Category: Cost Control

Contingency Planning For Lean Operations – Part I

Contingency Planning For Lean Operations – Part I

Lean operations are driven by effective planning and efficient execution of core activities to ensure optimal performance is achieved and sustained.  The very nature of lean requires extreme attention to detail through all phases of planning and execution.  Upstream operations simply cannot tolerate any disruptions in product supply or process flow without the risk of incurring significant downtime costs or other related losses.

Effective risk management methods, contingency plans, and loss prevention strategy are critical components of successful operations management in a lean operation.  Risk management and preventing disruptions is the subject of contingency planning and requires the participation of all team members.

Successful contingency planning assures the establishment of an effective communication strategy and identification of core activities and actions required.  Contingency plans may require alternative methods, processes, systems, sources, or services and must be verified, validated, and tested prior to implementation.

Understanding and assessing the potential risks to your operation is the basis for contingency planning with the objective to minimize or eliminate potential losses.

Inventory represents the most basic form of contingency planning.  Safety stock or buffer inventories are typically used to minimize the effects of equipment downtime or disruptions in the supply chain. 

The levels of inventory to maintain are dependent on a number factors including Lead Time, Value, Carrying Cost, Transit Time (Distance), Shelf Life, Minimum Order Quantities, Payment Terms, and Obsolescence.

Why is this relevant?

Material and Labour represent two key resources that may be influenced by external factors that are beyond the control of any company policy or practice.  Internally controlled or managed resources such facilities, equipment, and tooling are less susceptible to unknown elements.  For the purposes of this discussion, we will examine Labour in a little more detail.

The H1N1 virus, originally known as the Swine Flu, is the latest potential health pandemic since the outbreak of SARS only a few years ago.  The government has been struggling to organize mass immunization clinics and to engage the media to aid in the cause.  In the meantime, the potential impact of the H1N1 virus on your operation remains to be an unknown. 

Experts have commented to the media that the lessons from the SARS outbreak have still not been learned.  One would expect that past practices would have already been adopted into new best practices from our experiences with other similar events in our history.

Government agencies at all levels (Federal, Provincial, and local) have mismanaged the activities required to procure and distribute the vaccine, and failed to provide an effective communication and immunization strategy to ensure the risk to public health was minimized and the at the very least understood.

The lack of coordination and accountability for the success or failure of the communication strategy, procurement and distribution of the vaccine, and other related activities are strong indicators that the planning process did not consider the infrastructure requirements and relationships needed between levels of government.

The lack of an effective communication strategy introduced confusion and speculation in the media and the general public.  Mass education only seemed to become more aggressive as incidents of severe H1N1 complications and related deaths were reported in the media.

If this really was a pandemic event, many operations today would (and may still) be adversely affected due to direct or indirect (supply chain) labour shortages.  Do you have contingency plans in place to address this concern?

It could be argued that “if we are affected to this extent, then our customers will be as well.”  This is not necessarily true unless your customers and / or suppliers are located in the same immediate area or region of your business.

People travel all the time, whether they are commuting to work from out-of-town or traveling to or arriving from a foreign country on business.  The source of exposure is beyond your immediate control. 

What other elements can directly impact labour?  We will explore some of these in our next post.  In the meantime, keep your hands washed and remember to cough into your sleeve.

Until Next Time – STAY Lean!

Unexpected and Appreciated – Uncommon Courtesy:  This morning, a person cut into the drive through lane ahead of us – not realizing the gap in the line was there for thru traffic.  Recognizing the error in drive through etiquette and to make amends, we were pleasantly surprised by the “free” coffee at the pick up window.  Thank you ladies!

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OEE For Manufacturing

We are often asked what companies (or types of companies) are using OEE as part of their daily operations.  While our focus has been primarily in the automotive industry, we are highly encouraged by the level of integration deployed in the Semiconductor Industry.  We have found an excellent article that describes how OEE among other metrics is being used to sustain and improve performance in the semiconductor industry.

Somehow it is not surprising to learn the semiconductor industry has established a high level of OEE integration in their operations.  Perhaps this is the reason why electronics continue to improve at such a rapid pace in both technology and price.

To get a better understanding of how the semiconductor industry has integrated OEE and other related metrics into their operational strategy, click here.

The article clearly presents a concise hierarchy of metrics (including OEE) typically used in operations and includes their interactions and dependencies.  The semiconductor industry serves as a great benchmark for OEE integration and how it is used as powerful tool to improve operations.

While we have reviewed some articles that describe OEE as an over rated metric, we believe that the proof of wisdom is in the result.  The semiconductor industry is exemplary in this regard.  It is clear that electronics industry “gets it”.

