Can you manage what you can't measure? Some cowboy managers probably do, but most managers would agree that consistent reliable metrics across operations help manage the business effectively. The topic of metrics gets much attention lately and there is much talk on OEE (Overall Equipment Effectiveness) as one of the preferred metrics. However, when using metrics that combine several metrics into one, we should use caution and mitigate the risk of hiding important information as a result of these combined metrics.
OEE is a fine metric, especially in industries where the manufacturing process revolves around a few expensive pieces of equipment. It is one of several metrics we should consider for KPI’s (Key Performance Indicators). More interesting to me are the components of OEE, which are also all good metrics, and how these should be defined differently for different industries. In other words, the principles behind OEE can be applied to multiple industries and types of manufacturing, but one OEE definition does not work the same for everyone.
Why are we interested in metrics like OEE?
Because we need metrics to answer management questions and aid decision making. Questions on the minds of the management team might change periodically depending on the business priority of the day but usually include questions like the following:
- How am I doing? What is our current capacity, status, schedule attainment?
- What can I make today? What is current work-in-process and raw material status?
- Where should I make it? What is current assignment of resources to production among facilities – internal and outsourced?
- Where am I underperforming?
How does OEE help answer these questions?
OEE is an overall efficiency metric defined as OEE = Availability x Performance x Quality. It is an overall health type metric for the company. However, it is only as good as how we define its components: “equipment”, “availability”, “performance, “quality”.
OEE or ORE?
Personally, I do not like the use of the word "equipment" in the definition. A more appropriate term would be "resource". In other words, think of it as Overall Resource Efficiency and we have a metric applicable to a broader range of industries since equipment is not the primary critical resource for every type of manufacturing. Of course, we can just leave the word equipment in there to avoid creating yet another new term, but think “resource” when you see the word “equipment”.
Are we interested in every piece of equipment or every resource in this metric? I would say, No. We should only be looking at critical resources―resources that are critical because they are very expensive (big investment) or because they are potential constraints in the manufacturing process. Otherwise we are diluting focus from where it should be. It may be that in your industry some specialized labor skills are the most important resources. In that case, you might actually consider changing the term, because some people might not like the idea of being considered “equipment”.
Components of OEE
Each one of the components of OEE provides valuable information and should be looked at individually in addition to OEE. Several different metric definitions could feed into the components of OEE depending on the industry. A few examples are listed below.
OEE = Availability x Performance x Quality
Availability
- Ratio of Operating Time to Planned Production Time
- Percent of calendar hours that equipment was available for production or equipment up-time
- Percent of calendar hours product is not held idle by constraints like availability of parts, skilled resources, or equipment
Performance
- (Ideal Cycle Time x Total Pieces)/Operating Time
- (Total Pieces/Operating Time)/Ideal Run Rate
- Standard Labor Hours/Actual Labor Hours
Quality
- Good Pieces / Total Pieces
- (Actual Labor Hours – Rework Labor Hours)/Actual Labor Hours
Note that all these metrics are constructed so the elusive target is 100%. But don’t feel bad if your result is 70% or 80% instead of 95%. Since OEE can be defined slightly different according to the industry it is hard to use general benchmarks. Plus most companies are tracking all equipment (not just critical equipment) and that is just puffing up the OEE number to make them feel better. Industry benchmarks are nice but not required; any company can simply monitor each metric and make its own improvement goals based on past performance.
Still confused? Here are some more references to further confuse on the OEE subject :)
“Improving return on industrial assets”, MBT Magazine, 9-1-2009
http://www.mbtmag.com/article/365621-Improving_return_on_industrial_assets.php
“Overall Equipment Effectiveness” at Wikipedia
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