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.
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.
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We have learned that an industry standard or definition for Overall Equipment Effectiveness (OEE) has been adopted by the Semi Conductor Industry and also confirms our approach to calculating and using OEE and other related metrics.
The SEMI standards of interest are as follows:
SEMI E10: Definition and Measurement of Equipment Reliability, Availability, and Maintainability.
SEMI E35: Guide to Calculate Cost of Ownership Metrics.
SEMI E58: Reliability, Availability, and Maintainability Data Collection.
SEMI E79: Definition and Measurement of Equipment Productivity – OEE Metrics.
SEMI E116: Equipment Performance Tracking.
SEMI E124: Definition and Calculation of Overall Factory Efficiency and other Factory-Level Productivity Metrics.
It is important to continually learn and improve our understanding regarding the development and application of metrics used in industry. It is often said that you can’t believe everything you read (especially – on the internet). As such, we recommend researching these standards to determine their applicability for your business as well.
Best practices and methods used within and outside of your specific industry may bring a fresh perspective into the definition and policies that are already be in place in your organization. Just as processes are subject to continual improvement, so are the systems that control them. Although many companies use benchmarking data to establish their own performance metrics, we strongly encourage benchmarking of best practices or methods – this is where the real learning begins.
World Class OEE is typically defined as 85% or better. Additionally, to achieve this level of “World Class Peformance” the factors for Availability, Performance, and Quality must be at least 90%, 95%, and 99.5% respectively. While this data may present your team with a challenge, it does little to inspire real action.
Understanding the policies and methods used to measure performance coupled with an awareness of current best practices to achieve the desired levels of performance will certainly provide a foundation for innovation and improvement. It is significant to note that today’s most efficient and successful companies have all achieved levels of performance above and beyond their competition by understanding and benchmarking their competitors best practices. With this data, the same companies went on to develop innovative best practices to outperform them.
A Practical Example
Availablity is typically presented as the greatest opportunity for improvement. This is even suggested by the “World Class” levels stated above. Further investigation usually points us to setup / adjustment or change over as one of the primary improvement opportunities. Many articles and books have been written on Single Minute Exchange of Dies and other Quick Tool Change strategy, so it is not our intent to present them here. The point here is that industry has identified this specific topic as a significant opportunity and in turn has provided significant documentation and varied approaches to improve setup time.
In the case of improving die changes a variety of techniques are used including:
Quick Locator Pins
Standard Pass Heights
Standard Shut Heights
Quarter Turn Clamps
Dual Coil De-Reelers
Change Over Teams versus Individual Effort
Standardized Changeover Procedures
As change over time becomes less of a factor for determining what parts to run and for how long, we can strive reduced inventories and improved preventive maintenance activities.
The manufacturing community has been devastated by the recent economic downturn. We are challenged to bring out the best of what we have while continuing to strive for process excellence in all facets of our business.
Today was another day to do a little maintenance. We spent a little time revamping our look and feel. We hope you enjoy the changes and find our site a little easier to navigate. We updated our Free Downloads page to present another easier and more direct venue to get your files instantly using Box.Net. If you’re already familiar with WordPress, you know how great this widget is. Downloads could never be faster or easier.
We also took some time to update some of our pages. We would suggest, however, that the best detailed content appears in the individual articles that we have posted.
Upcoming Topics for 2009
Tracking OEE Improvements: We have noticed an increase in the number of requests to discuss tracking OEE improvements. We have been working on a few different approaches even for our own consulting practice and look forward to sharing some thoughts and ideas here.
How OEE can improve your Cost of Non-Quality. It’s more than yield.
What OEE can do for your Inventory. Improvements should be cascading to other areas of your operation – including the warehouse.
We respect your privacy, your information will not be shared, sold, or distributed to any third parties. We will only use your e-mail to communicate with you at your request. You will not be subject to any advertising or marketing campaigns.
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:
We also added a new Link List to the sidebar titled “Download Files”
We made the FREE DOWNLOADS orange Box file a little larger and easier to read.
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:
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.
Once you have established a robust OEE system, you should also be reaping benefits in other areas of your organization.
We will be offering some insights into the other performance metrics such as inventory over the next few weeks. Improved availability, performance, and quality will all have an impact on your inventory and materials management processes. Inventory turns is one metric that should be improving as your OEE improves. If not, perhaps there is an opportunity to integrate OEE even deeper into your organization.
In a truly lean organization, other vantage point metrics will provide evidence of a well integrated OEE system. Metrics such as delivery, quality (ppm), labour efficiency, lead time, mean time between failures, mean response times, down time, turn over, and financial performance indicators are all directly or indirectly affected by improvements to your operation and OEE.
We will discuss the impact of OEE on these “other” metrics over the next few posts. Remember, we also offer excel templates at no cost to you. Click on the “BOX” files on the sidebar to get your free templates today! Our templates offer more than a simple OEE calculator – they can be used immediately with little or no modifications to suit your processes.
Online Training is more rampant now than ever. If you want to learn about OEE and how to calculate it correctly then we have all the information you need right here. Simply click on the categories of interest to you and research your specific topic or Click Here to get started. This is the first article that got us started in November of 2008. All of our online content is presently available at no charge.
Free Spreadsheet Templates
We offer several OEE Spreadhseet Templates that are available at no cost to our visitors and clients. Feel free to click on the “Free Downloads” template on the sidebar. This is a new feature and trust that you will find this a much easier solution that provides immediate access to our documents. If you can’t find what you are looking for, contact us by e-mail (firstname.lastname@example.org) or leave a comment with your suggestions for other templates that you would like to see available on our site.
We trust that the content presented here is of interest to you as well. We have provided many articles of interest related to OEE and Lean. Simply review the categories and posts available or visit our pages for more information. Our articles present detailed discussions and best practices applicable to the featured topic.
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:
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.
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.