Can OEE be Used to Reduce Operating Cost?

OEE or Overall Equipment Effectiveness measures manufacturing performance against perfection. It is regarded as the global benchmark for managing and improving manufacturing efficiency. Any deviation from perfection drives up operating cost. OEE looks at three different losses and multiplies them across to assess total losses. Those losses are:

Availability – This is a measure of downtime (both planned and unplanned)

Throughput – This measures rate loss against the theoretical maximum run rate

Yield – This measures the amount of efficiency lost due to quality issues

Each of these factors has a cost impact. There are measurable financial and other costs associated with having people at work, the lights on, and machines operating. Anytime these things are happening and you aren’t producing at theoretical maximum levels, you are suffering efficiency and financial losses. Most factories are operating at or below 60% OEE but have no idea. Additionally, most factories do not measure productivity, and many who do, use methods that exclude significant losses such as changeover times, start-ups, throughput loss and many others. Again, anytime you have people on the clock and product yet to be made, anything less than the theoretical max output is a loss…for whatever reason – controllable or uncontrollable. At the end of the day, all aspects of running your business are controllable; the only real question is: are you willing to do what it takes to “fix” something that is perceived as “uncontrollable”. I’ve worked with manufacturers who, for years, wrote off “bad raw material” as uncontrollable but have never talked with the supplier about fixing the problem or investigated sourcing with other suppliers. In almost all cases, uncontrollable is synonymous for “we don’t want to deal with it”.

The Logic

For a factory with a direct operating cost of $10M annually and an OEE of 60%, the total efficiency losses are 40%. Therefore 40% of the direct operating costs are also losses, or $4M in this case. At 100% efficiency, the operating cost would be $6M.

World-class execution is 85% OEE, which equates to a direct operating cost of $8.5M in the example above. For the same factory, there is a $2.5M savings opportunity for improving from 60% to 85% OEE. What would you do with an extra $2.5M dollars per year? Expand production? Pay bonuses? Acquire a new business? Buy a small yacht and sail around the world?

Achieving 85% OEE is challenging but attainable for the vast majority of manufacturers. Click the link below to receive a free report on how much savings opportunity you might have based on your direct operating costs and efficiency performance:

My Total Savings Opportunity

If you don’t know your OEE, we can get you up in going on Impruver in less than a month. It will help you track OEE by product, line, shift, team, and even individual. It’s a great tool for highlighting exactly where to focus improvement efforts. For the sake of the tool mentioned in the above link, input 60% as a reference point and see what you get for a savings opportunity if you’re unsure of your current OEE.

 

 

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The 8 Lean Wastes and Their Potentially Disastrous Effects – Excessive Processing

Manuficient - Excessive Processing [Healthcare]

Excessive Processing – applying features or process steps that have no value to the end user. In this series titled “The 8 Lean Wastes and Their Potentially Disastrous Effects”, we examine case studies for when companies, government organizations, or entire industries have allowed a specific type of waste to escalate to a disastrous effect. In this post, we review the waste of Excessive Processing to understand what causes it, how to see it, and how to eliminate it.

Jump to:

The 8 Wastes and Their Potentially Disastrous Effects:

Defects | Overproduction | Waiting | Non-utilized Talent & Ideas | Transportation | Inventory | MotionExcessive Processing

Study:

In 2002, a study was completed by the Congressional Budget Office to understand healthcare industry waste. The study revealed that 30 – 50% of all healthcare procedures (and costs) are wasteful and add no real value to the patient/customer. Another study conducted by Donald M Berwick & Andrew D Hackbarth, “Eliminating Waste in US Healthcare” JAMA 307, concluded that between $265B – $615B of the annual dollars spent in healthcare are wasted on overtreatment and administrative complexity, both of which are forms of excessive processing. This highlights a tremendous opportunity to reduce the burden of healthcare cost and the time it takes to make a person suffering from health problems whole again. This has an immense impact on the cost of health insurance and all other costs associated with getting treatment.

