Implementing an Overall Equipment Effectiveness (OEE) strategy can significantly enhance manufacturing performance by identifying hidden losses and optimizing production processes. OEE serves as a core decision-making tool, linking availability, performance rate, and quality to measure and drive improvements, ultimately resulting in substantial cost savings. Companies that utilize OEE effectively can realize annual revenue gains, highlighting its critical role in enhancing operational efficiency.

1.
The Benefits of
Implementing an OEE
Strategy
Transforming Manufacturing/Processing in
Australia and New Zealand
Overall Equipment Effectiveness is the only improvement
measure that differentiates your Actual performance from
your Theoretical and is measurable in dollar saving terms
January 2007
Prepared by: Gary Pollard

2.
BENEFITS OF AN OVERALL EQUIPMENT EFFICIENCY (OEE)
STRATEGY
As more and more companies remove the divides and frictions between engineering and
production, an overall manufacturing strategy is required, using performance measurement
methods that support both disciplines.
Overall Equipment Effectiveness meets these needs but it should be more than a series of graphs in
production department corridors. As a dedicated application it can and does become the core
manufacturing decision support tool.
The improvement potential that OEE highlights can surprise the most hardened production
professional. OEE analysis can link the lost opportunity to costs and easily show the team leader
that the 45 minutes of lost production was worth $7,500.
OEE has long been recognised not just as a tool to measure manufacturing performance but as a
powerful trigger for improvement actions.
Why is OEE measurement so critical?
Let’s take an all too often production situation. Imagine production loses 30% of the time available
giving availability of 70%. At the same time the running speed is only 50% of what could be
achieved giving us a performance rate of 50%. Waste levels are 10% providing a quality element of
90%.
Separately we may not regard each element as significant but taken together they result in an OEE
of 33%. Let’s repeat ‐OEE is only 33%, only one‐third of what we should expect. That’s 66% of
potential improvements.
“But we are working 24 hours a day (3x8hr shifts) and we even have people on overtime surely we
must be doing well with all this productivity”. Yes….! It may seem that way but what you don’t see
are the hidden losses, those inherent in the process and those that go unnoticed during the course
of production. OEE does not lie it tells you exactly how well or how indifferent you are performing.
But more importantly it highlights the areas in the process for improvement activity.
Rather than commit to installing an extra line, perhaps we should check out production
performance.
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3.
Loss management: a key strategy
Companies often spend too much time gathering data, leaving little time to react to the information
that it contains. OEE acts as a powerful improvement agenda so that as incidents are identified,
improvement targets and review and completion dates can be set. These tasks are highly visible and
clarify improvement responsibilities.
Ask three questions
• When was the last time a two‐hour breakdown occurred? (or any type of breakdown over
30 minutes)
• When was the time before that?
• What about the time before that?
Ask three more
• What counter‐measures have been put in place?
• Are they working?
• Does the team clearly understand the issues?
OEE links three basic elements.
Availability: a measure of the time the plant was actually available for production compared to the
manufacturing requirements. Any losses in this area would be due to major breakdowns or
extended set up time.
Performance Rate: the actual units produced compared to the designed output. Losses in this area
would be due to slow speed running, minor stoppages or adjustments.
Quality: a measure of good quality, saleable product, minus any waste. Loses for this element
would be damaged rejects or products needing re‐work.
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4.
OEE = Availability x Performance x Quality
Let’s take a simple example:
We then need to address two weak elements, the major breakdowns resulting in low availability
and the poor performance rate. We must however take care not to reduce the high quality in our
efforts to improve slow running.
We can then determine the lost opportunities or the real cost of poor equipment performance. It
will be useful to add at this point, at least to reassure engineers that accurate performance
measurement usually brings surprises. Waiting for raw materials or changeovers can sometimes
cause the biggest losses. Frequently People or Process issues are quicker and cheaper to resolve
than equipment re‐designs. Also keep in mind how powerful information will become during
supplier commissioning meetings when you can show precisely what has failed and the consequent
losses incurred. (Equipment makers don’t like OEE, they prefer their own performance
measurements!)
Let’s take the example above and make some assumptions.
Availability Need to produce for 10 hours, but have major 2‐hour failure 80%
Performance Output is 1000/hour, we make 850/hour (slow running) 85%
Quality Quality is good with few rejects 99%
OEE Availabilty (80) x Performance (85) x Quality (99) = 67%
Design output = 1000 units/hour Price per unit = $5 each
After Improvement actions we now have moved the OEE from 67% to 89% + 22%
Actual units produced/hour 850 to 940 + 90
Actual revenue generated/hour $4,250 to $4,700 + $450
Lost opportunity revenue/hour from $750 to $300 ‐ $450
Improvements have reduced the lost opportunity costs from $750 to $300 per hour
What are those improvements worth?
Assuming 80 hours production per week that 22% improvement in OEE is worth $1,872,000 per
year.
However, 22% is perhaps unrealistic, so let’s assume we achieve only 1%, that’s still worth $85,090
per year.
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5.
What would a 1% improvement be worth to your operation?
What data do we need to ‘discover our hidden factory/mine’? Not as much as you would expect but
we do need widespread data visibility.
Many companies have production data overload, one SCADA supplier actually offers a software tool
to make sense of complex machine data generated by their own SCADA!
You may have access to information from CMMS, SCADA, machine or line PLCs, MRP and ERP
systems. All may be valuable in their own right but are unlikely to be properly focused on
performance
.
Companies who recognize the value of OEE usually begin with a simple spreadsheet for each
production line. This approach generates the graphs required by production offices, but key
elements will be missing. The spreadsheet approach will not include analysis capability, multi‐user
access, validated data entry, secure password control, unlimited date/time range reporting or the
secure SQL based data engine that a tailored application can provide.
Companies quickly outgrow their spreadsheet approach.
Automatic data acquisition is another powerful option but hard‐wiring multiple machines can be
expensive and there is a real danger that the operations staff will be divorced from ownership of
the data and benefits will be lost. Hard wiring is a stronger option for new production lines.
Difficulties can also arise when one or more production lines have automatic data acquisition whilst
other, older lines, do not. It is essential to implement a solution that is independent of how the data
is gathered.
So what are we left with?
We need a robust application that gives ownership to operations staff.. We must provide data drill
down to give enough information to highlight improvement.
We need a loss management strategy to encourage action based on the information provided.
We need an agenda of improvement issues and to be able to measure progress towards
improvement target.
Each major improvement issue must be highlighted, the current position recorded, a remedial
activity generated and progress towards resolution measured.
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6. Let’s see some real world examples (Source WCS International Limited)
A chemical processing plant with increased OEE by 5%, worth $40.000
A bottling plant with a 1% increase worth over $50,000, increased OEE by
22% on key plant equipment
A pharmaceutical producer increased packaging machine OEE by 9% over 6
Months; worth $315,000 per year
By making actual performance highly visible and providing powerful tools to highlight lost
opportunities, quantify those losses and manage progress towards making improvements.
If the OEE trend dips
• see which asset caused the dip
• see which shift caused the dip
• see which product caused the dip
• see the downtime cost of that dip
• see the extra units available if you reduced the dip
• see the extra revenue available if you reduced the dip
• see how much resource you can spend reducing the dip
• set an improvement agenda
OEE tells you exactly how your plant/operation is performing and more importantly what measures
you can introduce to continually improve the performance of the operation and the bottom line.
Every single percentage point gain on your OEE is measurable in dollar saving terms. Can you afford
to ignore the benefits of how an OEE strategy can transform your business?
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