# Turn OEE into a financial indicator

## Three steps to calculate the value of measuring effectiveness.

11/25/2015

Overall Equipment Effectiveness (OEE) is one of the best indicators of process reliability, but many struggle to connect OEE to the bottom line. How much of an OEE improvement is necessary? How aggressive does my reliability improvement program need to be? Turning OEE into a financial indicator helps us translate these questions into business decisions.

First, if not familiar with OEE, here are the basics:

• OEE is the product of Uptime, Operational Efficiency, and First Pass Quality (FPQ).
• OEE measures the effectiveness of a process, or a grouping of assets, when utilized.
• OEE tells us, as an organization, how well we executed our asset management plans.
• OEE is the result of losses that impact the desired performance of the process.

Turning OEE into a financial indicator is easier than you think.

1. Calculate or record the total revenue, or contribution margin, recognized for the time period.
2. Next, divide the total revenue by the number of OEE points for the same time period. For example, if you recorded an OEE of 63% at the end of July then you would divide your July revenue by 63 points.

Assume, for a moment, that the current OEE is 63% and desired target is 85%. The difference is 22 OEE points. Now take the value of 1 OEE point and multiply it by the difference between the current and target OEE. That's the potential financial value of OEE improvement.

-Jon Bailey is the creative at Eruditio. This article originally appeared on Eruditio. Eruditio is a CFE Media content partner. Edited by Erin Dunne, production coordinator, CFE Media, edunne@cfemedia.com.

The Top Plant program honors outstanding manufacturing facilities in North America. View the 2015 Top Plant.
The Product of the Year program recognizes products newly released in the manufacturing industries.
Each year, a panel of Control Engineering and Plant Engineering editors and industry expert judges select the System Integrator of the Year Award winners in three categories.
2017 Lubrication Guide; Software tools; Microgrids and energy strategies; Use robots effectively
Prescriptive maintenance; Hannover Messe 2017 recap; Reduce welding errors
Safety standards and electrical test instruments; Product of the Year winners; Easy and safe electrical design
Infrastructure for natural gas expansion; Artificial lift methods; Disruptive technology and fugitive gas emissions
Mobility as the means to offshore innovation; Preventing another Deepwater Horizon; ROVs as subsea robots; SCADA and the radio spectrum
Future of oil and gas projects; Reservoir models; The importance of SCADA to oil and gas
Diagnostic functions for system safety; Specifying industrial enclosures; Effective decision support for a crisis
Transformers; Electrical system design; Selecting and sizing transformers; Grounded and ungrounded system design, Paralleling generator systems
Natural gas for tomorrow's fleets; Colleges and universities moving to CHP; Power and steam and frozen foods

### Annual Salary Survey

Before the calendar turned, 2016 already had the makings of a pivotal year for manufacturing, and for the world.

There were the big events for the year, including the United States as Partner Country at Hannover Messe in April and the 2016 International Manufacturing Technology Show in Chicago in September. There's also the matter of the U.S. presidential elections in November, which promise to shape policy in manufacturing for years to come.

But the year started with global economic turmoil, as a slowdown in Chinese manufacturing triggered a worldwide stock hiccup that sent values plummeting. The continued plunge in world oil prices has resulted in a slowdown in exploration and, by extension, the manufacture of exploration equipment.

Read more: 2015 Salary Survey

Maintenance and reliability tips and best practices from the maintenance and reliability coaches at Allied Reliability Group.
The One Voice for Manufacturing blog reports on federal public policy issues impacting the manufacturing sector. One Voice is a joint effort by the National Tooling and Machining...
The Society for Maintenance and Reliability Professionals an organization devoted...
Join this ongoing discussion of machine guarding topics, including solutions assessments, regulatory compliance, gap analysis...
IMS Research, recently acquired by IHS Inc., is a leading independent supplier of market research and consultancy to the global electronics industry.
Maintenance is not optional in manufacturing. Itâ€™s a profit center, driving productivity and uptime while reducing overall repair costs.
The Lachance on CMMS blog is about current maintenance topics. Blogger Paul Lachance is president and chief technology officer for Smartware Group.
The maintenance journey has been a long, slow trek for most manufacturers and has gone from preventive maintenance to predictive maintenance.
Featured articles highlight technologies that enable the Industrial Internet of Things, IIoT-related products and strategies to get data more easily to the user.
This digital report will explore several aspects of how IIoT will transform manufacturing in the coming years.
Maintenance Manager; California Oils Corp.
Associate, Electrical Engineering; Wood Harbinger
Control Systems Engineer; Robert Bosch Corp.
This course focuses on climate analysis, appropriateness of cooling system selection, and combining cooling systems.
This course will help identify and reveal electrical hazards and identify the solutions to implementing and maintaining a safe work environment.
This course explains how maintaining power and communication systems through emergency power-generation systems is critical.