How to Improve Manufacturing Productivity

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Improving manufacturing productivity is the secret to steadier cash flow, stronger profit margins, and increased customer satisfaction.

Long story short: the more productive you are, the more competitive you are.

When improvement becomes an ongoing focus, your business will see happier staff, shorter production lead times, and simplified workflows – on top of the long-term financial gains.

This guide will show you how to improve productivity in manufacturing, reduce your company’s production costs, and be more efficient in your daily operations.

Let’s get started.

How to improve manufacturing productivity: 5 effective strategies

how to improve manufacturing productivity

The best way to improve manufacturing productivity is to take a holistic approach. That means considering not only the manufacturing process itself, but also the people, technologies, and production costs that contribute to a productive manufacturing environment.

We’ll dive into these in more detail shortly. But first, here’s a quick breakdown of the top five ways to improve productivity in your manufacturing operations.

1. Increase employee productivity

Improving the productivity of your employees directly lifts the performance of your business. One way to think about this is to consider how your staff can be more productive in the tasks they’re given.

Once, that simply meant forcing people to work faster. But this approach isn’t sustainable.

A more modern strategy is to find healthy ways of motivating your employees to excel at their jobs.

Another approach is to step back and ask which tasks your people can add the most value to.

That doesn’t mean replacing workers with machines, but rather looking for ways you can automate non-value-adding tasks, like data-entry or counting stock, so that your staff are freed up for more value-adding work.

2. Improve manufacturing productivity by reducing waste

In a manufacturing business, waste strains profitability.

Manufacturing waste can come in the form of time, resources, and labour. It shows up through insufficient process planning, inventory imbalance, or poor warehouse layout.

Essentially, waste is any expense or effort that does not efficiently transform raw materials into a finished product. By streamlining your production processes and eliminating wasteful expenditure, you can add new value to each phase of production.

manufacturing productivity

3. Establish more efficient manufacturing operations

Operational efficiency is about delivering good-quality products to the right customers in the most cost-effective and timely manner. As a result, it directly contributes to manufacturing productivity.

There are four factors that contribute to operational efficiency:

By focusing your efforts on each of these key areas, you can begin to establish optimised workflows that contribute to greater business performance and higher output – the cornerstones of ideal manufacturing productivity.

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4. Optimise your supply chain

Not all manufacturing productivity gains are achieved internally; sometimes you need outside help.

Supply chain management is an often-ignored strategy for improving manufacturing productivity.

But if you manage your supply chain well, you can get the best rates and products in the shortest possible time. In turn, this reduces your total inventory costs and improves your production efficiency.

Additional benefits of effective supply chain management also include healthier supplier relationships and better supply chain visibility, ultimately facilitating smarter and more cost-effective production planning.

5. Minimise production costs

Another way to improve manufacturing productivity is to reduce your total production costs.

Production costs are the costs incurred in manufacturing a product or providing a service. These can include expenses such as raw materials, labour, suppliers, and general overhead – as well as any government taxes and royalties.

Improved profitability is the obvious benefit of fewer production costs. But reducing these costs also frees up capital that can then be invested in efficiency-boosting resources, such as more effective tools, more staff, or better manufacturing software.

Now that we’ve covered the basics, let’s dive into some actionable strategies for improving manufacturing productivity.

#1 Increase manufacturing output by improving employee productivity

Play Video about raise staff productivity

Employee productivity is a metric used to compare output against the amount of time it takes to produce. Essentially, it’s a measure of how efficiently employees operate: for each hour spent working, how many goods do they produce?

As a formula, employee productivity in manufacturing can be measured thusly:

(Total Output / Total Labour Hours Worked) / Number of Employees = Individual Employee Productivity

Why employee productivity matters

Naturally a highly efficient and productive workforce generates more profit.

Measuring employee productivity can be one way to help a business understand their return on investment. For example, a company significantly invests in upgrading its machinery and installing new software to boost efficiency. If this investment was worth it, the business would see an increase in employee productivity.

You should also take the time to see what low employee productivity is telling you.

Low productivity suggests disengagement, interruptions to workflows, process inefficiencies, or poor management. Think of employee productivity as a diagnostic test within your business.

Labour productivity vs employee productivity

Labour productivity, also known as workforce productivity, should not be confused with employee productivity. Labour productivity measures the hourly output of a country’s economy or an entire company, whereas employee productivity measures your average individual worker’s output.

Labour productivity is defined as real economic output per labour hour.

As a formula, it can be expressed as:

Real GDP / Total Labour Hours = Labour Productivity

If output is increasing while labour hours remain the same, it indicates that the labour force has become more productive. Labour productivity growth is directly attributable to changes in physical capital, new technology, and human capital.

direct labour costs formula

5 tips for improving employee productivity in manufacturing

Without getting too lost in the details, here are five important tips for boosting employee productivity.