Manuficient - Healthcare Waste
Copyright 2016 Manuficient Consulting

Interesting Fact:

A 2011 study found that the price tag for the 12 most commonly overused tests, such as annual electrocardiograms (EKGs) for heart disease and imaging tests for lower-back pain, was about $6.8 B. Also, according to the McKinsey Global Institute, the US spends more than $650B more than other developed nations on healthcare costs in 2006. This difference in cost has nothing to do with US patients being sicker, it’s more driven by wasteful processes, greater availability of services, and technological innovation.

For more information on this study, visit the Health Affairs at:

http://www.healthaffairs.org/healthpolicybriefs/brief.php?brief_id=82

Excessive processing can take many forms. Manufacturers must be vigilant in determining what specific product attributes customers find valuable and seek to remove those that aren’t necessary from their products – resulting in reduced processing time and resources consumed in production. Excessive processing waste can either result from the product’s design or during the manufacturing process. During production, activities such as over-mixing, over-heating, over-drilling, or just about over-anything is classified as excessive processing. These activities sometimes show up as defects and other times not. Either way, the objective is to enhance your ability to see and eliminate this type of waste as urgently as possible. A good customer feedback loop combined with a systematic tie-in to your continuous improvement program helps to both see and eliminate excessive processing waste. Ideally, you’d like to see and respond to the waste before it gets out of the factory but customer feedback is usually required for excessive processing resulting from an inadequate product design. However, excessive processing resulting from over-doing something in production is usually detectable and addressable by setting clear standards and guidelines for executing activities. Automatic data collection and process validation are great tools for identifying this type of waste. Other tools include auditing protocols against clearly defined standards for time and activities required for completion. Tools such as Standard Work Documents and Layered Auditing Protocols can be used to minimize excessive processing as well.

Impruver also helps you see waste from excesive processing. In Impruver, this type of waste could either show up as downtime, rate, or yield losses. Performance against production standards help to identify exactly how much waste or room for improvement exists for your manufacturing operation. It helps to be able to pinpoint which specific areas, products, production lines, or team members are most wasteful in order to prioritize improvement efforts. Impruver allows you to filter and group performance data in a way that shows you exactly where to focus. As you continue to eliminate excessive processing waste, you’ll realize continuous improvement and performance breakthroughs.

 

 

Copyright © Calvin L Williams blog at calvinlwilliams.com [2015]. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Calvin L Williams with appropriate and specific direction to the original content.

The 8 Lean Wastes and Their Potentially Disastrous Effects – Motion

Manuficient - Motion [Katrina]

Motion – any movement that takes time and / or effort that does not directly add value. In this series titled “The 8 Lean Wastes and Their Potentially Disastrous Effects”, we examine case studies for when companies, government organizations, or entire industries have allowed a specific type of waste to escalate to a disastrous effect. In this post, we review the waste of Motion to understand what causes it, how to see it, and how to eliminate it.

Jump to:

The 8 Wastes and Their Potentially Disastrous Effects:

Defects | Overproduction | Waiting | Non-utilized Talent & Ideas | Transportation | Inventory | MotionExcessive Processing

Case Study:

In 2005, Hurricane Katrina broke the levees in New Orleans’ lower 9th ward, resulting in catastrophic flooding. Despite the desperate and obvious need for relief, local, state, and federal emergency response agencies failed to supply sufficient aide with any level of urgency. Officials deliberated, stalled, and wasted critical time deciding when, how, and rather or not to respond. An estimated 1,836 lives and $108 Billion were lost due to the flooding. It’s difficult to quantify exactly how much of this loss can be attributed to the poor emergency response; but we can all agree that the amount of time and effort wasted prior to providing aide was a complete disaster in itself.

Corrective Action:

During the event, aide, although debatably insufficient, began to arrive for some affected by the flood. Many people have fled the northern gulf coast to cities like Houston, Nashville, and others around the US – never to return home. Programs to help Katrina victims to resettle elsewhere sprang up around the United States. After Katrina, FEMA was granted authority and tools to respond to crisis more urgently, including the Post-Katrina Emergency Response Act (PKERA). This new system was tested a few years later during Hurricane Sandy and the results were markedly improved.

