OEE has long been used as a Lean measure for the effectiveness of production equipment. It is mainly used to determine where to focus improvement efforts, Availability, Performance, or Quality. This presentation provides an explanation of OEE and a case study of how improvements to each of the OEE factors can demonstrate financial results

1.  Robert Baird
Lean Teams USA
+1 215 353 0696
OEE Financial Savings From
Component Improvements
9-May-14 1www.leanteamsusa.com

2. OEE Factors
OEE = Availability x Performance x Quality
– Availability - Percentage of the actual amount of production time the machine is
running to the production time the machine is available
– Performance - the speed at which the operation runs as a percentage of its
designed speed
𝑷𝒆𝒓𝒇𝒐𝒓𝒎𝒂𝒏𝒄𝒆 = 𝑻𝒐𝒕𝒂𝒍 𝑷𝒊𝒆𝒄𝒆𝒔 ÷ 𝑶𝒑𝒆𝒓𝒂𝒕𝒊𝒏𝒈 𝑻𝒊𝒎𝒆 ÷ 𝑰𝒅𝒆𝒂𝒍 𝑹𝒖𝒏 𝑹𝒂𝒕𝒆
– Quality - the Good Units produced as a percentage of the Total Units Started. Referred to
as First Pass Yield
𝑸𝒖𝒂𝒍𝒊𝒕𝒚 = 𝑮𝒐𝒐𝒅 𝑷𝒊𝒆𝒄𝒆𝒔 ÷ 𝑻𝒐𝒕𝒂𝒍 𝑷𝒊𝒆𝒄𝒆𝒔
Each Factor compared to a
standard9-May-14 www.leanteamsusa.com 2
𝑨𝒗𝒂𝒊𝒍𝒂𝒃𝒊𝒍𝒊𝒕𝒚 = 𝑶𝒑𝒆𝒓𝒂𝒕𝒊𝒏𝒈 𝑻𝒊𝒎𝒆 ÷ 𝑷𝒍𝒂𝒏𝒏𝒆𝒅 𝑷𝒓𝒐𝒅𝒖𝒄𝒕𝒊𝒐𝒏 𝑻𝒊𝒎𝒆

3. LossesOEE Loss Category OEE Component Loss Category
Downtime Losses Availability 1. Equipment Failure
2. Tooling damage
3. Unplanned Maintenance
4. Process warm up
5. Machine changeover
6. Material shortage
Speed Losses Performance 1. Product mis-feeds
2. Component jams
3. Product flow stoppage
4. Level of Operator
5. Equipment age
6. Tooling wear
Quality Losses Quality 1. Assembled incorrectly
2. Rejects
3. Rework
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4. World Class OEE
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OEE Factor World Class
Availability 90%
Performance 95%
Quality 99.9%
OEE 85%

5. Which Process to Improve OEE
• Weighted Average Method
• Value Added = Product Revenue – COGS
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Process OEE
Value
Add
Value
%
OEE
Value
1 85.0% $44,320 22.5% 19.2%
2 60.0% $51,005 25.9% 15.6%
3 77.0% $42,315 21.5% 16.6%
4 82.0% $48,900 24.9% 20.4%
5 55.0% $10,100 5.1% 2.8%
Total $196,640 100.0% 74.5%
Financial Performance of the Operation
CONSIDERING VALUE ADD WHICH PROCESS WOULD YOU IMPROVE OEE

6. Cost Avoidance
OEE
$ CAPEX
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7. Financial Benefits
• 30% improvement in downtime, 10%
improvement in speed losses, and 2.6%
quality improvement
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OEE Factor Result Before
Availability 300 71.4%
Performance 21,300 71%
Quality 20,200 94.8%
OEE 48.1%
OEE Factor Result After
Availability 390 92.8%
Performance 30,459 78.1%
Quality 29,636 97.3%
OEE 70.5%
OEE Factor Before After Unit
Availability 300 390 min
Performance 71 78.1 Units/min
Quality 20,200 29,636 Units

8. Financials Benefits
• Before
• After
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𝑅𝑒𝑣𝑒𝑛𝑢𝑒 = 20,200 ∗ $5.00 = $101,000
𝑅𝑒𝑣𝑒𝑛𝑢𝑒 = 29,636 ∗ $5.00 = $148,180

9. Financial Benefits
• Before
𝑌𝑖𝑒𝑙𝑑 𝐿𝑜𝑠𝑠 = 21,300 − 20,200 = 1,100
𝐶𝑂𝐺𝑆 = 1,100 ∗ $2.50 = $2,750
• After
𝑌𝑖𝑒𝑙𝑑 𝐿𝑜𝑠𝑠 = 30,459 − 29,636 = 823
𝐶𝑂𝐺𝑆 = 823 ∗ $2.50 = $2,057
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10. Financial Benefits
• Before
Direct Labor Efficiency Variance
(20,200 units x 0.000175 Hrs/unit) – (300 ÷ 60) x $15 = −$21.97 variance
• After
Direct Labor Efficiency Variance
(29,636 units x 0.000175 Hrs/unit) – (390 ÷ 60) x $15 = −$19.70 variance
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𝑫𝒊𝒓𝒆𝒄𝒕 𝑳𝒂𝒃𝒐𝒓 𝑬𝒇𝒇𝒊𝒄𝒊𝒆𝒏𝒄𝒚 𝑽𝒂𝒓𝒊𝒂𝒏𝒄𝒆 = 𝑺𝒕𝒂𝒏𝒅𝒂𝒓𝒅 𝑹𝒂𝒕𝒆 ∗ (𝑺𝒕𝒂𝒏𝒅𝒂𝒓𝒅 𝑯𝒐𝒖𝒓𝒔 − 𝑨𝒄𝒕𝒖𝒂𝒍 𝑯𝒐𝒖𝒓𝒔)

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