Material utilization rate: calculation formula, example

2024 Author: Henry Conors | [email protected]. Last modified: 2024-02-12 02:43

The main goal of any commercial institution is to maximize profits. This means the need to cut costs. The coefficient of use of materials is an indicator that allows you to evaluate the rationality of the latter, their need to obtain the final result. If a firm wastes too many resources, then it cannot be successful. Profit maximization is possible in a competitive environment only by minimizing costs.

Production as a process

Determining the utilization rate of materials allows you to assess whether the output of products is efficient and rational. Then, if the indicator does not satisfy us, we must try to change the situation. However, this is completely impossible if you do not have an idea about the production process. Therefore, to begin with, let's consider it using the example of the engineering industry. It is convenient for analysis becausethe production process at most enterprises in this area is similar.

The first stage is the creation of raw materials and blanks. Already here we can face costs. The more raw materials are wasted, the more the material utilization factor will deviate from unity. The second stage is associated with the processing of blanks and giving them the required configuration. Naturally, this also comes with costs. Moreover, they depend on the effectiveness of the initial stage. At the third stage, the preliminary and direct assembly of products takes place.

Indicators of production factors

Manufactured products can be characterized both in physical units and in value terms. Everyone understands that a firm can continue to operate when its income exceeds its costs. However, what are the latter? Consider a three-factor model. In order to produce products, we need tools. These are our main funds. The rationality and efficiency of production depends on how we use them: intensively or extensively. Characterizes the effectiveness of these factors capital productivity. The inverse of this indicator is also used.

Also, objects of labor are needed to produce products. These are our working capital. That's just them and characterizes the coefficient of use of materials. Efficiency is indicated by the indicator already mentioned in the description of fixed assets. This is material yield. Finally,labor force is an important factor of production. It can also be used extensively and intensively. And it affects our costs. An indicator of the efficiency of the labor force is the productivity of personnel and the labor intensity of products. These are also inverse indicators.

Material utilization rate

The formula of this indicator characterizes the working capital factor. Also, the use of objects of labor reflects the output of finished products. The latter indicator is usually used in industries where primary processing of raw materials takes place.

In the manufacturing industry, the use of materials is more often calculated. They reflect what percentage of raw materials should have been contained in the finished product, and how everything looks in reality. There are two types of utilization rates.

Planned

The first type of indicator, as the name implies, is predictive. It is used in planning further activities and building a development strategy. The formula is as follows: Kpl \u003d Mch / Mn. It uses the following conventions: Kpl is the planned utilization factor, Mch is the net weight of the product, Mn is the consumption of materials according to established standards. As can be seen from the formula, it poorly reflects the real situation. The norm is set for a hypothetical situation. In fact, we may face much higher costs than planned.

Actual

This indicator already more realistically characterizes the use of objects of labor. We introduce conditionaldesignations. Let Kf be the actual utilization factor, Mch is the net weight of the product, as in the previous case, and Mf is the material actually used. Then the formula will look like this: Kf=Mch / Mf.

It is easy to see that in both cases the coefficient can take values from 0 to 1. However, in reality it cannot be equal to one. Always some part of the material is wasted, but not contained in the finished product. But it is important to understand that part of it can be reused or recycled, which the coefficient in question does not take into account. Therefore, the production process should always be analyzed comprehensively, and not just focus on numbers.

Material consumption rate

This is another important indicator that characterizes the conditions in the industry. We introduce conditional notation. Let C be the material consumption rate, and Kf the number of units of actually produced products. For the formula, we also need the actual material utilization factor - Mt. Let Ned be the rate of consumption per unit of output. Then C \u003d (Mf / KfWeek)100%.

Factors for improving efficiency

Rational use of materials allows the company to maximize profits. However, much depends on the situation in the industry as a whole.

The following factors affect the material consumption rate:

• Improving the technology of the production process. If the company andAs the industry develops, over time, everyone gets less marriage per unit of output. This means that the material is used more rationally, and costs are reduced.
• Improving the technical preparation of the production process. This is about improving part design, workpiece selection and material selection.
• Improving the organization of the production process. This can include the development of cooperation between departments, the deepening of specialization, the improvement of planning processes.

Example

Consider cutting chipboard for the manufacture of parts. The more rational it is, the less material we waste. The utilization factor in this case will be equal to the ratio of the areas of the stamped part and the workpiece. The better the cutting of chipboard, the closer this indicator is to one. But what should it be?

We cannot change the area of the stamped part in any way. Its dimensions are clearly defined. However, we can influence the area of the workpiece. It is determined by multiplying the step between the parts by the length of the strip. The more economically the contours of future blanks are located, the smaller the gaps between them. This means less material consumption. Thus, from the same amount of raw materials, the company will be able to make more products. Costs will decrease and profits will increase.