Efficiency pertains to getting the most of out of a given set of resources whereas productivity pertains to the use of overall resources.
For example, an in-bay automatic is more productive than a person because an IBA can wash a vehicle in about five minutes whereas a person might take 20 or 30 minutes.
Conversely, a team of two people hand waxing a car is more efficient than one person because a team can accomplish more than twice as much work as one person working alone. This phenomenon is referred to as the Köhler effect. This effect occurs when a person works harder as a member of a group or team than when working alone.
Figure 1 contains labor productivity rates for the car wash product classes, which are calculated by dividing sales volume and total man-hours.
As shown above, flex-serve labor productivity is twice as great as full-service. The reason for this is flex has centralized labor whereas full-service has considerable division of labor and more people working alone.
Likewise, express labor productivity is twice as great as flex-serve. The reason for this is that express does not require labor to produce assisted-services and much of the process has been automated.
Figure 2 contains sales productivity rates for the car wash product classes, which are calculated by dividing sales revenue and total man-hours.
As shown above, flex-serve sales productivity is twice as great as full-service. The reason for this is flex-serve only needs about half as much labor as full-service does to generate the same amount of sales revenue.
Figure 3 contains sales efficiency rates for the various car wash product classes, which are calculated by dividing sales revenue and operating expense.
Flex and express exhibit greater sales efficiency because the operating platforms simply require less operating expense to generate the same amount of sales revenue.
Labor efficiency is different. It is measured as the difference between actual time incurred to produce a certain number of units and the time allowed by standards to produce that number multiplied by standard direct labor rate.
For example, if standard time to apply paint sealant is one hour but it takes one hour and 9 minutes or 1.15 hours, the variance is 0.15 hours or unfavorable.
If the labor cost is $12.00 per hour, the variance in dollars would be $1.80 (0.15 hours x $12.00).
An operational measure of productivity is throughput or the rate at which a system generates money through sales.
Figure 4 contains operational productivity rates for the car wash product classes. This rate is calculated by dividing throughput (revenue minus cost of materials) and operating expense.
Figure 5 contains partial factor productivity rates for the car wash product classes. Here, the rate is calculated by dividing sales revenue by marketing expense plus labor cost.
A measure closely related to efficiency is capacity utilization or slack.
At the store level, capacity utilization is the relationship between output produced with installed equipment and potential output that could be produced if the capacity was fully used.
Figure 6 contains capacity utilization rates for the car wash product classes. This rate is calculated by dividing actual output and potential output multiplied by 100.
Actual output is average daily sales volume. Potential output is calculated as a function of maximum hourly capacity normalized for daylight hours.
Capacity utilization is also important for providing insight to cost structure and determining the level at which unit costs rise.
For example, assume that Johnny’s full-service car wash can produce 5,000 cars per month at a cost of $17.00 per unit. If Johnny’s determines it can produce up to 10,000 cars per month without costs rising above $17.00 per unit, Johnny’s would have a capacity utilization rate of 50 percent (5,000/10,000).
In theory, when there is a rise in output, the average cost of production will decrease. This means the higher the capacity utilization, the lower the cost per unit, allowing a business to gain an edge over its competitors. This is why the larger companies aim to produce as close to the full capacity rate as possible.
In the final analysis, the less efficient a process is the more effort, time, and resources are required to do the work. Whereas productivity is important because providing more goods and services to consumers translates to higher profits.