As we have mentioned in many of our previous posts, OEE should not be an isolated metric.  While it can be assessed and reviewed independently, it is important to understand the effect on the system and organization as a whole.

We appreciate your feedback.  Please feel free to leave us a comment or send us an e-mail with your suggestions to leanexecution@gmail.com

Until Next Time – STAY lean!

Welcome to LeanExecution!

Welcome! If you are a first time visitor interested in getting started with Overall Equipment Effectiveness (OEE), click here to access our very first post “OEE – Overall Equipment Effectiveness“.

We have presented many articles featuring OEE (Overall Equipment Effectiveness), Lean Thinking, and related topics.  Our latest posts appear immediately following this welcome message.  You can also use the sidebar widgets to select from our top posts or posts by category.

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All downloads mentioned in our articles and feature posts are available from the FREE Downloads page and from the orange “FREE Downloads” box on the sidebar.  You are free to use and modify these files as required for your application.  We trust that our free templates will serve their intended purpose and be of value to your operation.

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Until Next Time – STAY lean!

Vergence Analytics

Cost Weighted OEE and other free OEE Spreadsheet Templates

OEE Spreadsheet Templates – One Click Closer:

As the days of summer are upon us, we thought it would be good idea to make it easier for you to access our free downloads so you can spend more time doing the things you want to do.  We have updated our site and we are pleased to offer you four ways to download our OEE spreadsheet templates:

  1. We added a new page titled “Downloads
  2. We also added a new Link List to the sidebar titled “Download Files”
  3. We made the FREE DOWNLOADS orange Box file a little larger and easier to read.
  4. We will include direct access links in the content of our posts.

Your OEE templates are literally a click away – saving you time and effort.

Cost Weighted OEE – Advanced OEE Template

We have received numerous requests for our “Cost Weighted OEE” template.  Many people are starting to realize that the OEE factors for availability, performance, and quality are not directly correlated.  Of course, we have also discussed our concerns in this regard on several occasions and will state again that OEE is not a stand alone metric.  As a vantage point metric, it can provide a valuable perspective on operations in real time, however, it is only one part of the overall equation.

Rex Gallaher wrote an excellent article titled “OEE Oxymoron; Are all factors truly equal?” that was published by ReliablePlant.com on February 18, 2009.  This article also conveys the premise that the OEE factors are not equal.  Understanding the financial impact of each of the OEE factors will assure that efforts and energy are focused on activities that will provide the greatest return on investment for your company.

To celebrate our site updates, we thought we would give you at least one more reason to see how our download venues work.  A copy of the Cost Weighted OEE Template is now available through all three of our download venues or you can Click HERE to get immediate access to the file.

For a detailed discussion of OEE and how it can (and should not) be used to identify opportunities to eliminate waste and reduce costs, click on one of the links below:

  1. OEE and Cost Control – Published in December, 2008
  2. 6 Things OEE is NOT! – Published in April, 2009
  3. Make or Break with OEE – Published in May, 2009

In light of the current economy, many companies have been forced to look inward to find “new” money.  OEE is one of the few lean metrics available that can help your organization to focus on the greatest opportunities with measurable returns.  We trust the templates and spreadsheet solutions that we offer here will help you in your quest.

For more information, click on the Categories section of the sidebar to search for other articles on our Blog that may be of interest to you.  They can provide significant insight into the many aspects of operations and OEE and may serve as part of your ongoing training efforts.

We appreciate your feedback.  Please feel free to leave a comment or send an e-mail with your suggestions for a future topic, comments, questions, or concerns to leanexecution@gmail.com or versalytics@gmail.com

Until next time – STAY lean!

6 things OEE is NOT!

While OEE has been receiving much deserved attention as manufacturers look for ways to improve their bottom line, it is not the cure for all that ails manufacturing.  Many in the manufacturing community seem to be getting caught up in the buzz and hype of OEE and its profound ability to improve the bottom line.

1.  OEE is NOT magic

As we were researching for our problem solving series, we couldn’t help but notice the numerous attributes that were being given to OEE and how it seems to be solving all the woes of manufacturing.  A thermometer won’t change the weather and OEE alone won’t change your operation.

OEE:  The Lens of Opportunity

We prefer to think that using OEE is like putting on a pair of much needed glasses.  What you are looking at hasn’t changed, your eyes haven’t changed, but the way you see it has.  Similarly, OEE is a very effective metric that serves as a lens to help you see and identify where losses are being incurred.

