By John Peter Koss
Throughout the beverage operations cycle, from product formulation to finished product distribution, machinery, equipment, systems and human effort are expected to produce salable finished product according to an established performance level. Unfortunately, the term “performance” often has been used interchangeably and inadvertently with “efficiency” and “productivity.” Historically, the practice has masked the true meaning and use for all three terms under various operating conditions and has often led to inaccurate measurement and evaluation of operations activity. The purposes here are to: 1) clarify the realistic differences amongst all three: 2) provide the parameters governing each term and: 3) focus on establishment, accuracy and use of those parameters for determining “how well are we doing” in beverage operations.
Efficiency, referred to as “line efficiency”, is actually a production line utilization factor used to equate available production time (hours) to actual time (hours) used. The utilization factor is important because it actually constitutes a measure of asset usage for invested capital. It provides a quantitative measure for production line “uptime” and “downtime” to determine asset utilization under different operating conditions. Changeovers, machine malfunction, material jams and other events make up downtime and reduce production line uptime (productive time). Line efficiency, aka the utilization factor, is a clearly defined entity and driven by downtime experience that becomes the basis for establishing an expected output level.
Productivity on the other hand is a trend measurement of either labor or machinery output. For labor, there are two definable variables, units produced and labor hours worked; therefore, labor productivity is a ratio of salable units produced per labor hour worked (not paid) to produce those units. For machinery, there are also two definable variables, units produced and machine hours run; therefore, machine productivity is a ratio of salable units produced per machine hour run. Productivity, a trend measurement tool, should be used to track improvement or decline under different operating conditions rather than on a comparative basis.
Performance is the measurement of actual units or hours compared to a “standard” or “expected” level of output or effort. Performance standards, both labor and machinery, are the bases for many cost systems used for pricing, budgets and other financial activity. For example: Production line output is 2,500 cases per hour at 100 percent utilization; however, past production experience indicates a 20 percent downtime reducing the output to 2000 cases per hour, or an 80 percent utilization level. Therefore, 2000 cph, not 2500 cph becomes the “standard” level against which actual output is measured. Therefore, standard versus actual becomes the true measurement of “performance.” Using the term “performance” must relate to actual results compared with physical standards.
These are basic terms—and all different.
John Peter Koss, a beverage operations advisor, is a licensed registered professional engineer and has 50-plus years of beverage business experience. He can be reached at email@example.com.