The 3 Levels of OEE Wisdom

Overall Equipment Effectiveness (OEE) is often misunderstood and miss-used to a fault.  “For the past five years, manufacturing plant managers and supervisors have adopted lean manufacturing principles, eliminated waste, and have still seen total production efficiency elude them. Monitoring and OEE solutions in the shop have extracted very little value because most ‘OEE monitoring’ technology uses tools that generate data, but unfortunately, none of them help us make sense of it.”[1]

The Top Shop performers have connected all the dots in a fundamental way by providing key information in terms of profit dollars, which changes existing paradigms of “current” state manufacturing, into real value “future” state manufacturing. They have advanced OEE understanding and have applied improvement projects strategically, optimizing the use of discretionary resources (people, time, and money). Everyone is “on the same page” of promoting organization success.

Yet, some manufacturers and part makers make the jump from “Good to Great” and become the Top 10% in their respective areas and demonstrate accomplishments significantly higher and more profitable than the “rest of the crowd”.[2]  (Note that the “Top Shops” reported the same number of machines, people and pay, as the “Other” Group.  Therefore, one can conclude that Top Shop capability already exists inside your current assets.)

Advanced OEE understanding can be envisioned as 3 levels:

  • Level 1: Mastering Individual Work Station OEE understanding – identifying Gap to World Class.
  • Level 2: Mastering Flow-line OEE performance by product – integrating the results relative to your product mix and applying the Theory of Constraints to prioritize the use of resources.
  • Level 3: Linking the Line of Business (LOB) financial information by product into the Flow-line diagrams and validating current state results – the resulting Financial OEE model becomes a ‘Crystal Ball’ to guide the profitable transition of “Other” performance into “Top Shop” performance.  Level 3 synergizes the physical side and business side of OEE.

Level 1 – The introduction of basic OEE at the individual work station.  This includes product run data collection, loss analysis, and improvement using work station resources.  At this level, production effectiveness is focused on the physics of improving throughput at the work station.  Effectiveness gain opens up time for more learning, establishing ‘One Best Way’ and a reliability/quality focus in the work station.

Level 2 – The application of OEE value stream mapping of product Flow-lines using actual OEE product data generated from the Current state results and actual product mix.  A validated Flow-line analysis would reflect “how the shared work stations were used” to generate the product volumes and waste amounts for the time period investigated.  Correctly combining the work station usage for the spectrum of LOB product volumes produced automatically identifies the Overall Constraint as well as the next constraint(s), etc.  (Note that the Flow-line OEE is the OEE of the constraint minus all downstream quality losses).  At this level, application of the Theory Of Constraints is used to begin managing the Flow-line bottlenecks.  This is like tuning up the manufacturing engine where each work station represents an individual cylinder that needs to be harmonized with the rest in order to get the best effectiveness out of the production engine.

Level 3 – The Financial OEE which links actual product financial information into the Flow-line diagrams, and validating the overall results with the LOB actual results, for expenses and profits.  Upon completion, the actual “contribution by constraint hour” can be computed to assist the entire organization with better business decisions for product mix.[3]  More importantly, the LOB Financial OEE Model can be used to investigate the “bottom line” impact for any change to an input parameter.  This is a powerful Intelligence tool for the Leadership Team to use to prioritize improvement alternatives in terms of actual profit dollars.  By having the total organization “on the same page” and understanding exactly when, where, why and what to apply to key resources, it not only moves the organization toward Top Shop performance quickly, but it also gives the road map of profit dollars along the way.  Being able to leverage the “Hidden Factory” completely gives the Top Shops a competitive advantage as demonstrated in their survey results.  Their results showed a 16% more profit per machine and double the business growth rate while supplying customers with lower prices and faster delivery.[2]

Are you interested in learning more about all three levels of OEE Wisdom?  Narrated Financial OEE training modules and consulting services are available at www.OEE-College.com.

– Robert Hansen

Author OEE: A Powerful Production/Maintenance Tool for Increased Profits

R.C. Hansen Consulting, LLC.

www.OEE-College.com


[1] Cutler, Thomas. “Listen to the Machine.” Business Excellence Magazine (2013).  Web. <http://www.bus-ex.com>

[2] “Top Shops – Benchmarking Your Machining Business.” Modern Machine Shop (2013).  Web. <http://www.mmsonline.com>

[3] Hansen, Robert. “20% More Profit – For Free.” Web log post. Memex Automation. 25 Apr. 2013. Web. <www.memex.ca>.

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