OEE: A Shop-floor Metric That Links Cost Reduction to Revenue

“OEE is the missing piece in benchmarking,” says Ulf Stern, senior advisor for asset management solutions with enterprise software supplier IFS AB (www.ifsworld.com), Linköping, Sweden.

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OEE, or Overall Equipment Effectiveness, is a numeric index that represents actual revenue‑generating production in terms of potential revenue‑generating production. Applied to a machine or work cell, OEE analysis focuses attention on cost-reduction opportunities that will be realized by true process improvement rather than by subtracting value from the manufacturing process or from the product itself. “To optimize investments and operations budgets,” Stern continues, “you cannot only look at the cost side, because everything you do in the plant also influences revenue. OEE analysis balances cost reduction, efficiency and revenue.”

OEE is defined as the ratio of a machine’s actual defect‑free production per unit time to the machine’s maximum (sustainable) defect‑free production per unit time, with “machine” being taken to mean any production asset: machine, work cell, line or plant. OEE is always a fraction between zero and one that when multiplied by 100 yields a percentage.

“It’s a very easy metric to get your head around,” says Todd M. Smith, product manager for FactoryTalk Metrics at supplier Rockwell Software (www.rockwellautomation.com), Milwaukee. “Everyone does that calculation mentally at some level. You start asking the question, ‘I made 5,000 last shift. It seems like I should have made 6,000. Why didn’t I?’”

OEE’s usefulness in answering that question emerges by breaking OEE into three factors: availability, performance and quality. “Over a fixed time interval inside four walls, disregarding influences such as material and labor costs that are set ‘outside’ before production begins, there are really only three things you can do to reduce the cost of a production process,” says Smith. “One: reduce your unproductive machine time (increase availability). Two: reduce your cycle time (increase performance). Three: reduce your waste (increase quality).”

Calculating OEE

OEE equals availability times performance times quality. All three of OEE’s component factors are always fractions between zero and one. Availability is calculated by first subtracting the machine’s down time from its planned operating time to get the machine’s actual operating time, then dividing actual operating time by planned operating time. Performance is calculated by dividing the machine’s best (lowest) sustainable cycle time by its actual average cycle time. Quality is calculated by subtracting defective production units (including units designated for rework) from total production units to get units of good production, then dividing good production by total production.

Any value less than one for availability, performance or quality results in an OEE that is less than one, which indicates that a “loss” has occurred. Reducing these losses will reduce the cost of a unit of product.

There is a catch, though: data acquisition has to be good. “We have worked with one paper mill for many years,” says Stern. “They are always aware of their OEE and have incorporated it into a process improvement effort that has doubled their capacity. This paper mill has more than 100,000 events per year that affect OEE. With data collected manually by operators, perhaps 10 percent of those would be captured. The company would see only 10 percent of reality. Today, we automate the data acquisition and see 100 percent by continuously polling production processes. Also, the most relevant data must be presented intuitively to operators fast enough so that they can take corrective action when losses first appear.”

“The primary driver behind interest in OEE is economic,” concludes Smith. “By discovering capacity, you can reduce cost. That’s the end game, and so implementing OEE tends to be a management‑led initiative. But it’s only truly effective when it’s a shop-floor initiative too. That’s when it will improve the process.”

Marty Weil, martyweil@charter.net, is an Automation World Contributing Writer.


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