A quick guide based on the excellent tips from UndeadBaddad!
When you have grown large enough to produce equipment, it might be tempting to go for the best equipment you can produce. But not so fast - here are some things to consider.
As you will see, Purple gear is twice as good as Blue, which in turn is twice as good as Green.
But, it costs 5 Green gear to produce 1 Blue, and 5 Blue to produce 1 Purple.
So, essentially, if you spend 5 Green items to produce 1 Blue, you loose an overall 3/5 power. While a Blue will make a single survivor more powerful, the other 4 will become less powerful and in sum you will loose power.
So what do I do then?
Make sure you produce Green equipment for all survivors (in a formation) before producing Blue equipment. Only when all survivors have Green equipment, you can start producing Blue gear for overflowing materials.
But that makes my F1 weaker!?
Yes it does, but you gain overall power across all your formations. Feel free to maximise your F1 over the others, just be aware of the consequences.
Should you be rewarded a Blue or a Purple item, you can dismantle it into the lower quality without penalty. So a Blue item will be dismantled into the exact material needed to produce 5 Green. As such it is likely beneficial to dismantle higher quality into lower quality items untill all slots are filled.