Manufacturing cycle efficiency (MCE)

Checked for updates, April 2022. Accountingverse.com

What is Manufacturing Cycle Efficiency?

Manufacturing cycle efficiency (MCE) calculates the percentage of the time spent in manufacturing products that are devoted to value added activities.

Value added activities refer to activities that cannot be eliminated without affecting the quality of the product. Non-value added activities refer to those that generate no increased value to a product, hence can be eliminated or reduced.

In computing for the manufacturing cycle efficiency, the time spent for value added activities is compared to the manufacturing cycle time. The manufacturing cycle time includes process time, inspection time, move time, and queue time.

Process time refers to the length of time spent in working on the products or orders.

Inspection time is spent on making sure that the products are not defective.

Move time is time spent in transferring products between workstations.

Queue time is the total time spent by the products while standing-by to be processed, moved, inspected, or shipped.

Among these, the only value added activities are those done in the process time.

Manufacturing Cycle Efficiency Formula

 MCE = Value added time (i.e. Process time) Manufacturing cycle time

where:
Manufacturing cycle time = Process time + Inspection time + Move time + Queue time

Wait time is another non-value added activity but is not part of the computation of manufacturing cycle time (or throughput). Wait time is actually part of the delivery cycle, i.e. throughput plus wait time.

Example

XYZ Company recorded the length of time spent in various activities in its operations. The following information has been drawn from its records.

 Wait time 2 days Process time 10 days Inspection time 2 days Queue time 3 days Move time 1 day

Solution:

 Manufacturing cycle time = Process + Inspection + Move + Queue = 10 + 2 + 1 + 3 days Manufacturing cycle time = 16 days
 MCE = Value added time (or Process time) Manufacturing cycle time = 10 / 16 MCE = 62.50%

The above indicates that the company uses 62.50% of its manufacturing time for value added activities. 37.50% is spent for non-value added activities.

The judgment as to whether such manufacturing process is efficient or not is dependent upon the company's KPIs (key performance indicators). Companies use internal and external information as basis in formulating KPIs, such as historical data and industry standards. To increase MCE, the company needs to reduce time spent on non-value added activities.

Key Takeaways

Manufacturing cycle efficiency (MCE) measures the portion of throughput time that is spent on value-added activities. Ideally, business should minimize non-value added activities and aim for high MCE.

Value added activities include all activities in processing an order (process time).

Non-value added activities include queueing, moving, and inspecting the products.

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