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 – 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 – 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 – Overproduction

Manuficient - Overproduction (PEPCON)

Overproduction – the act of making more of something than is immediately required. In this series titled “The 8 Lean Wastes and Their Potentially Disastrous Effects”, we examine a case study 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 Overproduction to understand what causes it, how to see it, and how to eliminate it. Wikipedia defines overproduction as “excess of supply over demand of products being offered to the market. This leads to lower prices and/or unsold goods along with the possibility of unemployment.”

Jump to:

The 8 Wastes and Their Potentially Disastrous Effects:

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

Case Study:

In 1988, chemical manufacturing company PEPCON, located in Hersonson, NV experienced a massive explosion of 4,500 metric tons of Ammonium Perchlorate (AP). The facility was producing AP, which is used as an oxidizer in rocket fuel, for the Challenger Space Program. In 1986 the Challenger Program was suspended after the space craft exploded in mid-air only 72 seconds after launch. PEPCON decided to continue production of AP even though there was no longer a demand for it as a way to sustain production capability without inflating costs. The company assumed that they might be able to sell the excess AP to other government programs or to the Challenger Program if it were to ever come back online. They stored the excess product in containers in a parking lot near the production facility. Finally, one of the containers containing the AP ignited and the entire highly-combustive lot went up in smoke. The explosion cause catastrophic damage, destroying the PEPCON factory and other nearby factories and residential property.

The explosion resulted in 2 deaths and and 372 injuries. It also created about $100M in related damages.

Corrective Action:

In response to this incident, the Nevada legislature passed the Chemical Catastrophe Prevention Act in 1991, and later the Chemical Accident Prevention Program.

Interesting Fact:

4,500 metric tons of this product and others were being stored on site at the time of the explosion in aluminum, HDPE, and steel drums. The blast range of the explosion was a 10 mile radius. The actual cause of the fire was never officially determined.

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

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

 

Overproduction is one of the most dangerous types of lean waste because it enables all other forms of waste to occur. When factories overproduce, they create buffers that allow the manufacturing process to become disjointed from the subsequent elements of the supply chain. This enables process waste to fester in the manufacturing stage because problems in the production process have little to no effect in the company’s ability to satisfy customer demand. This buffer removes the “pain” of poor production execution and the factory loses the discipline required for true operational excellence.

There are management tools that can help to minimize the detrimental effects of overproduction and provide the foundation for increasing operational discipline. OEE is one great example for how to measure productivity so that overproduction can be eliminated and the factory can transition to more of an on-demand operation with minimal finished inventory. Impruver is a fantastic tool for implementing OEE that also drives a grassroots culture of getting better everyday.

 

 

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.

Are Your Metrics Causing You to Lose Money?

Manuficient - Metrics

As Peter Drucker, one of the founders of the study of modern management, once said, “if you can’t measure it, you can’t manage it.” Rather you agree with this statement or not, the practice of measurement, or expressing things, events, and ideas numerically, is only increasing in the way we run our businesses. Metrics are critical to Continuous Performance Improvement since they provide the frame of what exactly we’re working to improve. They also provide us a perspective on things that can be imperceivable through everyday experiences. Lets look at professional basketball for example. Witnessing every game in an NBA season is not only impractical, it’s not even possible for most of the people on earth. However, with a few good metrics, you can get a quick snapshot of an entire season in just a few minutes. This is no different if you’re an executive or manager of a manufacturing company with several areas of responsibility. Without good metrics, your ability to effectively prioritize and allocate resources is severely diminished, if not completely lost. In other words, metrics can tremendously improve management effectiveness.

With that said, metrics can also completely ruin your life if ineffectively applied. As technology continues to make it easier to capture data, more and more metrics appear. But all metrics are not created equal. It takes some skills to design metrics that actually drive performance and provide you with mission-critical information in a timely manner. In the realm of Continuous Improvement, metrics should serve one primary function: provide the timely process feedback needed to drive performance improvement. I often see companies heavily invested in metrics that don’t even come close to doing this. Consequently, these metrics quickly reach a point of diminishing returns and long outlive their usefulness; resulting in dysfunctional organizational behaviors.

