Discover your hidden factory: Run more efficiently with less waste

Herb Lichtenberg, SAMI Corporation

Does your facility have excess capacity that could be easily and economically tapped?

Could one process or machine be dragging down the entire facility?

Are there production bottlenecks in your plant that you’re not aware of?

“Wait a minute,” you say. “In these times of slowed demand and cutbacks, it’s not more throughput or capacity I need; I need to reduce operating expense.” Well, by understanding the gap between your plant’s true potential and your current performance, you’ll not only discover your “hidden factory” but also develop ways of running your plant more efficiently and effectively with less waste, thereby reducing operating expense.

By working to reduce the causes of your plant’s production losses, you’ll also get two additional benefits: when demand does return, you will have increased capacity to meet it, and your plant will run more predictably and at a consistently higher rate.

During these times of reduced demand and cutbacks, you are likely to be under constant pressure to improve performance and quality and increase equipment availability while reducing operating expense regardless of your company’s size or type of manufacturing. OEE (overall equipment effectiveness) provides a solution.

OEE is being used increasingly in industry because it takes the most common sources of manufacturing productivity losses and distills them into consistent metrics that are used to monitor and improve manufacturing operations. OEE can be used at the equipment, department, line and facility levels. It is a method that truly reduces complex production problems into simple, intuitive information that helps you to systematically improve your operation.

OEE helps to uncover inefficiencies in your production processes by showing you how well a production line is functioning overall in terms of availability, performance and quality. The data produced by OEE helps you to direct the focus for your diagnostic and improvement efforts. The subsequent actions taken, based on the knowledge you’ve gained, will result in improved efficiency and reduced operating expense.

Calculating OEE

OEE is a hierarchy of metrics. They focus on how effectively a manufacturing operation is utilized, and may be applied to any individual work center or production process/line or rolled up to department or plant levels.

The two top view metrics, OEE Efficiency and OEE Utilization, are closely related measurements that report the overall utilization of facilities, time and material for manufacturing operations. These top-view metrics directly indicate the gap between actual and ideal performance.

  • OEE Efficiency (OEEe) quantifies how well a manufacturing unit performs relative to its designed capacity during the periods when it is scheduled to run. It breaks the performance of a manufacturing unit into three separate but measurable components: availability, performance and quality. Each component points to an aspect of the process that can be targeted for improvement.
    OEEe = Availability x Performance x Quality
  • OEE Utilization (OEEu) measures OEE effectiveness against calendar hours (i.e.: 24 hours per day, 365 days per year). It reports the “bottom line” utilization of assets and is used when considering investment in additional production facilities.
    OEEu = Loading x OEEe

So in addition to helping you to focus your plant and equipment performance efforts, these measures can save your company from making inappropriate plant and equipment purchases.

Underlying Metrics

There are four underlying metrics that provide understanding as to why and where the OEEe and OEEu performance gaps exist. The measurements are described below:

  • Loading: This portion of the OEEu metric represents the percentage of time that an operation is scheduled to operate compared to the total calendar time that is available.
    Loading = Scheduled Time / Calendar Time
  • Availability: This portion of the OEEe metric represents the percentage of scheduled time that the operation is available to operate. It is often referred to as uptime.
    Availability = Available Time / Scheduled Time
  • Performance: This portion of the OEEe metric represents the speed at which the work center runs as a percentage of its designed speed.
    Performance = Actual Rate / Theoretical Rate
  • Quality: This portion of the OEEe metric represents the good units produced as a percentage of the total units started (commonly referred to as first-pass yield).
    Quality = Good Units / Units Started

ABC Manufacturing Company’s plant is scheduled to operate for 16 hours (960 minutes) per day, five days per week, 50 weeks per year. Last year, the plant produced an average of 480 units per day, of which 460 met the quality specifications. The plant also averaged one product changeover per day at 30 minutes per change and experienced an average of 100 minutes per day of unplanned downtime. The plant was designed to produce 40 units per hour. Calculate both OEE Efficiency and Utilization for the plant.

