Let's get the obvious out of the way: OEE = availability% x performance% x quality%. So what? Now put the finer calculations to one side and consider this. In a drinks company turning over £100 million, 1% lift in OEE (overall equipment effectiveness) was worth about £500,000 on the bottom line even when it didn't take advantage of the extra capacity to sell greater volume. When, however, the company could sell the extra volume, it returned a stonking £750,000 to profits.
This is a real example, from a real company with a real need to see if the effort of implementing OEE is worthwhile. Dennis McCarthy of DAK Consulting, who worked with the company, points out that fixed costs like labour and even energy remain roughly the same, as most costs aren't related to units produced. So, as OEE improves, selling what's produced gives you a major hike in profitability. And companies that look after equipment also get around 50% more asset life, so ROI is also better.
OEE pays its way: debate over – except, of course, it isn't. Many manufacturers still fight shy of OEE because it's seen as complicated, demanding and more trouble than it's worth. McCarthy says manufacturers need another KPI (key performance indicator) like they need a hole in the head. Instead, they need to see where the value of OEE lies. And to do that, it's important to be clear about what it is designed to measure. "Effectiveness measures how well a process has performed compared to its full potential. Inevitably things will sometimes go wrong but OEE presents, in a single figure, how well we have managed the resources at our disposal."
He points out that no one ever plans to be rubbish: "But effectiveness is not just an academic word. It's an inverse measurement of reactive firefighting. If you have 65% OEE, you have 35% potential – that's your hidden factory."
The companies that make the best fist of unlocking that hidden factory aren't just using improvement tools but use them to impact on the management process. McCarthy says the sign of a mature business is the ability to keep all the plates spinning while throwing in a few more: "But this only happens when business strategy and operations strategy are aligned." How so? His logic is impeccable. At top level, growth is the fastest way to reduce unit costs – and improved OEE increases capacity and makes space for that growth. To make use of that capacity, organisations need to be slick at introducing new products and services in a way that does not compromise current product and service delivery. At operational level, improving OEE brings processes under control and – as that happens – management and specialist time is released to help meet the extended growth targets, rather than spending all their time reacting to an unpredictable factory performance.
No one's going to swap firefighting for calm forward planning overnight. In McCarthy's view, the first imperative is to stop the bleeding by stabilising normal processes. "Formalise the rules; make sure you do the routine stuff in a consistent way. Just by doing that, you get rid of a lot of the root causes. Many problems in manufacturing are communication – people not knowing exactly what to do when x happens. There are only two reasons for breakdowns: equipment condition and human error. The way to get rid of them both is to set standards for spotting problems early and dealing with them when they are small."
The next step is optimising – shifting the emphasis to value-added changes and extending the time between interventions. He says that the motivations and behaviours are different for each stage of this two-step approach. At 'stabilise' you are moving away from a problem and the pain it causes. At 'optimise' you are moving towards a vision of something better.
McCarthy says small things cause a lot of problems and the only people to spot them are the frontline operators. Culturally and practically, their involvement is mandatory. But there's a sharp difference in welcoming and valuing their role in improving OEE and setting operator maintenance as the end-goal. He thinks it's a complete travesty that one of the critical adjuncts to lean, TPM or total productive maintenance, is largely viewed as just operator maintenance or – in the lean mantra – autonomous maintenance. "What Womack and Jones didn't see [when they were formulating the principles of lean] was how the Japanese had improved process control in order to be able to deliver that lean."
Ian Tindle of maintenance improvement specialist Sora is even more emphatic. "In so many cases, when companies say they are doing TPM, all they have are operators who clean, inspect and lubricate machines. Before ever you start getting your operators to do maintenance activities, get your maintenance staff to do it right first, will you?
"Rather than jumping into upskilling operators to carry out basic tasks," he continues "perhaps the strategy should be why do we have to do it in the first place?" He says a lot of tasks can be eliminated through planned maintenance (PM). If your schedule is good enough, you might be able to rationalise and remove some activities. "For example, if it says 'replace a belt every three months', the operator will do it. But if the PM says 'inspect the tension and check for wear within a set tolerance' and yet, over a period, you find no change, you can begin to lengthen the intervals. Whereas, if you just schedule the change, you are not really considering why it's been frayed or damaged."
So, although there is a time and a place for operator involvement, he advises getting the basics right first. For example, are they setting up correctly, is their skills matrix up to date, and is the maintenance strategy well tested? "When you are sure maintenance and operational routines are both robust, you can start on some of the crossover activities. But do them at the right time in the right sequence with the right end game in mind."
