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Home Balanced Scorecard Manufacturing Cycle Efficiency (MCE)
 
 

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 17.0
Inspection time 0.4
Process time 2.0
Move time 0.6
Queue time 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

Relevant Articles:

Definition and Explanation of Balanced Scorecard
Characteristics of Balanced Scorecard
Delivery Cycle Time
Throughput (Manufacturing Cycle) Time

Manufacturing Cycle Efficiency (MCE)

 

 

 

 

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