Defining overall equipment effectiveness (OEE) criteria as part of the scope of work or purchase order agreement is quickly becoming standard practice throughout the automotive industry and manufacturing in general.
OEE criteria should be performed for every new purchase. Often times, a high speed machine may be incorporated into a mixed technology production environment. It is also possible that the machine or equipment under review is not the perceived production constraint or bottleneck. This should not exclude the process from an OEE assessment.
Although LEAN manufacturing encourages single piece flow, it may be more feasible and cost effective for a machine to run independently. This situation could occur in instances where business has grown within a commodity base and now the capacity of the machine must be shared across multiple product lines.
Engineering and Finance must consider the optimum production model that will yield the most cost effective strategy and subsequent process routing. This assessment is best supported using Value Stream Analysis and Standardized Work procedures to fully understand the planned costs associated with inventory at all levels or stages of the process (raw, work in progress, and finished goods), labour (direct and indirect), and burden or overhead.
Lastly, it is important to understand the real or full potential of the equipment or process being purchased or developed. Future business costs and opportunities for future growth are important considerations for any capital investment. Press shops or metal stamping suppliers recognize open capacity to drive current and future business growth demands. Idle machines don’t make money. Open capacity is money lost.
The Purchase Agreement
To eliminate any misconceptions or lack of understanding, OEE expectations must become an integral part of the purchase agreement. This can be accomplished by creating a Statement of Work, incorporating the requirements into a tooling, machine, or equipment standard, or, at a minimum, as purchase order line item stipulating the OEE criteria to be satisfied as a condition of purchase.
The objective of these tools is to ensure that all parties are aware of the their obligations and responsibilities to deliver a robust process that meets the OEE objectives. We recall an incident (after the fact) where the scope of work clearly stated that machine setup or change over time was to be calculated as part of the availability factor. For the most part, the equipment met the required performance and quality criteria, however, the supplier assumed availability only pertained to the downtime experienced while the machine was running. This, coupled with downtime during the run, resulted in a less than satisfactory availability factor and resulting OEE index.
In this case, the equipment supplier lost a significant percentage of their final payment for failing to meet the OEE criteria defined in the purchase order and statement of work. Setup is a planned activity directly related to the production of parts and greatly affects the available capacity of the machine or equipment.
We recommend defining the criteria for each individual factor and the overall equipment effectiveness (OEE). The values you choose for each factor will depend on your operation or the process under review and may include considerations such as low versus high volume or inventory costs, make-to-order versus warehousing / storage.
For buy-off purposes, we expect a new process to provide a minimum of 90% Availability, 95% performance, and 100% Quality. We will not accept any process that is less than 85% for a dedicated process. Mixed model production equipment may be subject to different criteria, specifically regarding availability as tool change complexity increases.
Availability includes change over or setups. Increased model mix and low volume production may reduce availability. This assessment should be determined in conjunction with detailed change over / setup instructions.
Typically, Quick Die Change or Tool Change strategy is deployed for most, if not all, new programs. The investment in these techniques increases your agility as a supplier and maximizes your machine up time. A rapid change-over / setup strategy can significantly reduce the dependence on high volume production to sustain profitability.
Suppliers to the automotive industry have certainly felt the impact of low or significantly reduced volumes over the last quarter of 2008 and certainly the first quarter of 2009. An effective tool change strategy to maximize up-time and support low volume runs has never been in demand more than now.
The 95% performance factor takes into account operator functions outside of the normal machine process cycle. A standardized work process will enable you to determine what performance level is achievable.
If Six-Sigma is your objective, then anything less than 100% quality at machine buy-off is a formula for failure.
So when should OEE integration start? At the onset of every new program and the OEE criteria should be incorporated into the purchase agreement. This will ensure that OEE becomes and remains an integral part of the process.
In the past, many tools were bought-off by simply running 300 pieces or in other cases a minimum of 8 hours. The only true measure was up time throughput and the quality of the product. Today, there is more to running an efficient operation than simply having the ability to produce parts. Safely producing a quality product at rate – effectively – is the mission.
More on this topic to follow.
Until next time – STAY lean!