Interesting Fact:

All major studies concluded that the US Army Core of Engineers (USACE) were primarily responsible for the failing levees. However, they were granted immunity under the Flood Control Act of 1928. The USACE cited budgetary constraints for installing the insufficient levee system. This is one case where saving perhaps a few million dollars ending up costing thousands of lives and hundreds of billions of dollars in the end.

For more details on this case study, check out the Wikipedia article at the following link:

https://en.wikipedia.org/wiki/Hurricane_Katrina

Motion waste occurs in abundance in just about any manufacturing or supply chain operation. Anything from reaching across a table to grab the next unit to shuffling pallets in the warehouse to get everything to fit can be considered motion waste. It is nearly impossible to eliminate all motion waste but it can definitely be reduced greatly. Reducing motion waste reduces process cycle times resulting in an increase in throughput. The best way to measure motion waste is the perform a detailed breakdown of the work needed to execute a process called a Time & Motion Study. In this case, the more granular, the better. For example, a time & motion study output might look like this:

Manuficient - Motion Waste Chart

 

Observe how over 30% of the time spent processing this unit was wasted motion. This type of waste can be reduced by identifying the waste from time & motion studies on critical process steps and optimizing workstation design to increase efficiency. This method allows you to optimize for efficiency within a process step at a very technical and granular level; but can yield tremendous cost and lead time savings if you can increase throughput at the bottleneck step by 30%.

Impruver also helps you see motion waste. Motion waste reduces throughput, increases operating costs, and lengthens lead times. Impruver helps to motivate employees to reduce motion waste by highlighting achievements such as Raising the Bar (outperforming the previous standard). When motion waste is reduced, it can lead to the previously established standard being exceeded, at which time best-practices and operator recognition is distributed across your manufacturing network. This helps others to make progress toward creating breakthroughs in performance as well.

 

 

Copyright © Calvin L Williams blog at calvinlwilliams.com [2015]. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Calvin L Williams with appropriate and specific direction to the original content.

The 8 Lean Wastes and Their Potentially Disastrous Effects – Inventory

Inventory – any materials or other resources stored or staged until demanded. In this series titled “The 8 Lean Wastes and Their Potentially Disastrous Effects”, we examine case studies for when companies, government organizations, or entire industries have allowed a specific type of waste to escalate to a disastrous effect. In this post, we review the waste of Inventory to understand what causes it, how to see it, and how to eliminate it. Lean.org defines inventory as “materials (and information) present along a value stream between processing steps.”

Jump to:

The 8 Wastes and Their Potentially Disastrous Effects:

Defects | Overproduction | Waiting | Non-utilized Talent & Ideas | Transportation | Inventory | MotionExcessive Processing

Case Study:

In 2007, Toyota issued a massive recall that affected 9 Billion vehicles worldwide. The recall was triggered by several reports of gas pedals “sticking” and causing unintended acceleration. At the time of the incident, dealerships across the US were holding substantial amounts of inventory, which could not be sold until they were all serviced to minimize the risk of further unintended acceleration issues. A study was conducted to estimate the losses associated with all of this inventory that was placed on “hold”, which revealed that dealerships were losing the staggering amount of $2.5 Billion per month in combined income.

Corrective Action:

In response to this issue, Toyota conducted an investigation to identify the root cause of the unintended acceleration and concluded that the configuration between the floor mat and the gas pedal was defective. They also began to experiment with an alternative supply chain model with the Toyota Scion where a base unit would be built to about 70% at the factory, then buyers would be allowed to customize how the vehicle would be finished. Finally, the base unit would be shipped to the buyer’s local dealer to complete the final manufacturing steps; a process known as Late-Stage Customization. This kept inventory low for the Scion at the dealerships and allowed consumers more control over the features and functionality that would be included with their vehicle. Unfortunately, the Scion did not perform well in the market; however, I don’t think the supply chain model was the problem. It simply isn’t a very good looking car.

Interesting Fact:

Even though Toyota distributes vehicles all over the world, the only reports of unintended acceleration came from the United States. Also, there was never a definitive conclusion for a mechanical failure that was causing the problem. However, once the floor mat / gas pedal configuration was changed, no further issues were reported.

