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 thebalanced scorecardsof the companies. Examples of the some performance measures can be found oncharacteristics of balanced scorecardpage. 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 ofthroughput timeis called manufacturing cycle efficiency.Through concerted efforts to eliminate the non-value added activities such as inspecting, moving, and queuing, some companies have reduced theirthroughput timeto 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.ExampleCalculation 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 time17.0

Inspection time0.4

Process time2.0

Move time0.6

Queue time5.0

Goods are shipped as soon as production is completed.Required:Calculate manufacturing cycle efficiency.Solution:MCE = Value-added time/ Throughput timeMCE = 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 daysReal 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 EfficiencyThe 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 thecycle timeorthroughput 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 FormulaAfter 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 TimeThe 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 aprocess 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 daysSewing and assembling = 1 dayTotal Number of Value-Added Days = 3 days Calculate the Manufacturing Cycle Efficiency using the formula: Value-added process time / Manufacturing Cycle TimeMCE = 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