Category: Cost Control

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!

How to Reduce Costs with OEE: Cost Control

OEE is a great metric to help identify where you may be incurring losses in your processes or operation.  As one of the goals of implementing a Lean strategy is to reduce costs, it only seems natural that we should be able to determine what processes to focus on that are driving the greatest losses.

From the example developed in our previous posts we determined that the OEE and related factors for our three processes were as follows:

Machine Availability Performance Quality OEE
A 92.97% 88.26% 97.77%  80.22%
B 96.04% 77.23% 94.44% 70.05%
C 95.16% 61.70% 95.20% 55.90%

Based on the OEE results, one would be inclined to take a look at Machine C as it has the lowest OEE.  Is this really the greatest opportunity?  The only way to answer the question is to understand what factors are driving costs and ultimately affecting profitability.

The performance factor for machine C is definitely pulling down the OEE for this process.  What would you think if the machine is 100% automated (no labour) and the cycle time, although it may be less than standard, is still meeting the takt time to meet customer demand?  Is there really a cost?  Of course there is, but the impact to your business may be minimal in terms of cost when compared to the other machines.

It is clear that we need to develop a model to understand what losses and ultimately costs are associated with each of the factors.  In turn, we will be able to better understand the overall OEE.

What costs do we consider?  We recommend keeping the model simple.  There are typically three cost components associated with any given process or product:  Material, Labour, and Overhead.  Burden is another term used for Overhead and we will use these terms interchangeably.

Our goal over the next few posts will be to develop a simple cost model for each process and, in turn, determine which one may be the process of choice for improvement.  For now, we will provide a general discussion of some of the potential cost considerations.

Improving quality typically yields the greatest return on investment because all of the cost elements stated above are impacted by the Quality factor.  Raw material, Labour, and Burden are all expended to produce a part scrap part.

The costs associated with Quality losses are further challenged when considering the number of parts that would have to be produced in order to recover these lost costs.  If you are lucky enough to enjoy a 10% profit margin (clear), then, at a minimum, 10 parts would have to be produced for every part scrapped.  Of course, more parts would have to be produced to recover other infrastructure costs incurred including documentation, record keeping, and scrapping of the actual parts.

Performance losses typically affect labour and overhead.  Labour losses are easy enough to understand.  If a machine is operator dependent, then we will have to pay a person to stand at the machine to run it.  If it is running slowly, more costs are incurred to cover the additional labour time.

In many cases, direct losses related to overhead are sometimes difficult to assess unless a truly activity based costing system is in place.  The reason for the complexity arises because some of the costs are “fixed”.  Because the equipment exists, expenses such as depreciation or property taxes are incurred whether or not the equipment or, for that matter, the plant is running.  The performance of the machine or any of the other factors for that matter won’t change this fact.

Availability then becomes somewhat more obscure when it comes to calculating hard costs.  If the labour can be redeployed to another process when a machine goes down, perhaps some of the labour losses can be avoided.  If not, then waiting for a machine to be repaired or material to be delivered is a real loss that should be addressed.

Intangible costs are also difficult to quantify but we should be aware of their existence.  The costs associated or related to poor OEE may include overtime, expedited freight, and infrastructure costs related to extra handling of material or management of non-conforming material (containment, extra inspection, rework, and scrap).  Although this is a relatively short list, it addresses the most obvious potential losses.  With a little more thought, the list could easily grow longer.

Other key metrics in your facility such as customer delivery or quality performance indicators may also point to problems that can be traced directly to poor OEE performance.  Although difficult to measure, a company’s competitive position is compromised when efficiencies are low and eventually the costs of poor performance make their way into the “burden” costs required to manage the operation.

While OEE is an effective metric for operations, on its own, it does not provide a direct indicator of real financial losses.  As Lean Practitioners we are challenged to provide an analysis that not only improves the metrics of the business but also translate into real financial improvements on the balance sheet and ultimately – the bottom line.  We would suggest that OEE is a time driven metric (asset time management strategy) versus our proposed COEE which is Finance or “Value” driven (cost management strategy).   We are presently developing a model that will allow your OEE data to be sensitized with cost data as demonstrated by the table below.