1. Provide the right tools

The right tools help employees perform their tasks efficiently and on time.

There’s nothing more counterproductive (and painful) than being hindered by slow equipment or outdated gear. That goes for both physical machinery and the computer hardware and software you use to track and plan your physical processes.

Having the right tools for the job also increases staff satisfaction, helping to improve your employee retention rate. As a bonus benefit, happy workers are 13% more productive on average according to research from the University of Oxford.

2. Optimise the workplace environment

Ensure the work environment is geared towards productivity.

Address the basic amenities and make sure you have as many of the following as possible:

  • Good lighting

  • A clean and safe environment

  • An efficient layout that minimises transport time for key work activities

  • Quiet breakaway spaces where possible

  • Healthy food options nearby

  • Effective health and safety standards and protocols

A healthy work environment doesn’t just facilitate more productive work; it also reduces downtime and employee stress, which can help boost manufacturing productivity.

3. Spend time wisely

Time is one of the key contributors to productivity in any company.

Here are three easy ways to help your staff make more efficient use of their time:

  • Cut down on unnecessary emails. Emailing takes up a lot of time that could be otherwise spent productively. Encourage your team to block out set times for responding to emails and keep them precise and straightforward

  • Allow flexible hours. The traditional 9–5 might not suit everyone. While your key production staff may need to be on the shop floor at set times, consider who will work better on a flexible basis and give them the option to choose their hours or work remotely if possible.

  • Minimise meetings. Hold only essential meetings and ensure only the right people are attending so your staff can spend time more productively.

Additionally, implementing time-saving technologies such as bill of materials software and barcode scanners can help lift employee productivity.

4. Prioritise effective communication

A lot of manufacturing efficiency can be flushed down the drain simply due to poor communication between teams and staff members.

To achieve effective communication, encourage teamwork. Great teamwork happens by design so create opportunities for team members to get to know and trust each other

Determine which communication methods are most effective. How does each team respond best?

It might be in-person, instant messaging, or by email – so find the right solution for each employee.

5. Foster workplace culture

A strong people and culture team does wonders for employee productivity.

This starts with hiring people with the right attributes and attitudes, and extends to training, development, and keeping staff morale high. Manufacturing companies with unhappy employees will always struggle with productivity.

Host regular activities that foster togetherness amongst employees. These can be simple ice-breaker events, such as rock climbing or a company barbeque – or on-site activities, such as ‘Bring a Dish from Your Home Country Day’.

#2 Boost manufacturing productivity by eliminating waste

Eliminating waste – or going lean, as it’s popularly referred to – has long been associated with manufacturing productivity.

The concept of lean manufacturing was documented in the early 1900s, but it wasn’t until Toyota founder Sakichi Toyoda, his son Kiichiro Toyoda and chief engineer Taiichi Ohno created the Toyota Production System (TPS) in the 1930s that lean manufacturing really took off.

The main objectives of lean manufacturing are minimising waste and costs, maximising productivity and quality, and ensuring continuous improvement.

The 7 types of manufacturing waste

The lean manufacturing model has seven types of waste:

  • Overproduction

  • Inventory

  • Motion

  • Defects

  • Overprocessing

  • Waiting

  • Transport

Lean manufacturing techniques focus on cost reduction and increasing turnover by systematically and continuously removing activities that don’t add value.

Let’s explore some ways to achieve these outcomes.

Types of manufacturing waste

4 strategies to reduce manufacturing waste

Reducing manufacturing waste can help you increase productivity and profitability quickly. Here are some ways to do it.

1. Implement efficient inventory management

Stop manually recording inventory levels and manufacturing information.

This often results in inaccurate and outdated data and leads to misinformed decision-making. A good inventory management system keeps product quality levels high, reduces inventory shrinkage and inventory waste.

Look at implementing a just-in-time manufacturing process to keep production and inventory lean.

2. Establish a maintenance schedule

Don’t wait until a machine breaks down in order to fix it; schedule in regular maintenance for your machinery, especially for high-use machines.

This helps eliminate time spent waiting for something to be repaired, leading to fewer bottlenecks and more reliable production lines.

As a bonus step, create a backup plan in case your machines fail and make sure the relevant employees are across it.

3. Organise your warehouse for efficiency

Reconfigure your floor plan and warehouse layout to improve order fulfilment.

Some key areas to consider when organising your floor plan:

  • Making room for inwards goods – If your team doesn’t have enough space to work, it creates more risks for inventory errors at the receiving end.

  • Optimised goods storage – Keep fast-moving items closer to the packing area, between waist and shoulder height, for quicker picking.

  • Designating areas – Create dedicated zones in your warehouse for specialty items, such as returns, damaged goods, and dead stock.