Scheduled Time = 960 minutes/day
Available Time = 960 minutes scheduled – (100 minutes unscheduled downtime + 30 minutes changeover) = 830 minutes/day
Availability = 830 available minutes / 960 scheduled minutes = 86.5 percent

Actual Rate = 480 units / (830 available minutes / 60 minutes/hour) = 34.7 units/hour
Performance = 34.7 units/hour / 40 units/hour = 86.8%

Quality = 460 good units / 480 units started = 95.8%

OEEe = 86.5% Availability X 86.8% Performance X 95.8% Quality = 71.9%

Loading = (5 days x 16 hours x 50 weeks) / (7 days x 24 hours x 52 weeks) = 45.8%

OEEu = 45.8% Loading X 71.9% OEEe = 32.9%

As you can see from the example, calculating OEEe and OEEu is not particularly complicated, but care must be taken as to standards that are used as the basis. Most companies have fairly good systems for capturing and tracking availability and quality data. However, at many brownfield sites where modifications to the equipment and processes have been made over the years, determining the nameplate/design rate can be somewhat contentious.

For a single piece of equipment, a design production rate or cycle time can generally be calculated. However, for production processes or lines, this can be a problem. Some people argue that using the best average rate achieved over a 24-hour period is the appropriate rate to use as the design rate. Others argue that the average over a longer period of time should be used.

The problem with either of these arguments is that the longer the period of time used to calculate the average, the more rate-slowing events will be included. This will result in a higher performance percentage that masks efficiency problems, and will not give you a true picture of the plant’s real capacity and capability.

Developing a Histogram

The recommended method for determining the “design” rate of a modified production line or process is by developing a histogram of your plant’s or process’ hourly production rate for the last year. This distribution will give you an indication of the predictability and consistency of your production process as well as showing the maximum production levels reached.

The rate you should use is a rate at the 95th percentile or higher. This is demonstrated performance and will present a good target for improvement. The distributions shown below represent a current production rate history and a target distribution. Remember: The smaller the standard deviation, the more controlled the process.  


Mapping OEE Losses

In manufacturing, there are seven major common causes of efficiency loss. The following table lists the major losses and how they relate to the OEE loss categories.


Major Loss

OEE Loss

Event Examples


Unplanned Downtime

Downtime Loss

  • Unplanned Maintenance
  • Equipment Failure
  • Tooling Failures
  •  Process Adjustments
  • Operator Shutdown

Equipment/Process Stoppages generally over five minutes or requiring maintenance assistance

Setup or Recipe Changes

Downtime Loss

  • Setup/Changeover
  • Warm-up Time
  • Startup

This loss is often addressed using SMED (single-minute exchange of dies) reduction programs 

Minor Stops

Speed Loss

  • Obstructed Product Flow
  • Component Jams Sensor Blocked
  • Cleaning/Checking
  • Misfeeds

Typically only includes stops that are under five minutes and that do not require maintenance personnel

Idle Time

Downtime Loss

  • Material Shortage
  • Operator Shortage
  • Information Shortage

Typically the equipment is down during scheduled running time due to the shortage of a production resource

Reduced Speed

Speed Loss

  • Rough Running
  • Under Design Capacity
  • Equipment Wear or Condition
  • Operator Inefficiency

Anything that keeps the process from running at its maximum theoretical speed

Startup Rejects

Quality Loss

  • Scrap
  • Rework
  • In-process Damage
  • Incorrect Assembly/Mixing

Rejects during warm-up, startup or other early production

Production Rejects

Quality Loss

  • Scrap
  • Rework
  • In-process Damage
  • Incorrect Assembly/Mixing

Rejects during steady state production

Once you have identified and quantified these losses, you can drill down for very specific analysis by equipment, downtime cause, shift and a number of other parameters to determine specific targets for improvement. In this way, OEE is used to find the greatest areas of improvement so you start with the area that will provide the greatest return on asset.

World-class OEE

For discrete manufacturing, world-class OEEe is generally considered to be 85 percent or better. For process industries, it is generally considered to be 90% or better. The average OEEe score for discrete manufacturing plants has been found to be in the neighborhood of 60%, with process plants scoring somewhat higher in the range of 70%.

OEE Factor

World Class

World Class

Your OEE?

















Although many companies believe they can improve the performance of their assets, they really don’t know how big the gap is between their current performance and their plant’s capability. During these challenging times, it is increasingly important to take advantage of the additional efficiencies and substantial cost savings to be found in the “hidden factory”. OEE measurements are valuable tools that can assist you in improving the bottom line. Use these metrics to test your own operations. 
How does your plant stack up?

For more information regarding this article, please contact Herb Lichtenberg, vice president of production practice at Strategic Asset Management International, via e-mail hlichtenberg@samicorp.com or visit www.samicorp.com.

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