Use OEE to Strategically Maximize
Profits
By: Bob Hansen
Many companies do not understand how powerful an Overall Equipment
Effectiveness strategy can be. OEE is seen to be an “interesting” metric and nothing more. Lean manufacturing methodologies are founded
on the concepts of high quality, reliable processes and equipment, which is also the objective of OEE. Six Sigma is focused on eliminating variation
from manufacturing processes, which goes hand in hand with OEE. OEE is a part of TPM implementation. Product quality, which is part of the OEE
formula, is of paramount importance to any plant. OEE is integral to nearly every initiative and good practice program for all manufacturing plants.
The most important component to consider is the one that links plant OEE to a company’s financial statement!
Why is this important?
Understanding OEE in depth helps you ‘see’ both the visible, the OEE metric which
directly correlates with output, and the invisible, the OEE losses and the link to Profits. It is important to recognize profits to be a
plant’s Earnings before Interest and Taxes (EBIT). This is far more critical than cost cutting that often weakens the very roots of
manufacturing excellence.
Manufacturing OEE is the multiplication of Availability, Speed Rate and Quality Rate, which are
factors that are influenced by nearly everyone at a plant site. When plant OEE is used as an improvement goal, everyone becomes synergistic in
supporting the necessary actions for improvement.
A second OEE concept
I call this second metric, “Financial OEE”. Manufacturing OEE is a measure of how much
product was made versus how much could have been made if everything operated perfectly (no downtime or changeovers, ideal rate and 100% quality). In
the same sense, Financial OEE is how much profit was made versus how much could have been made if everything operated at world class levels. The
astounding thing is that a small increase in plant OEE, dramatically increases plant profits!
This understanding is vital in communicating with business leadership, and selection of improvement
strategy. For example, a typical plant with average OEE (approximately 60%) might improve plant OEE by 10% (to 66% plant OEE) and the resultant EBIT
might improve by 47% (results depend on specific financial input).
The biggest OEE revelation
What is the difference between a blanket OEE improvement program and OEE strategy? The same
difference between mediocrity (no big change) and a major (50% or more?) jump in plant profits!
A blanket OEE improvement program usually consists of a mass education/training program throughout a
plant. This is followed with a challenge of a 10 to 25% OEE improvement goal for every work center. While this approach sounds like a smart thing to
do, very rarely do bottom line results (plant profits) actually have any significant change.
The antithesis is what I call OEE strategy. This is where the Theory Of Constraints is coupled with
OEE analysis and plant OEE is selectively improved in a way that maximizes plant profits. This can be done with an objective approach so that results
can be predicted, timelines projected, specific programs approved, resources reallocated, progress measured, and maximum plant benefits delivered
quickly.
I call this methodology, OEE/System Performance Analysis (OEE/SPA). It consists of developing process
maps for each product produced and collecting OEE performance and loss data for each step (work center). Because OEE directly correlates with output,
the database can be reconciled with production throughput.
Plant OEE can be determined from the OEE database and the proportion of schedule time for each
product. The power of this methodology is that individual work centers can be investigated for various OEE improvement levels and the resultant
change in Plant Profits determined. What quickly becomes apparent is that the Pareto principle of approximately 20% of the work centers can be
targeted for improvement to realize a significant contribution to plant profits!
No more guessing!
When maintenance downtime and cost information alone are used to determine plant improvement targets, a majority of the time (>66%) the best
targets are NOT selected! With the proper OEE tools and methodology, leadership can objectively guide, and can realistically predict potential
profits. Maintenance, quality services and other support groups can move from cost cutting to profit producing. By learning these techniques,
Maintenance leadership can effectively communicate business cases for reliability projects using the language of business managers (estimated
increase in EBIT).