Efficient warehouses store frequently picked items closest to the shipping areas to shorten picking time, improve productivity, and minimise travel time between picking locations.

Product supply and demand changes continuously, so you should review floorplans regularly to adapt to seasonal changes.

4. Label everything

Obvious signage and labels make it easier for your team to navigate the warehouse and for pickers to choose the right stock. This can improve your picking times and help to reduce fulfilment errors.

Establish clear and concise rack labels, bin labels, and warehouse signage – and create a workflow that ensures new items are labelled effectively.

#3 Measure and improve operational efficiency

There are a few financial ratios that business owners can use to assess operational efficiency.

The simplest way to calculate operational efficiency is:

Operating Expenses / Revenue = Operational Efficiency

A lower result indicates greater efficiency. This ratio can be used to assess the business as a whole or for individual areas of operations if you can identify and restrict revenue and costs to that department.

You need to measure operational efficiency over time to determine how your efforts are paying off, and to identify patterns and inefficiencies.

Pitfalls to avoid

There are a few things that can hinder your ability to measure operational efficiency:

  • Having too many measures and metrics. It becomes difficult to separate the outcomes from the metrics that influence them. The results can be confusing and you might miss actionable information.

  • Using on unreliable data. Don’t make data-driven decisions using bad quality data. Take the time and effort to establish reliable measurement systems to get accurate, reliable data.

  • Using data from several sources. Pulling data from several sources can be tricky – you have to take time to re-format it and process the data, and there’s a greater risk of human error.

With those out of the way, let’s explore some tips to help you boost productivity by establishing more efficient operations.

7 strategies to improve operational efficiency

Here are seven strategies you can use to help improve operational efficiency.

1. Test and define workflows

Before you do anything else, examine your workflows.

Take a scientific approach: make a hypothesis before experimenting, alter certain parameters, measure the results, and then compare with your assumptions and previous workflows. This gives you a better picture of what changes you should make.

2. Refine the material ordering process

You should aim to maintain the minimum quantities of raw materials on hand so you don’t slow down production. Use inventory optimisation software, perform market analyses, and examine historical data to accurately forecast demand so you know when to place an order and in what quantities.

Establish optimal safety stock and anticipation stock levels to manage predictable and unpredictable swings in demand.

Demand forecasting software screenshot


3. Identify bottlenecks on the manufacturing floor

Look for processes, people, or equipment that are slowing down your production runs.

Are there opportunities to optimise how they perform?

Once you’ve identified what’s holding up your manufacturing operations, it becomes easier to devise strategies to remove bottlenecks and improve throughput. Perhaps you’ll need to invest in replacement tools or new staff – or reconstruct your workflows entirely.

4. Train your employees

Employees play a vital role in production efficiency and product quality.

Ensure that all staff are fully trained on how to perform their role in a way that enables the business to continuously improve manufacturing efficiency and remain competitive.

This can mean regular upskilling, skill audits, and in some cases, putting staff through external training to obtain certification – such as a forklift license – that permits the use of specific equipment.

5. Embrace automated systems

Simplify the manufacturing process with automation to save time, make the best use of resources, and ensure consistent product quality.

There are dozens of automated systems available for managing processes such as inventory control, bill of materials management, accounting, and distribution. Shop around online and compare products on sites like TrustPilot and Capterra to find the best solution for your manufacturing company.

Before investing in an automated system, make sure that it will meet your business needs and has flexible integration capabilities.

6. Create a safe working environment

Manufacturing operations often involve heavy machines and equipment. If someone gets injured on the production floor, the whole process must stop immediately.

Along with the initial trauma and injury you may need to delay production and miss customer deadlines. Workplace accidents can also increase insurance costs, damage production equipment, and cause staff to quit or take a leave of absence.

Prioritise workplace safety so your staff can work to the best of their ability without worrying about their health and safety.

7. Maintain machinery

Equipment failure can throw production off course, causing delays and serious issues down the line. Aside from causing frustration, machinery downtime is expensive. The average cost of unplanned equipment downtime is $260,000 per hour, and lasts about four hours on average.

Take a proactive approach and schedule regular maintenance for high-use equipment so you can sustain efficiency.

#4 Integrate your supply chain and the manufacturing process

This manufacturing productivity strategy looks at optimising the processes that happen beyond the factory floor.

Depending on your company’s size, type, and the products you manufacture, supply chains can be complex and hard to manage. How well you manage your supply chain affects the timeliness of raw materials arriving at your production site.

Poorly managed supply chains can bring production to a halt. Late raw materials set back production schedules, leaving employees idle and the company unable to fulfil time-sensitive orders.

Good supply chain management lowers transport costs. Manufacturers with cost-efficient supply chains have lower overheads and direct sales costs.

