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.

 

 

Advertisements

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.

How to Implement OEE in One Day

Manuficient - Excellence Compass

OEE (or Overall Equipment Effectiveness) is the ultimate tool for measuring and eliminating process waste. Wikipedia defines it as “a hierarchy of metrics developed by Seiichi Nakajima[1] in the 1960s to evaluate how effectively a manufacturing operation is utilized.” OEE combined with rigorous process improvement efforts can drive significant cost savings, reduce stress of daily operations, and increase manufacturing capacity. Simply put, you’re not doing Continuous Improvement or Lean if you’re not using OEE. The metric itself is taken by multiplying Availability (%) x Rate Attainment (%) x Yield Attainment (%).

To implement OEE effectively, you need to track each of these indicators on a continuous basis and perform the OEE calculation for a line, shift, factory, or entire manufacturing network on the interval that you see fit. Here are a few steps to implement OEE:

  1. Capture the % Availability. This is the efficiency lost while the line is not in operation (but the labor force is on the clock). Create a spreadsheet that allows line operators to input the time it takes to start up the line (from clock-in to steady state). Also capture other planned downtimes such as changeovers and shutdown times. Finally, capture each unplanned downtime loss as well.
  2. Capture the % Yield Attainment. This is a measure of the efficiency lost due to producing sub-par quality product. This calculation is done simply by taking the total good units produced divided by the total units produced.
  3. Capture % Rate Attainment. This is essentially the efficiency lost while running less than the maximum possible run rate. To capture this this, develop maximum theoretical run rates for each product on each production line. This should be done by an Industrial Engineer or trained professional. If you don’t have one on staff, you can contract someone to do it or use what I call the maximum empirically demonstrated rate, which is the fastest rate the line has demonstrated in it’s history for the given product. From there, track your total throughput and divide by your theoretical max rate to get your % total losses. Then subtract out % Availability and % Yield Losses. The remaining losses are rate losses.

Then multiply the three indicators across and the result is your OEE, which is a measure of perfection. 100% OEE represents zero efficiency losses. Once you have began tracking these metrics on an ongoing basis, you can aggregate this data to calculate your OEE anytime you want. The more frequently you can report this information, the more actionable the metric is for you. You certainly don’t want to wait weeks or months to find out there is a serious problem; but daily reporting is usually sufficient. Reporting by shift is even better.

With all of that said, the best way I’ve seen to implement OEE is a tool called Impruver at www.impruver.com. It’s the best free tool out there and it calculates and reports OEE for you by product, line, shift, and even team or individual team members. You could simply have your operators enter each production run into the system and the tool does the rest. It takes less than a minute to enter a production run. It even sets your theoretical max rates for you based on your best demonstrated rate. Then it updates the standard automatically when a run is entered that exceeds the previously established rate. In other words, you don’t have to set or update production standards – the tool does it all for you. It’s great!

 

OEE is the benchmark for measuring factory performance and can be used across all industries to highlight areas that can be made more efficient. It’s a metric that can be used to drive substantial cost savings along with targeted process improvements.

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.