Turn OEE into a financial indicator
Three steps to calculate the value of measuring effectiveness.
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.
- Calculate or record the total revenue, or contribution margin, recognized for the time period.
- 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, email@example.com.
Original content can be found at eruditiollc.com.
Do you have experience and expertise with the topics mentioned in this content? You should consider contributing to our CFE Media editorial team and getting the recognition you and your company deserve. Click here to start this process.