For more details on this case study, check out the 24/7 Wall Street article at the following link:

http://247wallst.com/autos/2010/01/29/toyota-dealers-face-2-5-billion-monthly-loss/

This case study exposes one of the many major problems with building and carrying inventory. Building inventory has the same issue issue as batching, which is a form of inventory in itself. When there is a quality defect that needs to be contained, many times the entire batch needs to be recalled and investigated due to limited granularity in traceability.  This requires the manufacturer to cast a wide net instead of being able to pinpoint the specific units that are affected by the defect.

Another major issue with carrying inventory is that it enables poor manufacturing execution and erodes operational discipline. Part of the equation for determining how much inventory you need is how unreliably your factory performs. In other words, being unreliable means you need to maintain higher inventories to meet service expectations. The path of least resistance is to build inventory as opposed to addressing your factory’s reliability issues. A little trick to kicking off a lean implementation is to cut your finished inventory gradually and challenge your teams to maintain service levels with lower inventory stocks. This will require improving factory reliability and becoming more lean in the process. Finally, inventory hurts your factory’s lead time on special order and rush items. This is because orders often need to wait in inventory buffers in between process steps before the next value-added step can be completed.

Impruver also helps you see waste from inventory, which often manifests itself in the form of unreliability. In Impruver, unreliability shows up as downtime, rate, and yield losses. By addressing these issues, you can increase plant reliability and subsequently reduce safety stocks. When inventory is reduced, working capital is freed up to be invested in other more important matters. Impruver also allows you to quickly estimate the savings to be gained in just one click by driving out efficiency losses. This powerful functionality is made available to everyone from the shop-floor up to be used for justifying continuous improvement ideas.

 

Copyright © Calvin L Williams blog at calvinlwilliams.com [2015]. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Calvin L Williams with appropriate and specific direction to the original content.

The 8 Lean Wastes and Their Potentially Disastrous Effects – Transporting

A worker operates a forklift to transport floor boards at a wood flooring factory in Huzhou
A worker operates a forklift to transport floor boards at a wood flooring factory in Huzhou, Zhejiang province July 13, 2012. REUTERS/Sean Yong

Transporting – the act of moving people, materials, or information from one place to another. In this series titled “The 8 Lean Wastes and Their Potentially Disastrous Effects”, we examine case studies for when companies, government organizations, or entire industries have allowed a specific type of waste to escalate to a disastrous effect. In this post, we review the waste of Transporting to understand what causes it, how to see it, and how to eliminate it.

Jump to:

The 8 Wastes and Their Potentially Disastrous Effects:

Defects | Overproduction | Waiting | Non-utilized Talent & Ideas | Transportation | Inventory | MotionExcessive Processing

Study:

Based on data from the National EMS Information System (NEMSIS), the US national average time for an ambulance to arrive after an emergency call has been placed is 9.4 minutes. Just to level-set, the gold standard for ambulance arrival time is 8 minutes within 90% of the time. The data suggests that, on average, ambulances arrive 1.4 minutes late for an emergency call.

Additionally, the time to transport a patient back to the hospital to receive full treatment averaged 12.2 minutes in the dataset. This means that the time between the emergency call and the patient arriving at the hospital averaged almost 22 minutes in total.

Manuficient - Ambulance Arrival Time Data
Copyright 2016 Manuficient Consulting

 

Interesting Fact:

The chances of surviving cardiac arrest diminishes greatly after 5 or 6 minutes of waiting time. How many deaths or serious complications could be prevented if we could design an emergency medical system with an overall response time of less than 5 minutes?

For more information on this data, visit the NEMSIS at:

http://www.nedarc.org/

 

Transporting waste is abundant in just about any manufacturing or supply chain system. Since, for all practical purposes, multiple objects cannot occupy the same space at a time, transporting is an inevitable condition in the way we live, work, and play. One of the challenges to reducing transporting waste is that most methods of measuring productivity fail to highlight its existence. It’s important to measure delivery lead time from step to step within the factory and throughout the supply chain to help identify transporting waste; this also needs to be monitored on a continuous basis. Once you know to look for this type of waste, losses can fairly easily be measured and reduced in manufacturing or supply chain processes. For example, tools such as 5S, line layout, work cell design, and point-of-use supply (POUS) are all great approaches to minimize the waste of transporting within a factory.

