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Manufacturing cycle efficiency (MCE) is defined as the value-added time as a percentage of throughput time. Value-added time refers to the actual processing time, while throughput time includes both value-added and non-value added activities like inspection and moving. Calculating the MCE allows companies to measure process efficiency and identify opportunities to reduce non-value added activities. The document provides an example calculation where a company's MCE is determined to be 25%, meaning only 25% of the total time spent on an order was actual processing time. A real business example is also given of a bank that improved its loan application MCE from 0.0004% to 100% by streamlining the process.

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690 views5 pages

Jake

Manufacturing cycle efficiency (MCE) is defined as the value-added time as a percentage of throughput time. Value-added time refers to the actual processing time, while throughput time includes both value-added and non-value added activities like inspection and moving. Calculating the MCE allows companies to measure process efficiency and identify opportunities to reduce non-value added activities. The document provides an example calculation where a company's MCE is determined to be 25%, meaning only 25% of the total time spent on an order was actual processing time. A real business example is also given of a bank that improved its loan application MCE from 0.0004% to 100% by streamlining the process.

Uploaded by

Evan Jordan
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Manufacturing Cycle Efficiency (MCE)

A Measure of Internal Business Process Performance:


Manufacturing cycle efficiency (MCE) is an important measure of internal business
process performance. Performance measures are found on the balanced scorecards of the
companies. Examples of the some performance measures can be found on characteristics of
balanced scorecard page. Most of the performance measures are self explanatory. However,
three are not - delivery cycle time, throughput time, and manufacturing cycle efficiency
(MCE). On this page, manufacturing cycle efficiency (MCE) is defined, explained and
calculated.
Definition and Explanation:
value added time as a percentage of throughput time is called manufacturing cycle
efficiency.
Through concerted efforts to eliminate the non-value added activities such as inspecting,
moving, and queuing, some companies have reduced their throughput time to only a
fraction of previous levels. In turn, this has helped to reduce the delivery cycle time from
months to only weeks or hours. Throughput time, which is considered to be a key measure
in delivery performance, can be put into better perspective by computing the manufacturing
cycle efficiency (MCE).
Exhibit 1-1: Delivery Cycle Time and Throughput (Manufacturing Cycle) Time

Formula:

MCE = Value-added time / Throughput time

If the MCE is less than 1, then non-value added time is present in the production process.
An MCE of 0.5, for example, would mean that half of the total production time consisted of
inspection, moving, and similar non-value-added activities. In many manufacturing
companies, it is less than 0.1 (10%), which means that 90% of the time a unit is in process
is spent on activities that do not add value to the product. By monitoring the MCE,
companies are able to reduce non-value-added activities and thus get products into the
hands of customers more quickly and at a lower cost.
Example
Calculation of Manufacturing Cycle Efficiency:
Novex Company keeps careful track of the time relating to orders and their production.
During the most recent quarter, the following average times were recorded for each unit or
order:
Wait time
Inspection time
Process time
Move time
Queue time

17.0
0.4
2.0
0.6
5.0

Goods are shipped as soon as production is completed.


Required:
Calculate manufacturing cycle efficiency.
Solution:
MCE = Value-added time / Throughput time
MCE = 2.0 days* / 8.0 days**
= 0.25
*Only process time (2.0 days) represents value-added time
**Throughput time = Process time + Inspection time + move time + Queue time
= 2.0 days + 0.4 days + 0.6 days + 5.0 days
= 8.0 days

Real Business Example:


Expediting Loan Applications:
Banks ordinarily require three to four weeks to approve an application for a mortgage loan on a house. The application form
includes the individual's employment history, income, and financial assets and liabilities. Personnel at the ban check credit
references and review the entire application before granting the loan. A manager at one bank wondered why this this process

takes so long and asked employees to keep track of how much time they actually worked on processing an application. He
discovered that processing an application took on average 26 days, but only about 15 minutes of this time was actual work. All
of the rest of the time the application was waiting to someone's in-basket. The manufacturing cycle efficiency was therefore only
0.0004 [15 minutes / (26 days 24 hours per day 60 minutes per hour)]. By redesigning and automating the process, the
cycle time was cut down to 15 minutes and the MCE rose up to 1.0. Loan applicants can now have a cup of coffee while waiting
for approval.
Source: Kaplan and Norton, Translating Strategy into Action: The Balance Scorecard, 1996,
pp. 118-119

Manufacturing Cycle Efficiency


The ratio of value-added time to manufacturing lead time or cycle time. Manufacturing cycle time can be improved by the reduction of
manufacturing lead time by eliminating non-value-added activities such as inspecting, moving, and queuing.

