I was recently asked to consider a modification to the OEE formula to calculate labour versus equipment effectiveness. This request stemmed from the observation that some processes, like assembly or packing operations, may be completely dependent on human effort. In other words, the people performing the work ARE the machine.
I have observed situations where an extra person was stationed at a process to assist with loading and packing of parts so the primary operator could focus on assembly alone. In contrast, I have also observed processes running with fewer operators than required by the standard due to absenteeism.
In other situations, personnel have been assigned to perform additional rework or sorting operations to keep the primary process running. It is also common for someone to be assigned to a machine temporarily while another machine is down for repairs. In these instances, the ideal number of operators required to run the process may not always be available.
Although the OEE Performance factor may reflect the changes in throughput, the OEE formula does not offer the ability to discern the effect of labour. It may be easy to recognize where people have been added to an operation because performance exceeds 100%. But what happens when fewer people have been assigned to an operation or when processes have been altered to accommodate additional tasks that are not reflected in the standard?
Based on our discussion above, it seems reasonable to consider a formula that is based on Labour Effort. Of the OEE factors that help us to identify where variances to standard exist, the number of direct labour employees should be one of them. At a minimum, a new cycle time should be established based on the number of people present.
OEE versus Financial Measurement
Standard Cost Systems are driven by a defined method or process and rate for producing a given product. Variances in labour, material, and / or process will also become variances to the standard cost and reflected as such in the financial statements. For this reason, OEE data must reflect the “real” state of the process.
If labour is added (over standard) to an operation to increase throughput, the process has changed. Unless the standard is revised, OEE results will be reportedly higher while the costs associated with production may only reflect a minimal variance because they are based on the standard cost. We have now lost our ability to correlate OEE data with some of our key financial performance indicators.
Until Next Time – STAY lean!