Identify and Benchmark These 7 Planning Rates
How much time does it take to run a full production cycle? How fast do you consume raw materials as part of a regular production schedule? How far in advance do you need to order components to meet your deadlines? These questions are all tremendously important to consider as part of production planning. To answer them, you need well-established planning rates.
What are planning rates?
Planning rates are critical components for managing efficient, cost-effective manufacturing operations. They refer to the predetermined rates or standards used for various aspects of the manufacturing process — everything from time values to material quantities. Identifying and benchmarking these rates helps in planning, controlling, and optimizing production.
7 important planning rates
Planning rates are prevalent across the value stream. Here’s a look at seven of the most important rates to recognize and capture, as well as their roles in effectively estimating production:
- Production rate: This is the speed at which products are manufactured. It’s typically measured in units per hour or day. Knowing the production rate helps in estimating how long it will take to complete an order and aids in scheduling work and deliveries.
- Labor rate: This refers to the cost of labor per unit of time (hour, day, etc.). It’s essential for calculating the labor costs associated with manufacturing a product. Labor rates can vary based on the skill level required, geographical location, and other factors.
- Machine rate: Similar to labor rates, machine rates are the costs associated with operating machinery. This includes depreciation, maintenance, electricity, and other operational costs. Understanding machine rates is vital for calculating the total cost of production.
- Material usage rate: This is the rate at which materials are consumed in the production process. It’s important for inventory management and cost control. Knowing the material usage rate helps in predicting future material needs and minimizing waste.
- Quality rate: This refers to the percentage of products that meet quality standards out of the total produced. A high quality rate is desirable, as it reduces waste and increases customer satisfaction. It also impacts the overall cost of production, as lower quality rates might lead to rework or scrap.
- Capacity utilization rate. This rate measures how effectively a manufacturing plant is using its capacity. It’s calculated by dividing actual output by potential output. High utilization rates indicate efficient use of resources, while low rates suggest underutilization or inefficiencies.
- Lead time. Although not a rate per se, lead time — the time from starting production to delivering a product — is influenced by planning rates. Shorter lead times can be a competitive advantage but require efficient production-rate management.
Efficient management starts with planning
Managing planning rates effectively leads to better cost control, resource allocation, and overall manufacturing efficiency. But it also requires a balance. For instance, increasing production rates shouldn’t compromise quality, and reducing lead times shouldn’t increase costs.
Technology, such as manufacturing execution systems (MES) and enterprise resource planning (ERP) software, often plays a key role in monitoring and optimizing these rates. And foundational to true optimization is a deep understanding of which planning rates are worth focusing on in your factory.