We have coined the term COEE or Cost of Overall Equipment Effectiveness.  Consider the following OEE results converted to Cost based drivers using standard costs as our baseline.  The sample data and spreadsheet used to calculate this data will be available as a download soon.  The overall spreadsheet is quite large and based on a fully detailed three shift operation.

Cost driven OEE model - Summary
Cost driven OEE model - Summary

Our OEE cost model clearly presents the real costs or “losses” incurred per part.  Our Weighted OEE Cost Model will change the way you view OEE data, enabling you to set priorities and identify real, quantifiable, opportunities for improvement.  The above snapshot represents the goal of our COEE project – a clean, clear, summary of the losses incurred correlated directly to your OEE index.  Another advantage is that the Availability, Performance, and Quality factors are recalculated based on cost and presents a realistic breakdown of losses for each of these factors from a financial perspective.  Our spreadsheet presents an advanced OEE example that will bring real value to your OEE implementation strategy.

NOTE:  The fully developed spreadsheet is available from our FREE Downloads page or from the FREE Downloads box on the sidebar.

A well implemented OEE strategy should become evident on the balance sheet through improved material utilization, reduced labour variance (straight and overtime reductions), reduced scrap costs, reduced rework costs, and other burden account reductions.

Take quick, effective, and efficient action to solve the problems having the greatest financial impact to your business.  Last but not least, don’t confuse activity with action.  Decisions are not actions and talking about a problem or even writing about it could be construed as activity.  Real actions produce real, measurable, results.

Change requires Change.  Profit is to business as oxygen is to humans – you need it to survive. 

We have created a number of Excel spreadsheets that are immediately available for download from our FREE Downloads page or from the Free Downloads widget on the side bar.  These spreadsheets can be modified as required for your application.  There are no hidden files, formulas, or macros and no obligations for the services provided here.

If you have any questions or comments, feel free to send an email to LeanExecution@gmail.com

Until Next Time – STAY Lean!

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LEAN Environment: Waste Management and OEE

In recent years much emphasis has been placed on the state of our environment and LEAN can help our cause.  If we consider just how much energy and resources are consumed due to inefficiency and waste.  OEE is a measure of how effectively time is used as a resource; however, it does not necessarily reflect the waste that is created in other areas.

To understand the real implications of waste, we need to extend the impact outside of the manufacturing environment, beyond the factory walls.

Consider the cost of non-quality.  Scrap and rework costs are readily calculated since we know how much we pay for labour and materials.  However, we rarely consider the outside costs and potential impact to our environment.  This raises more questions than answers as these costs are beyond our realm of expertise and control.

What is the real cost of a scrap part?  How many trucks are on the road today carrying material to replace products that should have been made right the first time?  How much extra labour is incurred through the value stream to replace this material? 

What are the disposal costs associated with scrap material?  Can it be recycled?  What are the costs of recycling and what is the impact to the environment?  It is one thing to recycle products after they have served their useful purpose, but what about the costs incurred to recycle products that were simply defective and never made it to market?

How much energy and resources are wasted simply because capacity is burdened by inefficiencies in our manufacturing operations?  The costs of working overtime to manufacture parts due to “lost time” during the regular work week or to recover quality losses due to rework and scrap all have an impact on the environment.

How many employees are driving their cars to work overtime that could have been avoided or prevented?  What is the cost to work a shift of overtime at your company?  What is the cost to the environment?  How many cars made the trip to the plant burning fuel unnecessarily because of our inherent manufacturing inefficiencies and waste?

How much money is spent paying for trips to customers to replace defective material or to justify the reasons for failure?  How much expedited freight is incurred due to quality, process inefficiency, or capacity mismanagement?

We have identified many questions that should have some bearing on our social responsibilities as manufacturers or providers of goods and services.  The value stream of your products and services has an impact on the environment beyond your factory walls and affect the environments of communities around the globe.

The next time you scrap a part that was originally made offshore; consider the effort required to deliver it to your factory floor.  The implications of transporting products around the globe can’t help but stress the need to use them wisely.

Where does OEE fit into all of this?  If 100% OEE is the Ideal, then anything less is the opportunity to eliminate waste.  When we look at our operations and the problems we encounter on a daily basis we are reminded to: See, Solve, Share, and Start again.

Until Next Time – STAY Lean!

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