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How measuring OEE can make a big difference to your bottom line

Using Overall Equipment Effectiveness (OEE) as a metric to track productivity, and implementing programs for Continuous Improvement (CI), can boost your financial impact in many ways. Let’s discuss a few ways that tracking OEE can help improve your business.

Generating visibility of your actual production capabilities and associated costs

With visibility to your full production capabilities it is possible to make meaningful improvements to your production processes. However, to make improvements, you must first have reliable data to create a baseline for measurement. Having an OEE metric will give you a sense of how efficiently you’re performing and enable you to track improvements and variations. Before you get to that point though, review of your specific input data is a necessary activity that will yield benefit of its own.

Nearly all manufacturers have standards established for product costs that include labor and overhead which would typically be based on target cycle times for each product. On an ongoing basis, however, you need to ask just how accurate are your cycle time values. The Performance portion of the OEE calculation (OEE % = Availability factor (A) X Performance factor (P) X Quality factor (Q) = Valuable operating time/Planned production time) requires input of that target value and then it measures to what degree you can attain the target. Doing so can expose the following two scenarios:

Scenario A

Consistently falling short of the cycle time target.

If this is the case, further analysis of your data is required to get a better sense whether the issue is: 1) an inaccurately set target; 2) a target was initially set correctly, but unexpected variations are occurring; or 3) significant product variance is occurring during production across different lines.

Falling short of your cycle time target (Performance) is most likely to manifest itself as an absorption issue on your P&L as you will be using more labor/overhead than your standards call for. When tracking OEE, you will have increased ability to pinpoint the source(s) of the problem and take the necessary countermeasures.

Scenario B

Out producing your targets on a sustained or a peak basis.

In this instance, you are underrepresenting the capabilities of your manufacturing organization. While on the surface this situation may seem less impactful than falling short of targets, it still represents inaccurate representation of standards, and can have the following adverse effects:

  • Inaccurate production scheduling that can leave personnel and equipment idling
  • Supply chain inefficiency as materials need to be expedited to meet revised production schedules
  • Longer than necessary scheduled delivery time to customers, and in extreme cases, loss of business due to your perceived inability to accommodate the customer’s lead time requirement

A Performance number that is consistently above 100% is a sure indicator of one of the issues mentioned above. However, you will want to breakdown 80-99% Performance to see if 100% Performance has been exceeded. In those cases, you’ll want to understand which factors allowed that to happen, and if they’re sustainable as they could represent an opportunity to increase capacity. On the flipside, it could also be indicative of operators over-driving equipment which could result in more breakdowns or shortened equipment life.

Increasing your production output

Now that we have talked about the benefits of using OEE metrics and measurement to gain visibility of your production capabilities and costs, let’s explore how they can increase your production output.

Being able to get more product out the door is an obvious win and can be the easiest to put a dollar value on. When it comes to increase output, all 3 components of OEE — Performance, Availability and Quality, come into play.

Let’s look at the potential impact of moving from a 60% OEE level (generally considered to be “typical” performance), to the 80% threshold that is considered “World Class”. In this scenario, we will focus on the per shift gains related to a specific product on a specific production line.


Product “A” target throughput for Line 120/minute

Product “A” marginal contribution:$2.00

Planned production time in a shift 480 minutes

This example (an 8-hour shift with no planned downtime) illuminates the impact of additional production, focusing on the net output which at 5,760 is 2,840 units below what is being targeted for the shift.

In the above baseline example, the line is losing 80 minutes of planned production time per shift due to downtime, which is typically caused by equipment breakdown or required adjustments. Downtime is one of the factors that go into Availability. A Continuous Improvement program that categorizes the sources of downtime would enable you to understand your top losses and attack them.

It’s unlikely you will be able fully eliminate downtime, but let’s assume those corrective actions could cut it in half, which would move Availability from 83% to 92%. With that additional 40 minutes of production time, at the same level of Performance and Quality, Line 1 can produce 575 more units of product “A”, providing the potential for $1,150 to be added to the bottom line during that shift.

While Availability has improved, a 25% Performance Loss still exists. These types of losses fall into two general categories. The first is a “slow cycle” which is indicative of poorly tuned equipment, materials issues, extended start-up periods or operator inefficiency. The second, and more insidious cause, is Micro-stops which are events that stop production for a short duration and reflect an inability to keep the line continuously flowing.

Tracking Performance can typically expose these types of issues and enable you to counteract them. As with Availability, 100% would be a stretch goal, but let’s narrow half of the gap, and improve Performance to 88%. Doing so will add an additional 1,056 units of product/shift and combined with the Availability increase creates a net gain of 1,631 units and $3,262 of margin over the baseline.

As Availability and Performance have increased, Quality component has held steady at 96%. With more production, this actually means an increase in total rejects of 69 units!

Quality is the one OEE component that “World Class” organizations do target, and often achieve a 100% measurement. Let’s apply that type of improvement in this scenario and reduce defects from 309 to 0.

With improvement in all 3 categories, the OEE measurement has increased from 60% to 80%. The result is a potential of nearly $4,000 in additional profit from a single line, for a single shift. When applied over multiple shifts and multiple lines, it is clear this can add up to a number that represents a significant financial impact.

Using OEE metrics and a Continuous Improvement program can help improve your bottom line and help you achieve “World Class” performance. With visibility to your production capabilities and associated production costs, you can identify areas of improvement and with some tweaks, increase your production output. These are only a few of the ways you can take money off the table and put it back into your business

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