Imagine the scenario: you have a lot of back-orders, can’t meet demand, production is crying downtimes, and output of equipment is just not happening. Lack of a daily measure is not helping to find a solution to the problem. Everyone advises to make investment for an additional line. By Vineet Ahuja.

What if there was ONE parameter that on a daily basis describes comprehensively what happens, and is linked directly with the bottom line? Just one number sent to you wherever you are at that moment that means you know if the facility made or lost money. Well there is a measure, and it is called Overall Equipment Effectiveness (OEE), based around the following factors.

1) The Total Available Time per year is 365 x 24 hours, and this is what the banks charge you interest on. Banks do not reduce your interest premiums if you only work one shift.

2) The Operating Time Planned is the manufacturing time planned, which could be one shift or whatever. The balance time not planned for is called Unplanned.

3) Actual Running Time is the time taken to produce the output. Output is zero during downtime.

4) In the time the lines run, there is a Standard Output possible, the design rate of the line. Better would be the average of the seven highest outputs in the past, called Maximum Demonstrable Rate (MDR). Normally, Standard Output is conditioned by existing constraints and average case scenarios.

5) Actual Output is the quantity made in the Actual Running Time. The difference between Standard and Actual Output is covered as Speed Losses (where output ran slower than expected).

6) From this Actual Output, there may be some rejects. Quality Accepted is the product ready for dispatch, and is what customer revenue comes from.

7) The difference between Quality Accepted and the potential output is the Capability Gap of the business – the capability not utilised to generate revenue, or in other words what the business is losing out on.

So what is the Capability Gap of your business? Let’s see how OEE helps you understand it.

Any improvement in Quality Accepted product to the Total Time or Planned Time will increase revenue. Which is another way to say your assets are not being utilised effectively in adding value to your business. This is OEE – a low OEE means underutilisation, and any improvement means higher revenue.

Therefore OEE measures the effectiveness of the equipment/assets in adding value. So how can we get an OEE number to come to you daily?

The overall performance of a single piece of equipment or even an entire factory will always be governed by the cumulative impact of three OEE factors: Availability, Performance and Quality. Let’s look at how we can calculate this in terms of the variables identified.

OEE = Availability X Performance X Quality

Availability = Actual Running Time / Total operating time planned (2)

Performance = Actual Output / Standard Output

Quality = Quality Accepted / Actual Output

For example, take a single shift operation. The Planned Time is 8 hours, while Actual Running Time is 7 hours. Standard Output expected is 100 units and Actual Output is 90 units. Out of this 90 units produced, 88 are accepted for quality. Then the above calculations show as below:

Availability = 7/8 =  87.5%, or 0.875

Performance = 90/100 = 90%, or 0.9

Quality = 88/90 = 97.7% or 0.977

OEE = 0.875 x 0.9x 0.977 = 76.9%

World-class companies have an OEE of 85%, so anyone claiming 100% efficiencies is not telling the complete truth as it is virtually impossible to achieve 100%. The measure of OEE against Total Available Time (365days x 24hrs) is called Total Equipment Effective Performance (TEEP) and gives the total Capability of the assets.

The advantages of measuring OEE are:

  • It becomes a capital expansion decision parameter. If OEE is in low – say, 50%-60% – then getting a second line is not needed just because you can’t meet demand. Improve OEE and save capital to spend somewhere else. This then increases the life and effectiveness of the equipment and processes.
  • It stops criticism of the people and concentrates on processes.
  • It identifies the reason for low values in terms of downtime, breakdowns, lower speeds against design, quality problems and so on, so as to apply resources to improve.
  • It is an immediate indication of ROI. A 1% improvement in OEE means a 1% direct improvement in revenue-generating output.

There are many ways to measure OEE, from simple Excel worksheets, to software like Australia-made OFS or OEEToolkit. You don’t have to wait for next day’s written report to know what is happening in your plant but get a live real-time value on your PDA at any time of the day.

Vineet Ahuja is a Business Adviser with the Commonwealth Government’s Entrepreneurs’ Programme (EP). AMTIL is a partner organisation working with the Department of Industry in the delivery of the EP.