3 easy ways to improve supply chain efficiency

Supply chain efficiency is a measure of how a company’s processes make the best use of their resources. Effective supply chain management offers benefits for all areas of the business.

Here are three proven strategies to improve supply chain efficiency.

1. Streamline supplier communications

Prioritising supplier relationship management will help you build a stronger supply chain and make it easier to prepare should unforeseen challenges arise.

Establish clear communication channels and regularly speak to suppliers about the status of your orders. Give them as much advance notice of your future inventory requirements, and request they send updates when changes are made to your order status.

2. Improve manufacturing supply chain visibility

Greater supply chain visibility can help increase productivity for your business by facilitating smarter decisions and timely delivery of goods.

Here are three quick ways to improve supply chain visibility:

  • Replace outdated spreadsheets with cloud-based software that can be accessed in real time by production staff.

  • Integrate your systems with your suppliers’ software to gain a complete view of order statuses and give vendors a better understanding of your needs.

  • Map your supply chain; create a clear and detailed overview of the flow of materials and information in your supply chain to better understand risks and dependencies.

3. Measure, analyse, optimise

Improving supply chain efficiency is a continuous process.

Review your process to find opportunities to boost productivity. To make sure you’re on the right track, measure the changes, review the effects and tweak what’s not working.

Discuss potential optimisations with your team and upper management before implementing. Take into account your business needs, current goals and future ambitions.

manufacturing productivity formula

#5 Improving manufacturing productivity by reducing production costs

Our final strategy to help you increase productivity in manufacturing requires taking a step back from processes and people to look at reducing the cost of production.

There are four important types of production costs:

  • Variable costs

  • Direct costs

  • Indirect costs

  • Labour costs

Variable costs increase or decrease depending on a company’s production volume. As production increases so do these costs; as it falls variable costs drop too.

Direct costs are expenses that a company can easily connect to a specific product, department or project, whereas indirect costs are costs associated with multiple activities and can’t be assigned to specific cost objects.

Labour costs are the costs incurred by an employer in paying staff.

These are usually measured in hours worked and divided into direct and indirect labour costs. Direct costs include wages for employees that produce a product, such as those on a factory line. Indirect costs are associated with support labour, such as machine maintenance staff.

How to calculate production costs

Before trying to reduce production costs, you need to understand the elements that contribute to them.

Total production cost, also known as total manufacturing cost, is the aggregate cost incurred when a business produces goods in a given period.

It can be calculated using the formula:

Cost of Direct Materials + Cost of Direct Labour +
Manufacturing Overhead Costs = Total Production Costs

total manufacturing cost formula

5 tactics for reducing your production costs

Here are five ways you can bring your total manufacturing costs down.

1. Track your costs

To begin with you need to ensure you’re tracking your costs – you can’t change what you don’t measure.

There are numerous costing methods for manufacturing, and the ones you need to track will depend on your business goals.

Some of the most useful production costs to track for increasing productivity include:

Manufacturing and accounting software can be useful in accurately and automatically tracking your production costs over time.

2. Eliminate bottlenecks and redundancies

Analyse each stage of your production process: is each activity required? Does it add value?

You should also consult the relevant employees to find out what steps in the process are not adding value, redundant, or interrupt their workflow.

Drop non-value-adding activities to cut out unnecessary costs.

3. Tighten your inventory control

Optimal inventory control means you hold the right quantity of stock so you’re not stuck with excess inventory that costs money to store, insure and can go to waste; but neither are you caught short by stock-outs.

To improve your stock levels, implement cloud-based manufacturing inventory management software and establish an effective demand planning strategy.

You can also use the economic order quantity formula to determine optimal reorder volumes for each of your stock items.

perpetual inventory system example

Perpetual inventory software systems enable real-time tracking of key metrics, including your current stock on hand value.


4. Improve employee engagement

Engaged employees means lower staff turnover, which in turn leads to reduced labour costs. Engaged staff are also more effective and productive.

To improve employee engagement, you must:

  • Hire the right people

  • Provide training

  • Offer appropriate incentives

  • Share clear production goals

Empower employees to do their best work by equipping them with the tools and training they need to operate autonomously in their roles.

5. Negotiate with suppliers

Already have a good relationship with your supplier?

If you do, you’ll be better placed to negotiate for discounted prices.

Consider the following:

  • Signing a long-term contract with your top suppliers

  • Offering cash payment in return for discounts

  • Asking for a turnover discount at the end of a financial year if you’ve contributed significantly to their business

If your suppliers are unwilling to budge, consider sourcing from elsewhere.

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In this guide
Oliver Munro
Article by Oliver Munro in collaboration with our team of specialists. Oliver's background is in inventory management and content marketing. He's visited over 50 countries, lived aboard a circus ship, and once completed a Sudoku in under 3 minutes (allegedly).

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