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| October 31, 2012
Overall Equipment Effectiveness: Benchmark Data by Industry
Our goal is to benchmark over 1,000 companies by the end of the year so manufacturers will be able to compare their performance to their peers’ using metrics such as OEE, On Time and Complete Shipments, Successful New Product Introductions, and Cost of Quality. For now, there is preliminary data on OEE performance across a number of discrete manufacturing industries.
OEE, or overall equipment effectiveness, is an important metric for many companies’ initiatives in operational excellence. There are many different definitions of OEE, but it is largely understood to be a composite metric based on three different areas of a particular assets’ performance. These three areas are: Availability, Efficiency, and Quality, resulting in the OEE formula of Availability % x Efficiency % x Quality% = OEE
The differences between OEE formulas lie in how each of these three terms are measured, so it is important to be precise in this regard. At a high level, it is helpful to think and talk about OEE in the following way: • First, OEE measures how often an asset is available when it should be producing product for a customer. • Second, when an asset is producing product for a customer, OEE measures how close the asset is producing to it’s theoretical maximum. • Third, for those products that are produced, OEE measures the percentage of products that are produced within quality specifications. At LNS Research, we have been collecting data from our industrial client base on people, process, metrics and technology. As of September 10, 2012 we have now benchmarked over 350 companies across a number of different strategic objectives, metrics and operational excellence capabilities. Our goal is to benchmark over 1,000 companies by the end of the year and make this data available to our clients through an interactive benchmark data web portal. Through this portal, clients will be able to compare their performance to their peers’ using metrics such as OEE, On Time and Complete Shipments, Successful New Product Introductions, and Cost of Quality. For now, the chart on this page shows the distribution of performance in OEE across a number of different discrete manufacturing industries. Here are a few important observations by industry: Aerospace and Defense has the lowest median performance but also has a broad distribution, with performance well above the median in the middle two quartiles. There is lots of room for improvement on average, but also some impressive performance out of the top quartile. Semiconductor also has a low median but a much tighter distribution. As an asset-intensive industry, all semiconductor companies could improve profits by improving asset utilization in OEE. Automotive performance with regard to OEE is surprisingly low compared to all respondents, as well as to some of the other performers. There is also an impressive distribution of performers well into the top and bottom tails in performance. As with aerospace and defense companies, there is lots of room for improvement among some automotive companies. Electronics is dead even with the median for the overall population. However there aren’t a lot of companies performing at the median; rather there are large groupings around 90 percent and 70 percent. Industrial Equipment is a leading industry in OEE and it impressively outperforms other discrete industries like aerospace and automotive. An impressive share of respondents is in the top two quartiles and is performing above 90 percent. Medical Devices is the real surprise of this analysis. Many people assume since it is a highly regulated industry with high margins that efficiency is low. Our analysis shows otherwise. More analysis is needed to determine why performance is so strong, but our guess is that it has to do with maturity around systems managing quality and change control. Companies in this industry are at a severe competitive disadvantage if performance isn’t well above the overall average. Matthew Littlefield, [email protected], is president and principal analyst for LNS Research based in Brookline, Massachusetts, which has issued a research report on Taking Overall Equipment Effectiveness beyond the Plant Floor.
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