The following are a few traits of dysfunctional metrics:

  1. Metrics that systematically exclude improvement opportunities – The way you measure productivity is crucial to how productive you will likely become. I’ve seen cases where efficiencies over 100% were being reported on a daily basis; yet operating costs and lead times were increasing for no good reason. This is a sign that key areas for improvement opportunity are being ignored by the efficiency metric. For example, many companies measure adherence to schedule to gauge their efficiency, which is usually based on the average historical production rates. This metric inherently drives a mentality of “let’s just try not to get worse.” This measure of efficiency fails to reveal opportunities to reduce process waste that could be resulting from planned and unplanned downtime, rate loss, yield losses or others. The gold standard for measuring manufacturing productivity is Overall Equipment Effectiveness (OEE). World class execution is considered 85%, which very few factories on earth have been able to achieve. Your metrics should show you how much better you could be and give you some insight into what to do to get better. If a factory is not using OEE, there’s a good chance they could make dramatic reductions in their operating costs and lead times. The best way to implement OEE is to use the Impruver.com. It does a great job of creating shop floor enthusiasm and excitement around your lean implementation and a culture of getting better every day.
  2. Vanity Metrics – These metrics only highlight how well the organization (or the reporting manager) is performing. They are very common and even seductive but have no place in a continuous improvement culture. Their whole purpose is to make people feel good but do not drive any real action or desire to make things better. One example of a vanity metric that I see everywhere is “Days Since a Recordable Incident”. While it’s vitally important to maintain a safe working environment, reporting this metric provides no insight to what specific opportunities exist to make the workplace more safe. As long as the number is “high enough”, everyone gets a pat on the back for not killing themselves today and go on without addressing any of the behaviors or conditions that will inevitably result in someone getting hurt. It also contributes to a culture of hiding injuries to protect the metric. A better metric would measure safe behaviors and conditions against perfection. For example, I’ve used safety audits that evaluate behaviors and working environments for any potential risk, then scores the results against well-defined criteria for a safe workplace. If someone does get hurt, the auditing criteria is modified to safeguard against the conditions that led up to the injury. This is an example of how metrics can incorporate organizational learning. Impruver has artificial intelligence that learns from you as you go. Standard run rates are updated automatically when you exceed the previously established rate for a product on a line. This continuously raises the bar and makes opportunities for improvement more easily identified.
  3. Long Reporting Intervals – Metrics designed for management should help you get better. If you are receiving a report weeks or even months apart, then you may go months before you even realize there’s a serious problem. Sure you can rely on people to be communicative and escalate issues informally, but we all know that this isn’t a reliable way to run a business. As a leader, ask yourself how long is too long before you are alerted of an issue. That should give you some insight to how frequently performance should be reported. The best systems are real-time with alerts for min-max performance thresholds. Other good systems report hour-to-hour at the line level, and day-to-day at the factory level. This allows for quick and resolute action on performance issues as they arise. Impruver automates these processes to ensure that you are the first to know when performance reaches unsatisfactory levels.
  4. Burden of Metrics – High-burden metrics create stress for the entire organization. Burden is considered the amount of time and effort required to acquire data, complete calculations, and report performance. Burden is suffered by the Line Operator who is incurring significant downtime to collect data, the Supervisor who has to constantly double-check and provide feedback to the Operator, and the Plant Manager who is constantly questioning the integrity of the metrics and requiring revisions / explanations. I’ve worked with factories that had Industrial Engineers spending over 20 hours per week collecting data and generating reports. This is a massive waste of time and talent; and very few people on the planet enjoy doing this. High-burden metrics don’t stick. As soon as the pressure lets off to keep producing the data or reports, they will gradually go away. Impruver employs a great data input design that only requires less than one minute per production run input using the plug-and-play version of the system. This not only  engages the line operator with the Continuous Improvement system, it also performs all calculation and reporting functions automatically. The data goes straight from the shop floor to all internal stakeholders instantaneously.

The right metrics make all the difference in running a successful operation. The wrong metrics can send us down a path of dysfunction and actually make us more disconnected from what’s important. Your metrics should help you get better and instill a culture of Continuous Improvement. So to answer the question in the title: no, your metrics aren’t causing you to lose money. Being inefficient causes you to lose money but your metrics aren’t doing you any service if they aren’t giving you complete, real-time, and actionable information.

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.