Driving OEE: A strategy for business results
Across the manufacturing spectrum, plants strive to produce the most product at the lowest cost. As an added challenge, plants must concentrate on production levels while maintaining quality standards. Of course, producing more means increasing plant capacity, and building additional manufacturing capacity is a capital-intensive venture that entails significant investment. This investment requires applying skilled resources in engineering, economical construction and commissioning, and ongoing operations and maintenance of the additional assets.
Central to efficient operation, however, is achieving a high level of capacity utilization, and plants must strive to make the best use of their existing capacity. Full utilization is typically considered to be 80% to 90% of the intended technical full-load sustained output of a facility. Utilization levels, though, vary from plant to plant, and measuring the capacity utilization of a facility’s assets is a key performance indicator for plant managers.
By measuring overall equipment effectiveness (OEE), plant managers can identify gaps between ideal and actual asset performance. These issues, comprising quantifiable OEE gaps, can be converted into the tactical and strategic steps that influence facility productivity, which can significantly impact overall business results.
OEE quantifies how well a manufacturing unit performs relative to its best demonstrated capacity during the periods when it is scheduled to run, and is calculated using figures from the availability, performance rate efficiency, and first-pass quality of a manufacturing process. OEE can be applied in both “sold-out” and “non-sold-out” plants.
In sold-out plants, manufacturing leaders must know if capacity utilization is at peak, and if not, what it will take to achieve it. This is important at the business level, where executives often hesitate to write a check for additional capacity until they’re convinced that existing capacity is fully tapped out.
For non-sold-out plants, calculating OEE helps plan for optimized shift labor, energy consumption, and maintenance. For example, a high OEE might indicate that a plant could produce sufficient product volume using two labor shifts instead of three. This reduction would lower costs and overhead which, in turn, drives competitiveness.
Key performance indicators in OEE
Several key performance indicators (KPI) exist for measuring capacity productivity. In addition to OEE, total effective equipment productivity (TEEP) and overall process effectiveness (OPE) can be utilized. OEE and TEEP indicate how well the equipment is performing relative to its availability, performance rate, and first-time prime quality. OPE measures effectiveness at an operating unit level and is well suited for a series of machinery operations that comprise an operating unit.
TEEP adds a time component—which differentiates it from standard OEE—to represent how well a manufacturing asset is utilized throughout a calendar year. Where OEE measures effectiveness based on hours the equipment is scheduled to operate, TEEP measures effectiveness against calendar hours (e.g., 24 hours per day, 365 days per year). TEEP, therefore, indicates a more holistic impact of the assets’ utilization on a company’s bottom line.
OEE measures the utilization of the manufacturing asset only when it is scheduled to run over the same period (e.g., one year). By utilizing OEE instead of TEEP, the plant would not include times during the year, for example, for scheduled shutdowns, idle time over a weekend, or slow-downs due to lack of sales. For context, the relationship between OEE and TEEP shows how well the manufacturing asset is utilized throughout a given period of time.
Depending on the position of a plant’s capacity utilization, different approaches are recommended for use. Highly capital-intensive manufacturing ventures, for instance, seek to be in a sold-out position for absorption of the company’s capital investment. For unit operations that are sold out—whereby the plant would theoretically produce 24 hours per day and 365 days per year—TEEP is the recommended approach.
For non-sold-out unit operations, on the other hand, OEE would be the recommended approach. It measures the unit operation effectiveness only when it is scheduled to be in production. In industry practice, OEE is more typically applied to discrete or batch operations that produce part of the workweek (e.g., three shifts per day over a five-day week).
OPE can be an effective tool to measure production constraints. Where traditional OEE measures the effectiveness at the individual equipment level, OPE measures effectiveness at the unit operation level. This is important to a vertically integrated supply chain, whereby the unit operations OPE is modeled to manage how constraints are interacting with each other.
The OEE journey in practice
One recent application of OEE across a company’s manufacturing plants puts the practice in context.
Honeywell’s Performance Materials and Technologies (PMT) business unit is comprised of specialty chemicals and materials, and produces such products as resins, polymers, packaging film, ammonia-based fertilizer, refrigerants, solvents, polyolefin additives, electronic chemicals, sputtering targets, catalysts, and adsorbents.
In mid-2005, PMT decided to measure its OPE and put together a team that represented the business’s 38 production sites. With a diverse manufacturing portfolio including continuous and semicontinuous, batch and discrete processes, standardizing the KPI became a challenge.
PMT’s Integrated Supply Chain Leadership Team agreed to measure both OPE and TEEP across the most critical unit operations at the plants. However, OPE evolved to become the KPI of choice for holding accountable the measurable growth of asset utilization across all plants.
After a year of deployment, PMT saw consistent OPE numbers in its operations. Missing was identifying the underlying causes of OPE performance to explain the gap between 100% OPE and current plant performance.
To fill this gap, PMT conducted a rapid series of OPE gap analyses at its highest-leverage sites—sites that encompassed approximately 60% of its operating income—and in parallel developed in-house data collection and analysis software.
The effort to conduct rapid OPE gap analyses enabled PMT to identify the offending OPE issues for one year of operations and assign the business impact value. The business impact was identified for each classification of event, taking into account lost production opportunity, maintenance costs, and yield loss.
Once the gap analyses were completed at each of the strategic sites, plant teams began designing the potential solutions, likelihood of success, costs and benefits, and time lines to execute. Under the oversight of the plant manager and integrated supply chain vice president, near term projects were tracked on the annual operating plan along with the OPE growth goals. PMT has extended OPE to become a key aspect of the five-year strategic planning process, which is updated annually with forecasts of growth in OPE. Business leadership now has greater visibility into plant utilization gaps that enable decision-making for future expenditures; whether they are reliability, work process improvement, process technology, automation, or capacity expansion.
Between 2006 and 2009, Honeywell PMT realized OPE growth from 70% to 75% across the system contributing to $126M in operating income growth. The OPE effort was largely responsible for PMT’s growth in overall margin from 10% to 14%. As of 2011, OPE had grown to 78% across the system against a gross revenue of approximately $5.6 billion with a margin of just over 18%. Stretching the OPE growth at its sites has been an integral piece of PMT’s business improvement.
The business impact of OEE
OEE represents manufacturing productivity in an absolute sense. To enable competitive advantage, businesses with a manufacturing core must utilize the concepts of OEE to drive the performance of their assets. By failing to measure OEE, companies risk overlooking performance improvement opportunities and lagging behind competitors who do identify them. With the clarity that an OEE practice provides, plants can justify projects related to operations, reliability, and maintenance, while ensuring a system of visibility and accountability to promote success and sustainability.
Stanley T. Grabill, CMRP, has over 20 years of industrial maintenance and reliability experience. He can be contacted at firstname.lastname@example.org.