OEE Integrated with Financial Performance


OEE, TPM, Lean, maintenance

 

Overall Equipment Effectiveness or OEE is a great metric to understand where your operational losses are. There are three factors which determine the effectiveness of your operational steps:

Availability – Percentage of the actual amount of production time the operation is running to the production time the operation is available

Performance – the speed at which the operation runs as a percentage of its designed speed

Quality – the Good Units produced as a percentage of the Total Units started.

OEE = Availability x Performance x Quality providing you with an overall effective percentage of production time.

It is not the intent of this article to provide the details and many benefits of OEE but I found this site OEE  to be informative if you would like further information.

Here I would like to present a method of using OEE as a metric to include financial performance. Whenever we, Lean Practitioners, are able to exploit a metric to demonstrate financial performance or enable decisions that connect process improvement with financial gains we get the attention and support of the leaders.

OEE is usually used as a metric, within the Lean Sigma program, to determine where the operational losses are. Once the losses are understood we can determine where to focus the improvement resources.

But organizations that are in business to make profit want to maximize profits through the most effective use of their resources, this includes improvement resources. I will show that limiting operational losses to a process that seems obvious for OEE improvement can be the wrong decision when considering maximizing profit for the organization.

To integrate OEE with financial performance we can apply a Value Add weighted average method. Value Add is financially determined by; Value Add = Revenue – Cost of Goods Sold (COGS).

OEE, Profit, Lean Sigma

Figure 1

Using a weighted average approach we consider the impact of product value added for each of the organization’s flows to determine which process to focus improvement. In Figure 1 you would be tempted to improve Process 5 but a 20% improvement in process OEE will only yield a 1% gain in the plant’s overall OEE while Process 2 the same 20% improvement in process OEE gains 5.2% in the overall OEE.

Example: Process 5 improves to 75%: OEE 75 * 5.1% = 3.8% and the new Plant OEE is now 75.5%. Process 2 improves to 80%: OEE 80% * 25.9% = 20.8% and resulting Plant OEE is now 79.7%

So it is clear, including product value add in the equation can change the decision of where to apply precious improvement resources. With profit maximizing as a key focus for the organization, OEE applied with the weighted average method will become a key indicator.

Contact Lean Teams USA to provide guidance, training, and coaching to maximize your profits with OEE revealing where to send your improvement resources.

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