Why Smart Manufacturers Pursue Productivity over Efficiency

Thought to be little more than a buzzword a few decades ago, Lean tools and techniques have proven effective in eliminating waste in manufacturing. Essentially what this means is that manufacturers have been increasing efficiency by doing more with less. Unfortunately, once these techniques are employed and efficiencies created, the likelihood of sustaining increased production can significantly lower. In this post, we discuss why forward-thinking manufacturers choose to emphasize productivity over labor efficiency.


In common accounting principles, Direct Labor Efficiency measures the difference between the standard cost of actual labor hours used during a period and the standard cost. We can arrive at this figure with the formula:

(Actual hours – Standard hours) x Standard rate = Labor Efficiency variance

The variance may end up being favorable or unfavorable (good or bad). When the end result is favorable, labor efficiency has increased over the measurement period. And when the variance is unfavorable, labor efficiency has decreased.


Labor Productivity is calculated by taking the change in output per labor hour input. In other words, the formula is:

Total output /Total input = Labor Productivity

Where labor is concerned, when productivity is up from the previous period, manufacturers are producing more goods with the same labor force, whereas when efficiency is up, manufacturers are producing the same number of goods with less labor.


There is nothing inherently wrong with increasing efficiency. However, according to Michael Mankins, Chris Brahm and Greg Caimi in an article on Harvard Business Review, companies who manage their labor productivity by bringing “as much discipline to their time budgets as to their capital budgets … have not only lowered their overhead expenses; they have liberated countless hours of previously unproductive time for executives and employees, fueling innovation and accelerating profitable growth.”

According to the National Association of Manufacturers, a shortage of skilled workers has been the top concern in the industry for a few years, and while the industry is projected to need 4.6 million workers in the next decade, 2.4 million jobs may be left open due to a lack of trained workers. The question then becomes how to retain and produce more with the employees you already have.


Research shows that satisfied employees are 40 percent more productive than unsatisfied employees. Engaged employees are 44 percent more productive than satisfied employees. And inspired employees are 125 percent more productive than a satisfied employee.

Looking at the Pyramid of Employee Needs, are there ways your company can create an environment that elicits these emotions in workers?

Shop Floor IQ was developed with your employees in mind. Here are a few ways our platform can boost employee satisfaction.


Using dispatch queues, you can show your workers that their time is equally valuable, and prevent downtime through effective communication. Don’t leave anyone standing around by dispatching quality inspectors, weld inspectors, management and critical machinery/assets to a station when needed.


Virtual (or physical) Andon lights allow station operators to signal up to five different conditions from their station, while management can monitor all statuses in real-time from any internet-enabled device.

While workers want to work autonomously, they also want to be able to reach the whole team when necessary. Enable messages to be sent and received between individual shop floor stations and the management team via text, e-mail or displayed on the station’s display


Don’t force your shop floor to learn complicated steps or software. Make all your productivity improvements as easy to use and understandable as possible. With a fully integrated rules-engine, you are able to configure Shop Floor IQ to work the way your manufacturing operations work.

If you are looking to increase your labor productivity, consider our platform solution that works with your other technology and gives you real-time actionable insights into your lines. Find out more on our platform page and get a free trial to see how it works.

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