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The quick and dirty about OEE: Key concepts and formulas

Learn these key formulas to calculate overall equipment effectiveness (OEE) and assess Lean performances.

By Steve Mueller, Daniel Penn Associates September 22, 2015

OEE is a great way to see the impact of 6 big losses in order to eliminate them in the Lean manufacturing transformation. Courtesy: Daniel Penn Associates

Much has been written about overall equipment effectiveness (OEE) but it is important to revisit some of the key points. OEE is a great way to see the impact of 6 big losses in order to eliminate them in the Lean manufacturing transformation. The 6 big losses are:

  1. Breakdowns
  2. Setup and adjustments
  3. Small stops
  4. Reduced speed
  5. Startup rejects
  6. Production rejects.

You can calculate OEE at least two simple ways depending on the information you are starting with. The standard formula is: OEE = %A x %T x %Q, where:

  • %A (Availability) is the ratio of the time the equipment was available for production to the scheduled operating time, and
  • %T (Throughput) is the ratio of the actual output to the total possible output while equipment is running, and
  • %Q (Quality) is the ratio of good output to total output.

Learn these key formulas to calculate overall equipment effectiveness (OEE) and access Lean performances. Courtesy: Daniel Penn Associates

A second method, the Throughput Ratio method, is handy for assessing an overall process or line. OEE = (AT)/(TPR x SOT), where:

  • AT (Actual throughput) is the amount of good product produced, and
  • TPR (Theoretical processing rate) is the processing rate of the system’s bottleneck under ideal conditions, and
  • SOT (Scheduled operating time) is the amount of time the system is not scheduled to be idle (includes production and maintenance).

Here are a few common errors that prevent OEE from delivering its full value as a key performance indicator:

  • Not using the ideal equipment speed or cycle time: if the company uses anything else, such as a budgeted or average rate or speed, it makes it difficult to see the real impact that the 6 big losses have on performance. The bar is set for too low.
  • Not including changeover time: this is a common mistake because people argue that changeover is not processing, which is true, but our objective is to improve throughput and every minute spent on changeover is a minute not spent on throughput.
  • Not recognizing the bottleneck on a line: the second method for calculating OEE above works well for a production line provided you recognize the bottleneck. It should go without saying that the bottleneck sets the pace for the entire line so the meaningful OEE for the line must be based on the throughput at the bottleneck.

Focusing on the OEE score and not the underlying problems – sounds simple but, as is the case with using performance indicators in general, users sometimes forget that the whole point of these indicators is to drive corrective action. When a child’s temperature is 104 F someone needs to act, not simply notes that it is 6 degrees too high.

There is no universal target OEE number. 85 is a great OEE (95%A x 95%T x 95%Q,), but what is more important than the OEE value is to see positive change in OEE over time as a result of the actions taken to improve equipment’s performance. Likewise, benchmarks are handy for indicating what is possible and where someone might look for more improvements but step one is to get an honest measure of the performance. OEE is a great place to start.

Steve Mueller is director of commercial operations for Daniel Penn Associates. He is responsible for project development, management and delivery of results for the company’s private sector clients. Steve has over 30 years consulting experience. Daniel Penn Associates LLC is a CFE Media content partner. edited by Joy Chang, digital project manager, CFE Media, jchang@cfemedia.com