Overall Equipment Effectiveness, or simply OEE, is a production management indicator used in industry to measure the efficiency of manufacturing productivity. Knowing the answer to such questions as, “How is OEE calculated?” and “What are its benefits?” can offer managers a benchmark for progress and a framework for continuous improvement of a manufacturing process. OEE provides a metric for companies to measure progress and efficiently control production.
What is OEE?
OEE is a tool to evaluate and organize data to measure how well a manufacturing process is functioning. It was pioneered in the 1960s by Seiichi Nakajima as part of his Total Productive Maintenance system, a program designed to maintain and improve the integrity and business value of an organization. The approach encompasses production, safety, employees, and the quality of a system through its machines, equipment, and processes, of which OEE is an essential indicator of productivity.
As a data tool, OEE can be used to calculate and measure how a particular operating system – a machine, shop or even a shift – has performed and then to organize the data which has been already collected. Any downward shift in OEE allows managers to recognize and identify the root cause quickly and, typically, with ease. Organized data collected and calculated utilizing the OEE formula of measuring productivity is considered the single best metric for identifying losses, eliminating waste, and benchmarking progress.
What Are the Benefits of Calculating OEE?
The prime benefits of OEE data are
- Showing managers the actual percentage of time that is truly productive in manufacturing processes
- Measurement for efficiency and effectiveness of a process (OEE helps quantify and standardize methods for establishing a benchmark for a company’s progress)
- Identification of problems that can be addressed and fixed to improve manufacturing productivity
The OEE data provides a structure for root cause analysis. By breaking down the process into three measurable components, managers can gain valuable context and insight into how the complexities of the manufacturing process systematically works. Having key data points in place to analyze provides important information about a company’s process and serves as a control mechanism to manage production efficiency. Without these metrics in place, with no measurable guidelines, business would be managed by production only and could easily spin out of control.
Whether from a continuous improvement perspective or establishing a tracking system for root cause analysis, OEE provides a framework that targets three main components to measure manufacturing productivity – availability, performance, and quality. These data points are valuable metrics that guide managers in setting meaningful goals for companies.
How OEE is calculated?
OEE has been dubbed the “gold standard” for measuring manufacturing process and productivity. On paper, OEE is a simple metric, but in reality it is a vital tool that allows managers to understand the complexities of various issues in manufacturing processes, how they affect the entire system, and how to fix and/or improve upon them.
OEE is the value of the calculation of three separate components of a manufacturing unit:
OEE = Availability x Performance x Quality
First, availability compares scheduled run time to actual run time of a manufacturing process. It refers to the percentage of scheduled time that a machine is available and in operation for production when scheduled. This is the actual uptime when the machine or process is operating and creating value for the company. When the process comes to a halt it is creating a cost with no associated value. There are many variables that can stop a production line – power outage, mechanical failure, operator issues and so on. The availability component of OEE allows managers to calculate lost production due to down time.
The performance component measures production loss by comparing the speed at which a manufacturing process runs as a percentage of its designed speed. Comparing the actual production cycle times against the designed production cycle times, determines if ideal production runs were lost or achieved. If a system is running at less than its optimal speed it is creating waste.
The final component of OEE focuses on the quality of the first pass yield (FPY) in production. Quality is determined by the amount of units produced that function as a percentage of the total units started that are rejected. In other words, quality identifies the time wasted in a process that produces a product which does not meet quality standards. The quality component compares the ratio of the quantity of good-to-reject parts over the percent of time it takes to produce a good product.