Manufacturing Operations Management and Aerospace Talk

Overall Equipment Effectiveness (OEE) or Overall Resource Effectiveness?

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

http://en.wikipedia.org/wiki/OEE

Are We Giving IT Conflicting Objectives in Manufacturing?

“To innovate or not to be”― that should be the question. These days we often see CIO’s with a cost cutting agenda as a primary goal. Should the CIO be relegated to a penny-pinching job or viewed as an architect in the company’s future growth?  

Manufacturing companies are facing a major change in the business marketplace. The emergence of global markets, rapid technology changes, and better informed and more demanding customers have rewritten the rules of manufacturing. Achieving and sustaining a competitive edge today requires that manufacturing companies use information strategically to turn the new rules of the market to their advantage.

To innovate or cut cost? Can we afford to keep IT in cost-cutting mode much longer? Many manufacturing companies don’t think so. As an indicator, we are not seeing the 15%-20% declines in technology purchases that we saw during the 2001-2002 downturn. Instead we are only seeing 2%-4% declines because some companies are looking at their technology investments more strategically. A survey performed by Managing Automation for 2009 spending revealed that even though companies have tighter budgets this year, they are still spending on strategic technology to improve productivity and enable new capacity and new markets.

Many manufacturers are realizing that they cannot survive tied down by paper intensive processes in their supply chains and their shop floors. Paper-based processes that prevent quick upgrades to the product line and prevent real-time visibility of status and issues.  Manufacturers tied down by slow old processes will not be able to compete in the new marketplace.

Technology solutions are available and maturing, but the CIO needs to embrace a new role in the company. The CIO must learn about the processes required to manage processes in the supply chain and the manufacturing shop floors. These are areas that have not been traditionally supported by enterprise IT departments. 

To innovate or standardize? To customize or integrate? Do we use best-of-breed solutions or try to implement a solution with a broad footprint? Some CIO’s might favor taking the easy path and focus on one ERP vendor to provide a complete solution for their enterprise. However, we often see companies spending much more creating custom extensions to their ERP systems, and ending up with less functionality than if they would have integrated a COTS solution in the first place. Just because a solution works for the Accounting department, does not mean that it works for the shop floor and the supply chain. It is vital to spend time understanding what competencies will enable the company’s business plan and what different solutions are being used in industry and by competitors.

It is often difficult for the internal IT department to resist the urge to be creative and develop their own custom solutions. If the IT department has a history of developing custom solutions, it would be prudent to hire a neutral third party consultant to evaluate alternate solutions available commercially, like MES and MOM systems.

To optimize or centralize? Many CIOs have been cutting cost by standardizing and centralizing IT solutions for the corporation. However, these strategies might not work for the manufacturing shop floors that need to sustain 24x7 up time, provide good response performance, and not slow down the production line. It is common to install local shop floor systems with high availability platforms and integrate these to centralized ERP systems.

The IT department must work through this change of agenda and must help the company invest wisely. Efficient manufacturing and supply chain processes can be an effective competitive weapon. The CIO must be an architect and must invest in best-of-breed technology that will provide change agility, best quality, great customer support, and enable increased capacity to handle future demands.

Applying Lean Manufacturing 5S methodology to Information Systems

While we are going around making the plant shine with 5S initiatives in every department, why not apply some of the same principles to the information systems?

 

5S focuses on effective workplace organization and standardization.The goal of 5S is to simplify the work environment and eliminate distractions to improve quality, efficiency, and safety. The name “5S” is based on the following five Japanese words in parenthesis that begin with S: Seiri (Sort), Seiton (Set in Order), Seiso (Shine), Seiketsu (Standardize), and Shitsuke (Sustain).

 

Sort – Focuses on eliminating unnecessary items from the workplace. Review logs and reports used on the shop floor periodically and determine if they are still necessary. Remove or replace obsolete manuals collecting dust on the shelves. Use value stream mapping to identify wasteful steps in the information flow, red tag them and start initiatives to eliminate them. Application screens used by the mechanic on the shop floor should remove information that is not really needed to perform the job.

 

Set in Order – Organize the flow of information on the shop floor along with production. Designate areas for charts on bulletin boards, label areas for manuals. Minimize paperwork that travels with the product and standardize how identification and information will be attached to the product or transportation bin. Procedures should be simple and clearly identify the next step. For online information, make sure that the mechanic’s screen is simple with clear menu choices for online documentation required to perform the job.

 

Shine – Post responsibility and schedule for inspection and update of logs and manuals used on the shop floor. Periodically audit procedures with shop floor personnel and update procedures if required. Everyone on the shop floor should participate and provide feedback. Everyone should be proud of the procedures used on the shop floor or should be supporting initiatives to improve the procedures.

 

Standardize – Derive standards, patterns and models for best practices that can be applied to other areas. Establish a central shared repository for these best practices with change control and governance procedures.  

 

Sustain – Focuses on developing a methodology for sustaining the improvements made using the first four steps. Take extra effort to publicize the standards published and the achievements of different areas. Motivate initiatives for knowledge transfer to improve other areas and maintain a cycle of continuous improvement process throughout the company.

 

Should we apply 5S at the office, at home? Let’s not get carried away :-)

 

References:

 

I’m collaborating on a new guidebook that will be published by the MESA organization: “MESA
Lean Manufacturing Strategic Initiative Guidebook.” Please visit http://www.mesa.org for more information on this guide which is full of great process improvement ideas. Joining the MESA organization is easy and gives you access to great information.

 

For more information on 5S visit: http://en.wikipedia.org/wiki/5S_(methodology)