The ABC's Of Overall Equipment Effectiveness

With the constant pressures of global competition, OEE (Overall Equipment Effectiveness) has become a hot topic for many manufacturers. It provides a simple way to "keep score" of manufacturing performance, and is a tool for continuous improvement and lean manufacturing initiatives.

Start Simple
Let's start with a simple truth — it is very difficult to manage or improve what you don't measure. OEE provides a way to measure the effectiveness of virtually any manufacturing operation — from a single piece of equipment to an entire manufacturing plant. In doing so, it provides a complete picture of where productive manufacturing time is being lost.

So what is OEE? Technically, it is the ratio of Fully Productive Time to Planned Production Time.
(A quick note about terminology. There are no industry standards for many of the terms used in this article. Therefore, commonly used variants that are clear and descriptive have been selected).

In simpler terms, OEE is the percentage of production time that is truly productive. For example, if OEE is 50 percent, that means the equipment is running at only half of its theoretical potential. On the other hand, if OEE is 100 percent, that means production is running perfectly - no down time, no slow cycles, and no defects. It's that simple!

Small improvements in OEE can result in big improvements in profitability. For example, it has been shown that a 10 percent improvement in OEE can result in a 50 percent improvement in ROA (Return on Assets). This shows that investing in OEE initiatives can be ten times more cost-effective than purchasing new capital equipment. In fact, many companies use OEE to ensure that existing equipment is fully utilized before new equipment is purchased. Ronald Rocha, Flex-Factory Global Operations Director for Flextronics (a global electronics manufacturing services company) states, “The main reason we use OEE is because we want our sites to be at a certain productivity level before we decide to purchase more equipment”.

Dig Deeper
OEE is based on three underlying components: availability, performance and quality. Each of these components accounts for a different type of waste in the manufacturing process. Like OEE, each is expressed as a percentage. The higher the percentage, the more effective the process.

Availability takes into account Down Time Loss, which is productivity lost due to stops in planned production that are long enough (usually several minutes) that they should each be tracked as a separate event. Common causes of down time loss include equipment failures, material shortages and changeovers.

Why changeovers? Although it's usually not possible to eliminate changeover time, in most cases it can be reduced (the basis of SMED or Single Minute Exchange of Die programs). Bottom line - if changeovers cut into planned production time they should be counted as a down time loss.

Availability of 90 percent is considered world class for discrete manufacturing. This means that the process is running 90 percent of the time during planned production time.

Performance takes into account Speed Loss, which is productivity lost due to the process operating at less than the maximum possible speed when running. Common causes of speed loss include machine wear, substandard materials and misfeeds.

Performance of 95 percent is considered world class for discrete manufacturing. This means that when the process is running (i.e. not down), on average it is running at 95 percent of its theoretical maximum speed.
Quality takes into account Quality Loss, which is productivity lost due to manufactured parts that do not meet quality standards. Common categories of quality loss include scrapped parts and parts that require rework.
Quality of 99.9 percent is considered world class for discrete manufacturing. Of course, for some types of operations the minimum acceptable quality level will be much higher.

OEE combines these three factors into one metric by multiplying them together - resulting in one score that provides a complete measure of equipment efficiency and effectiveness.
OEE of 85 percent is considered world class for discrete manufacturing. This means that when looking at planned production time, 85 percent of that time is fully productive. 

Measure It
The next step is to learn how to calculate OEE. To do so, just five pieces of information are needed:

Planned Production Time: The intended (i.e. scheduled) production time. This includes all time in which production is scheduled to run.
Down Time:  The amount of time the process is not running during Planned Production Time.
Ideal Cycle Time: The theoretical minimum time to produce one piece. This is sometimes referred to as nameplate capacity or design cycle time. 
Total Pieces: The total number of pieces produced.
Good Pieces: The number of pieces produced that meet quality standards.

In the beginning, it’s a good idea to use manual data collection to “learn the process”. Roy Smith, a Manufacturing Manager for Federal-Mogul (a global automotive supplier) advises, “Manually collected data is very useful in helping the operators understand OEE and where the numbers come from, especially if they have to do the math themselves.”

With a bit of reflection you will realize that the alternative calculation for OEE brings us right back to where we started - defining OEE as the ratio of Fully Productive Time to Planned Production Time. After all, multiplying Good Pieces by Ideal Cycle Time is another way of calculating Fully Productive Time (producing only good pieces, as fast as possible, with no down time).

Accurately measuring OEE for the first time can be a humbling experience. Roy Smith observes, “The numbers are going to start low.”

Mike Fraley, a Process Engineer for Crown Battery (a Fremont, OH manufacturer of commercial and industrial batteries) agrees, “When we brought on an additional shift we saw a dramatic increase in OEE as people learned the equipment…we saw their OEE go from 40-50 percent all the way up to 85-90 percent.”

In fact, it is quite common for discrete manufacturing plants to discover that their OEE is below 60 percent, sometimes as low as 35 to 40 percent. But that's okay. Armed with this knowledge, and having established a baseline, the focus can turn to improvements.

Train The Team
One of the most important principles for improving OEE is to extend accountability all the way to the plant floor. And that starts with training.

According to Ronald Rocha, “If our employees know how important OEE is, if they understand why they are doing it and the benefits it creates - then we have a better chance of putting it in place and making it work.”
Begin by training managers, as they will drive the initiative. Then move to the plant floor.

Training front-line employees on the “how” and “why” of OEE instills a sense of ownership. Keep training simple, and focus on how the numbers relate to the production process. It is much easier to grasp OEE in terms of down time, slow cycles and rejects than availability, performance and quality metrics. Roy Smith comments, “As each new cell is put in place we sit down with the group to discuss what the numbers actually mean.”

Some companies find that OEE is a bit abstract for the plant floor, and while they track OEE for various reporting and management purposes, t