Determining the Components of the MCE


Keep in mind that each step or process denotes time and resources that are
consumed, with the expectation that they can be recovered with a
reasonable rate of profit or value added. This profit represents the mark-up
that is added to the selling price being offered to customers.
In understanding this, it would be important for the process manager to
determine which process steps add value and which do not. These
components are called value-added and non-value-added process steps and
are defined as follows:

Value-Added Process Steps -- The work performed within a


manufacturing cycle that adds to the function or enhances the form of the
product in such a way that it becomes a finished good that is pleasing or
attractive to a customer. The latter, then, would be willing to pay
additional value aside from the products manufacturing cost.

Non-Value-Added Process Steps These steps are the exact


opposite of the value-added steps wherein no form or functionality is
contributed by the work performed, but they still form part of the
manufacturing cost to be recovered and imputed in the selling price that
customers have to pay.
Inasmuch as our goal is to determine efficiency, we have to first establish the
total time that each manufacturing cycle takes, which is known as the cycle
time or throughput time. The cycle time will then be identified as to which
process steps are valued-added and which steps are non-valued-added, in
order to assign the time-equivalent of these two components.
After determining their respective cycle time values, you can now calculate
the manufacturing cycle efficiency.

Image Credit: Algots

The Manufacturing Cycle Efficiency Formula


After knowing the manufacturing cycle time and value-added cycle time, you
can now use the manufacturing cycle efficiency formula to determine the
MCE rate:
Manufacturing Cycle Efficiency (MCE) = Value-Added
time/Manufacturing Cycle Time
The resulting quotients will then be expressed in terms of percentage by
multiplying the number derived by 100%.
However, as some would say, it is easier said than done, especially if the
process manager is at a loss on how to identify which of the process steps
add value or which do not. Hence, we find it necessary to provide further
explanations by giving the readers an example of how manufacturing cycle
efficiency is calculated.

Read more about the manufacturing cycle efficiency, calculated in a


complete example on the next page.
Business owners and learners often perceive certain metric
calculations as too complex, which is not always the case. Read our
explanation in page 2 of our article about Manufacturing Cycle Efficiency,
calculated with a simple example, to discover the simplicity of the method.
Make use of other project management tools like the process map as a
means to organize your data. Learn the significance of this tool which will
allow you to be more competitive in terms of selling price and business
performance.
Example of How to Calculate the MCE
In calculating the MCE, your first concern is to identify the manufacturing
processes involved. The best way to organize this is to create a process map.
In our example, the work performed in each manufacturing cycle is for a
batch of 100 garments assigned to 5 sewers.

The process map will help you identify which of the actions
performed during the manufacturing cyle add value to the production of
100 garments. Kindly click on the image to get a larger view of the sample
process map

Jot down the process steps you have mapped out, together with
the equivalent number of days or hours to complete each step. In our
example, the process steps and their cycle time are as follows:
(1) Sample Making and (2) Pattern Production = 5 days
(3) Grading (4) Marker Making (5) Spreading = 2 days
(6) Cutting = 2 days
(7) Sorting/Bundling = 1 day

(8) Sewing/Assembling = 1 day


(9) Inspection = 1 day
(10) Pressing = 1 day
(11) Packaging = 1 day

We summed up the equivalent number of days to get the


manufacture cycle time, wherein we derive a total of 14 days.

Classify the value-added time or those actions performed to


transform the raw materials into 100 finished garments:
Cutting = 2 days
Sewing and assembling = 1 day
Total Number of Value-Added Days = 3 days

Calculate the Manufacturing Cycle Efficiency using the formula:


Value-added process time / Manufacturing Cycle Time
MCE = 3 days / 14 x 100%
MCE = 21.42%
Image Credit: Created by author cscantoria.to serve as visual aid for the
explanations on MCE calculation

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