Impruver also helps you see waste from transporting in the form of lost efficiency. In Impruver, this type of waste could either show up as downtime or rate losses. For example, if operators are having to travel across the factory to retrieve parts needed to perform a changeover, this entire time is captured under the planned downtime category. In this case, you might rearrange where items are being stored or staged in order to minimize transport time, changeovers, and efficiency losses due to planned downtime.

 

Copyright © Calvin L Williams blog at calvinlwilliams.com [2015]. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Calvin L Williams with appropriate and specific direction to the original content.

The 8 Lean Wastes and Their Potentially Disastrous Effects – Non-utilized Talent & Ideas

Final Launch of Challenger
The Space Shuttle Challenger lifts off Pad 39B at Kennedy Space Center, Florida, at 11:38 a.m., EST, January 28, 1986. The entire crew of seven was lost in the explosion 73 seconds into the launch. (AP Photo/NASA)

Non-utilized Talent & Ideas – all talent, ideas, and capabilities that are not effectively applied to facilitate execution. In this series titled “The 8 Lean Wastes and Their Potentially Disastrous Effects”, we examine case studies for when companies, government organizations, or entire industries have allowed a specific type of waste to escalate to a disastrous effect. In this post, we review the waste of Non-utilized Talent & Ideas to better understand what causes it, how to see it, and how to eliminate it. Goleansixsigma.com defines Non-utilized Talent & Ideas as “the concept that employees are not being utilized to their full capability or, conversely that they are engaged in tasks that would be more efficiently done by someone else. Non-Utilized Talent is one of the 8 Wastes which is also known as the waste of intellectual capital.”

Jump to:

The 8 Wastes and Their Potentially Disastrous Effects:

Defects | Overproduction | Waiting | Non-utilized Talent & Ideas | Transportation | Inventory | MotionExcessive Processing

Case Study:

On a particularly cool day in Cape Canaveral, FL in 1986, the Space Shuttle Challenger was scheduled to launch. A few days before the launch, the team of the engineers who were working on the mission had advised the program’s management team that launching at 30 degrees would be very risky. The data that they had collected on the wax-based O-ring performance showed that significant integrity was lost under lower temperatures. The management team decided to launch anyway despite the warning of their engineers and the result was catastrophic. 73 seconds into the space shuttle’s flight, the O-rings failed and it exploded in mid-air. The price tag on this disastrous decision was 7 lives (one of which was supposed to be the first teacher in space) and about $1.5B including the flight mission, search and recovery, and the investigation.

NPR recently did a great story on Bob Ebeling, the engineer who came forward (risking his career) and tried to warn NASA of the danger associated with this launch. You can find the podcast at the link below:

NPR Story on Bob Ebeling

Corrective Action:

In response to this tragic incident, NASA re-designed the O-ring joints and implement an astronaut bail-out system in later space shuttle models. Evidence reveals that some of the passengers may have survived the explosion, until the shuttle crashed with the ocean after descent. Thus, lives may have been spared by allowing the astronauts to “bail out” prior to coming in contact with the earth.

Interesting Fact:

After the Challenger explosion, there were several changes put in place to prevent this type of issue from reoccurring. Unfortunately, many of these changes did not sustain in operation. In 2003, the Space Shuttle Columbia also exploded soon after launch, ending the lives of 7 more astronauts. The Columbia explosion occurred for reasons that would have been prevented by the changes that were put in place after the Challenger mission. This highlights the importance of operational discipline and ensuring that improvements are sustained.

For more details on this case study, check out the Wikipedia article at the following link:

https://en.wikipedia.org/wiki/Space_Shuttle_Challenger_disaster

Non-utilized Talent & Ideas is possibly the most abundant type of waste. It is the only one of the 8 wastes that is not directly a process waste but one of managment or intellectual capital. It is often caused by destructive internal politics and a general lack of respect for people. This type of waste is greatly reduced by practicing a true meritocracy; promoting highly competent people and systematically vetting improvement ideas, regardless of their source. I’ve created and used several great Idea Management and Execution Systems, all of which include regular idea review schedules, rigorous idea vetting, excellent feedback and communication loops, and incentives for submitting or executing improvement projects.

