Efficiency Calculation

Posted on 2010-09-03
Last Modified: 2012-06-21
I have one scanner that runs at 65 pages per minute (ppm) that costs us $10,000 a year in labor to run.

How much would it cost us in labor to run scanners running at 100ppm and 120ppm?

Please provide answers and explain how calculations were made (with formula, etc.)

Thank you.
Question by:karlhsc
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LVL 27

Expert Comment

ID: 33600808
You don't have anywhere near enough information.

How many pages do you generate every year?
How many hours is the scanner running?
How many hours is it idle?
Does the person running the scanner do anything else?
LVL 27

Expert Comment

ID: 33600819
>>  $10,000 a year in labor

How many people?  
How many hours?

Author Comment

ID: 33600864
Current Scanner = 65ppm
New Scanner #1 = 100ppm = 54% more efficient
New Scanner #2 = 120ppm = 85% more efficient

I was able to get this far.  I know it is possible to deduce cost savings from this, but am not sure how.

Thank you.
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Author Comment

ID: 33600891

Current situation = 65ppm costing $10,000/year.

A new scanner running at 130ppm would result in 1/2 as much labor ($5000/year) due to scanner running double as fast (someone would only have to run it for half as long).

I know there is a formula available for this.  I have just forgotten what it is.

Author Comment

ID: 33600919
Note: the amount of work (in this scenario) is the same each year (never changes).  In most post above, I should have said:

A new scanner running at 130ppm would  run twice as fast as current scanner (65ppm) resulting in 1/2 as much labor spent each year scanning ($5000/year) due to new scanner running twice as fast as current scanner (someone would only have to run it for half as long to complete the work).
LVL 27

Expert Comment

ID: 33600991
Pick 65,000 pages for example:

(65,000 pages)/(65 pages/minute)  ==> 1000 minutes  

Now you can calculate the labor rate:

   ( $10,000)/(1000 minutes)  ==> $10/minute

(65,000 pages)/(100 pages/minute)  ==> 650 minutes  

New Cost  =  (650 minutes) x ($10/minute)  =  $6500

LVL 14

Accepted Solution

Daniel Junges earned 250 total points
ID: 33601006
If the amount of $10,000 is related to the number of pages scanned a year,
then you can apply the follow:

Cost for 100ppm => $10000 *  (65/100) = $6500,00
Cost for 120ppm => $10000 *  (65/120) = $5416,66


Expert Comment

ID: 33601080
The problem is not as simple as you suggest.

How many people are involved?  Is there one person who receives and performs scanning jobs, or do several people use the scanner and charge their time to that task?

How is the labor broken down?

Do you count time spent walking to the scanner and back, or just time spent at the scanner?

For a single scanning job, how much time is spent setting up or finishing the job, and how much is spent dong the scanning?

Does the scanner run continuously (ie, does someone keep the feeder full so there are no interruptions), or are there periods of down time (ie, is there activity to be performed between scans that does not depend on the speed of the scanner)?

LVL 32

Expert Comment

ID: 33605312
You don't have enough information to build a reliable model.  That's what MRP and estimating software does.  You need these basics to make a fair comparison:

1. setup time
2. cleanup/finishing time
--These should include time to do appropriate job paperwork, logging, etc.

3. Are all jobs the same size?  If not, then
3a. __% jobs are 1-20 pages.  __% jobs are 21-100 pages....break it out based on at least one month's data of actual production, and representative of major changes in productivity.

4. how many stations?  One station, two, ten?  How much supervision and overhead attributed to each station?  For instance, going from 10 stations down to 2 means that your supervisor/manager and administrative overhead costs are 5x as much per station (assuming none are laid off)...which affects profitability.

5. Service/maintenance costs.  Warranty prices, replacement parts, preventative maintenance, down-time.  5 older machines may be only 40% the cost to maintain versus one new machine.  This may be offset by productivity, utilities, and salaries by laying off employees.

Other thing to consider: one very fast machine is never advisable.  A shutdown means zero productivity.  Better to have two machine to share the load and continue at partial productivity so that you don't lose customers.

Making production decision based solely on purchase price and clicks per minute is definitely risky, and short-sighted.  How many admins and I.T. managers can tell you that the purchase price of a desktop or server is only a tiny fraction of the cost of the machine over it's lifetime.  Same goes for a copier, printing press, output device, etc.

Assisted Solution

ninetech earned 250 total points
ID: 33610175
According to the info provided in your questions, the following function (or you can say formula) will give you the cost.
Labor Cost = ($10000 * 65 ) / pages per minute scanned
1. for scanner running at 100ppm
Labor cost = ($10000 * 65) / 100 = $6500

2. for scanner running at 120ppm
Labor cost = ($10000 * 65) / 120 = $5416.67

3. for scanner running at 130 ppm
Labor cost = ($10000 * 65) / 130 = $5000

LVL 32

Expert Comment

ID: 33620160
^ the labor cost is the same, $10,000.  Unless you are adding more variables to the equation, such as reducing paid hours.  That was not stated in the original questions.

Also assumes paying the employees the same amount of money even though they are running different equipment.  That could be normal, but usually not in a production environment.  Bigger equipment and/or faster throughput usually involves premium wages.

Straight number formulas like that also don't take into account setup, checking, & remake/re-do times.

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