However much these specialists issue comforting guidance notes for OEE without tears, no one should forget that it's a precise, data-driven process. In fact, McCarthy's own rules of thumb (see p45) make it clear that accurate measurement provides the only basis for challenging the status quo. But Tindle insists it's not the main key to success. Even meticulous data won't bring OEE improvement unless the process is management led. "I know that's a textbook answer but if people try to do it without, they may get short-term wins but it will not become part of company culture."
Once that's in place, he's no purist. "To keep it painless, make it simple. We hear so many people agonising over how to calculate it. Or worrying whether downtime is recorded as planned or unplanned. I'm not bothered – once you've got a measure, just make sure it's getting better and that you are doing it consistently. Some people can show a really high OEE but with fluctuations of as much as 20%. When you have repeatable OEE, it's much easier for production to schedule to that figure. With a high but inconsistent figure, you run the risk of missing customer requirements when you don't hit it," insists Tindle.
"One of the weaknesses of OEE is that it will vary dramatically between, say, shift to shift because some products are much easier to make than others," counters McCarthy. "So you need to measure it over a representative period of time."
He cites a food company in Holland making fruit pies. At the beginning of the season when the fruit is hard, the plant runs more slowly. "At an optimise stage you might focus on that but in general, those kinds of things will just happen. You are better homing in on specific areas of loss – like set-ups or minor stoppages – and then measuring OEE on a weekly basis. If you then take the highest measure of availability, performance and quality over three weeks, you know the equipment has actually achieved that and it gives you a measure of what the process is capable of. If you multiply it out, it gives you a realistic and achievable one-year target – the best of best for that machine. If you then establish best practice and standardise the rules for that process, you will achieve the best of the best in 12 months or thereabouts."
Are there easier ways of managing all this? To what extent can software smooth the whole complicated business? Both Aunt Bessie's, the fastest growing food brand in the UK, and wound management company Smith & Nephew have installed Idhammar's OEE system in their Hull plants. Some interesting statistics have emerged.
Stuart Drysdale, manufacturing director of Aunt Bessie's says that using OEE is far more than a theoretical exercise. The company has calculated that 1% of OEE improvement across every line is worth around £150,000 saving per year. The functionality of the OEE system "highlights losses, drives our improvement agenda and leads to improved effectiveness, a better working environment and savings to the bottom line." In one year, the minimum improvement was 14% and the best was 47%. Drysdale said the system paid for itself in a couple of months.
During the first nine months of operating Idhammar at Smith & Nephew, the OEE measure improved by 10%. One machine was running seven days a week and still struggling to meet customer demand. Now it typically does the same volume in four-and-a-half days.
Achievements like these are impressive by any standards. So can the pain of implementing OEE be solved by throwing technology at it? "There are some absolutely brilliant software systems out there," exclaims Tindle, "but they have to be implemented at the right time." He has seen companies buy systems "before they have built a culture of operators recording data, team leaders reviewing data on a shift basis and supervisors managing it". The result, he says, "is square pegs in round holes – people saying 'we've got this – what does it mean? I haven't got a clue!'"
To him, you get nowhere unless you understand what you are doing, why you are doing it and believe in its ultimate worth. "A lot of people rationalise their refusal by saying we don't fit OEE: we've got a mixed model – low and high volume and different cycle times." But none of these warrant exemption: "At a basic level, OEE is just a measure of whether you are getting everything you can out of your kit. And what reason can there possibly be for not doing that?"
Golden rules of OEE
Rules of thumb suggested by Dennis McCarthy (right) of DAK Consulting, include the following:
Typically, organisations can expect annual gains of 10-15%, mostly achieved through low-cost or even no-cost improvements. Organisations that embrace OEE and focused improvement can reduce their hidden factory by 15 to 25% per annum. An achievable but stretch target is around a 50% increase in OEE over three to five years.
This translates as increased capacity; improved predictability of output leading to shorter production lead times and improved delivery; reduced material and labour costs; higher, more consistent quality; reduced scrap and rework.
What goes wrong?
- The company doesn't have the underpinning abilities or behaviour to use data effectively in managing its performance at all levels.
- Without data-driven management, it cannot challenge and refine its existing standards for equipment condition. Without this it can't achieve best practice or begin to control and optimise its processes.
Getting it right
- Build understanding of the principles and techniques through a structured programme. Make sure all managers adopt a data-driven approach to prioritising problems and managing performance
- Tighten discipline and adherence to best practice.