Impruver also helps you see waste from non-utilized talent & ideas in the form of lost efficiency. In Impruver, this type of waste could either show up as downtime, rate, or yield losses. The great thing about Impruver is that it promotes a culture of getting better everyday by highlighting personal bests, record breaking weeks, raising the bar (outperforming the standard) and other great achievements. This motivates your team to most effectively apply their talent and ideas to drive manufacturing execution.

 

 

Copyright © Calvin L Williams blog at calvinlwilliams.com [2015]. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Calvin L Williams with appropriate and specific direction to the original content.

The 8 Lean Wastes and Their Potentially Disastrous Effects – Waiting

Manuficient - Waiting [Herseys]

Waiting – time spent idle or unproductive until parts, materials, information or other inputs are made available. In this series titled “The 8 Lean Wastes and Their Potentially Disastrous Effects”, we examine case studies for when companies, government organizations, or entire industries have allowed a specific type of waste to escalate to a disastrous effect. In this post, we review the waste of Waiting to understand what causes it, how to see it, and how to eliminate it. Leanmanufacturingtools.org defines waiting as “the act of doing nothing or working slowly whilst waiting for a previous step in the process.”

Jump to:

The 8 Wastes and Their Potentially Disastrous Effects:

Defects | Overproduction | Waiting | Non-utilized Talent & Ideas | Transportation | Inventory | MotionExcessive Processing

Case Study:

Leading into the Halloween of 1999, Hershey Foods lost over $150M in revenue due to a preventable mishap in supply chain execution. The company tried to “go live” on multiple supply chain management systems at the same time. In addition, they failed to follow the prescribed implementation plan provided by the software’s developers. The result was that even though the product had been produced, they were unable to “see” the project in the newly implemented management systems and subsequently, could not process orders. Their customers and consumers were left waiting for product that did not arrive, which cost Hersey’s $150M and their customers’ businesses also took a hit. Profits dropped 19% for Q3 of that year and continued to drop for Q4 due to lost credibility and damaged customer relationships.

Corrective Action:

Hershey’s then implemented an Electronic Data Interchange (EDI) system that allowed them much greater visibility over their supply chain, inventory, and critical customer data.

Interesting Fact:

The software’s developer estimated 48 months to correctly implement the supply chain management system but Hershey’s rushed the implementation for fear of how Y2K would affect the computer systems. As we’re all aware of now, Y2K had no effect on computer system operability; thus this fearful and rash decision was completely unfounded.

For more details on this case study, check out the CIO article at the following link:

http://www.cio.com/article/2440386/supply-chain-management/supply-chain—hershey-s-bittersweet-lesson.html

Waiting is a waste that frequently occurs in any manufacturing operation. This is often caused by either poorly balanced work areas or unreliable processes; and sometimes both. The key is to be able to spot waiting waste as it’s happening and take quick action to eliminate it by getting to the root cause and preventing it from happening again. Fortunately, waiting is one of the easiest types of waste to see as it’s happening. It only takes one to be present, engaged, and seeking waiting waste. A great tool for this is to install a high-visibility indicator that detects movement. When the expected movement is not occurring, it can be expected that the process step is waiting and an alert can be provided. Continuous Improvement happens when people actively seek out opportunities to reduce and prevent waiting waste whenever it occurs. This happens when the appropriate cultural behaviors are being promoted.

Impruver also helps you see waiting waste in the form of lost efficiency. In Impruver, waiting waste would either show up as Rate Loss (if the line is running but below standard rate) or Unplanned Downtime Loss (if the line is stopped and the stoppage is recorded). This enables you to not only capture losses but also to quantify the financial impact that waiting waste is having on your business.

 

Copyright © Calvin L Williams blog at calvinlwilliams.com [2015]. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Calvin L Williams with appropriate and specific direction to the original content.