of PCE regarding value added, and non-value added processes such as:
Transportation - Since the Seiso and Seiton steps involve eliminating obstacles, preventing the accumulation of unnecessary items, arranging all necessary items so they can be easily selected for use. Placing components according to their uses, PCE is already improved by following these steps since material movement that does not directly support immediate production is reduced or eliminated.
Wait-time - Items are produced more quickly and loss and waste of time are prevented since Seiton encourages workstations to be arranged in a way that all tools and equipment are nearby.
Over-Production - Seiton encourages first-in-first-out (FIFO) method of production which helps increase PCE.
Processing - Redundant effort adds no value to a product, and both Seiri and Seiton encourages less redundancy by reducing the chances of being disturbed with unnecessary items, preventing the accumulation of unnecessary items, and making it easy to find and pick up necessary items.
Motion - Both Seiton and Seiri discourage any movement that does not contribute to added value. Seiri encourages removing all parts tools that are not in use and making sure that all frequently used tools and equipment are within hands reach.
Inventory - Accumulation of inventory will eventually take up space that can be used for other purposes. Seiri prevents the accumulation of unnecessary items to include inventory from overproduction.
Determine Your PCE for Improvement
Managers should always strive to know how to improve productivity during the production process. Process cycle efficiency is an excellent way to determine how your organization can be more productive. Implementing 5S also makes PCE a lot easier since the workplace is clean and well organized. When you have credible measures of the current state of your organization, it will be a lot easier to implement these methods to drive improvement.