What’s labor efficiency?

[ad_1]

Labor efficiency is a measure of how efficiently a given workforce performs a task, compared to the standard in that industry or setting. There are several different ways to measure labor efficiency, depending on the type of products and services being produced and the end goal. Companies regularly assess efficiency along with other characteristics to identify weaknesses in the workforce and determine where they have room for improvement, with the goal of improving the overall quality of goods and services and keeping costs low.

One way to look at labor efficiency is to compare the number of hours actually required to produce a given product or service with those that are generally required. If the workforce is producing products and services below the usual rate, it is operating at high efficiency, reducing production time. This can translate into significant savings, as the company will spend less money on salaries and overhead because it is producing services and finished goods at a more efficient rate.

Companies can also see how many units of products or services are produced in a given time. This labor efficiency calculation can help a company determine what the standard is. A company making a new car model, for example, would look at how many labor hours it takes to make one and track changes in labor efficiency over time. The goal is to reduce the number of hours through familiarity with the process, the introduction of new parts and techniques to streamline car manufacturing, and similar measures.

As labor efficiency increases, costs decrease. It may also be possible to increase production, because more labor hours are available to produce goods and services. This can be critical in periods of increased demand, where the company needs more workers available to make more goods or offer more services. Greater efficiency can also mean more opportunities for research and development, since the company has workers available to perform these tasks instead of having to focus on meeting the needs of the production line.

Companies generally measure labor efficiency for internal purposes and cannot discuss it in external reports and presentations unless it becomes directly relevant to a topic of interest in those documents. In some cases, an outside consultant performs this assessment as part of an overall business assessment. Consultants can help companies improve efficiency and overall quality by bringing a fresh perspective to the workplace.

Smart Asset.

[ad_2]