OEE will help to identify the problem or at least the symptoms.  The real opportunity is to determine root causes for the losses and implement effective corrective actions to eliminate them.  OEE can also be used to verify or validate the actions taken.  Remember,

2.  OEE is not a root cause analysis tool

3.  OEE is not problem solver

4.  OEE is not a solution provider

We recently reviewed an article suggesting that OEE is an indicator of a company’s profitability.  We would argue that OEE is a measure of loss or, to be more positive, profit potential.  Just because we’re effective, doesn’t mean we’re profitable.  Today’s economy and the current state of manufacturing clearly demonstrates this.

5.  OEE is not an indicator of profitability

Another misnomer is mistaking OEE as a measure of operational efficiency.  OEE measures how effectively we used the time for a given asset to make a quality part.  OEE isn’t concerned with the amount of labour or materials required to achieve the desired “rate”.  For example, using two people to achieve the rate of one is not efficient.  As another example, using a higher grade of material to achieve a quality part due to unresolved process issues is not efficient.

6.  OEE is NOT a measure of  Efficiency

Again, OEE measures how  effectively assets are being utilized to make a quality part.  For a complete discussion on measuring OEE, refer to our discussions on Calculating OEE (see the categories side bar).

What is the Answer?

OEE is the single metric that can be used to identify where significant losses are being incurred, the real opportunity to improving the process is to identify the root causes and finding the solutions to the problems that have been identified.

OEE is an excellent diagnostic metric that can help to focus your improvement efforts.  The data acquisition systems available on the market today provide real time intelligence and valuable insight into your processes.  These tools in collaboration with an effective problem solving strategy ultimately become the reason for your improved performance.

Statistics don’t improve quality, thermometers don’t change temperatures, clocks don’t prevent breakdowns.  Don’t confuse the measurement system with the solution – it’s one of the tools.

Effective analysis, problem solving, and timely and efficient execution of corrective actions to address the concerns and eliminate the real root causes – that’s the answer.

OEE is simply one method to grade your efforts.

We appreciate your feedback.  Please leave a comment or send your questions and suggestions to leanexecution@gmail.com

We respect your privacy – we do not and will not sell, distribute, share, or disclose your e-mail or contact information to any outside or third party entities.

Until Next Time – STAY lean!

Upcoming Topics for March 2009

We have received several topic requests that we will work on for the month of March, 2009.  If you have a topic that you would like to see featured on our site, send an e-mail to LeanExecution@gmail.com.

OEE on the Shop Floor – Measurement:  What should we be measuring to make OEE practical at the shop floor level.  What factors are critical to the person or persons doing the work?  We have presented the pros and cons of various systems that are used today.  We would suggest that the number of solutions is as varied as the number of companies seeking them.  A customized solution for your specific business operation is likely the best option.  A tailored solution is not necessarily a costly one.

OEE Innovations – TRIZ:  Ultimately the reason for measuring OEE is to make improvements in capacity utilization.  TRIZ is a very valuable tool that can be used to bring new and innovative solutions to improving your OEE.  Many companies are likely unaware of the TRIZ process as so much focus is placed on LEAN and Six Sigma.  Combining these disciplines with TRIZ can yield a highly successful solution that may just be the next generation ideal.

Capacity Planning with OEE:  By definition, it only makes sense to use OEE as an integral part of your capacity planning process.  We will cover the details to do this effectively.  Effective capacity planning naturally extends to improved resource management and effective production planning.

OEE, Value Streams, and COST:  Although some managers may rise to the challenge and volunteer, many are either assigned or designated to be project champions.  In many cases, unfortunately, the scope of the project is extremely limited or restricted and project managers simply become “metric managers”.  Who is in charge of OEE?  The answer is quite simple:  EVERYONE.  OEE is a multi-discipline metric and, like other sound lean strategies, requires seamless interaction among managers and departments.

OEE cannot and should not be managed as an independent metric.  Having said that, don’t get caught in the trap of “stand alone” OEE reviews.  While there may be a number of strategies for improving OEE, such as constrained capacity, we will present a model that explicitly ties operational costs to your processes.  When OEE data is sensitised by cost data, a completely different strategy for improvement will emerge.  If the ultimate goal is to improve your bottom line, then our Cost sensitisation model will bring the concept of OEE and your bottom line to a whole new level.

OEE and Lean Agility:  Can OEE be a leading indicator of your ability to respond to change?  Well we think so and happen to have a few ideas that will show you how and why.

Send us your questions or comments or simply suggest a topic for a future post or article.

Stay tuned for more!  We appreciate your feedback.

Season Greetings!

We wish all our visitors, past and present, the best of this holiday season.  We look forward to serving you in 2009.

Look for our guide to “Lean In Real Time” – scheduled for release in 2009.

On behalf of the LeanExecution Advanced Strategy Team,

Seasons Greetings and Happy New Year!