LEAN Execution "Defining Excellence: Solutions in real time for real results"

Vergence Business Associates - Manufacturing Consultants

Toronto, Ontario, Canada
Focus For Success

OEE is comprised of three factors:  Availability, Performance, and Quality.  While calculating these factors is fairly straightforward, it is important to recognize that a standard definition for OEE does not exist.  It is
important to understand the assumptions you are making to make sure that you understand the final OEE result.

OEE measures how effectively TIME is used to produce a quality product.  We have established the following definitions of TIME to be used to calculate OEE:

1. Scheduled Production Time or Planned Production Time

2. Planned Down Time:  Scheduled down time events
3. Unplanned Down Time:  Unscheduled down time events
4. NAT = Net Available Time (Scheduled Production Time - Planned Down Time)
5. NOT = Net Operating Time (Net Available Time - Unplanned Down Time)
6. IOT = Ideal Operating Time (Time to Produce All Parts at Rate)
7. LOT = Lost Operating Time Due to Production of Scrap or Non-Saleable Product.

Although we will provide examples of these calculations, the following formulas are used to calculate each of the OEE factors and overall OEE:

1. Availability % = NOT / NAT * 100

2. Performance % = IOT / NOT * 100
3. Quality = (1 - (LOT / IOT)) * 100 OR Quality = (IOT - LOT) / IOT * 100

4. OEE = Availability * Performance * Quality

You will notice that a quick way to check your OEE result is to calculate the time required to make good parts divided by the Net Available Time:

 OEE = (IOT - LOT) / NAT

Calculating OEE:  A real life example

An 8 hour shift is scheduled to produce three parts as shown in the schedule below.  The shift has two 10 minute breaks and a 5 minute clean up period.

Production Schedule:

M/C:  A   Part #:  A123, Cycle:  10 (seconds), Produced:  2240, SCRAP:  50, Unplanned Downtime:  32 minutes
M/C:  B   Part #:  B456, Cycle:  45 (seconds), Produced:  450, SCRAP:  25, Unplanned Downtime:  18 minutes
M/C:  C   Part #:  C789, Cycle:  70 (seconds), Produced:  229, SCRAP:  11, Unplanned Downtime:  22 minutes

Calculating OEE

Calculating OEE starts by calculating the Net Available Time, Net Operating Time, Ideal Operating Team, and Lost Operating Time as shown in the table below.

Production Time Report (Minutes) Quantity Calculated Times (Minutes)

Part Cycle Time Planned Planned Rest
Machine Department Customer Unplanned Total NAT - Net NOT - Net IOT - Ideal LOT - Lost VAT - Value
Number Seconds Production Periods Scrap
Downtime Produced Available Operating Operating Operating Added
Time (Breaks)
A A123 Weld Paradigm 10 480 25 32 2240 50 455.0 423.0 373.3 8.3 365.0
B B456 Assembly ACME 45 480 25 18 450 25 455.0 437.0 337.5 18.8 318.8
C C789 Assembly Paradigm 70 360 15 22 229 11 345.0 323.0 267.2 12.8 254.3
Totals 1320 65 72 2919 86 1255.0 1183.0 978.0 39.9 938.1

Now we can calculate the OEE for each process and for the shift. We will also calculate the weighted factors and overall equipment effectiveness.

Part Cycle Time Availability (NOT / NAT) Performance (IOT / NOT) Quality (VAT / IOT) OEE (A * P * Q) OEE (VAT / NAT)
Machine Department Customer
Number Seconds Process Weighted 1 Process Weighted 2 Process Weighted 3
Process Weighted 4
Process Weighted 4

A A123 Weld Paradigm 10 93.0% 33.7% 88.3% 31.6% 97.8% 37.3% 80.2% 29.1% 80.2% 29.1%
B B456 Assembly ACME 45 96.0% 34.8% 77.2% 28.5% 94.4% 32.6% 70.1% 25.4% 70.1% 25.4%
C C789 Assembly Paradigm 70 93.6% 25.7% 82.7% 22.6% 95.2% 26.0% 73.7% 20.3% 73.7% 20.3%
Totals 94.3% 94.3% 82.7% 82.7% 95.9% 95.9% 74.7% 74.7% 74.7% 74.7%

Notes Formula to calculate weighted factors and Overall Equipment Effectiveness

 1 Weighted Availability = Availability % * (Net Available Time / Total Net Available Time)
The total weighted Availability is the SUM of the individual processes.
2 Weighted Performance = Performance % * (Net Operating Time / Total Net Operating Time)
The total weighted Performance is the SUM of the individual processes.
3 Weighted Quality = Quality % * (Ideal Operating Time / Total Ideal Operating Time)
The total weighted Quality is the SUM of the individual processes.
4 Weighted OEE = OEE % * (Net Available Time / Total Net Available Time)
The total weighted OEE is the sum of the individual processes.

Note that the weighted OEE and factors are not simply arithmetic averages. We have calculated the averages for each of the factors as an extension of the example above to demonstrate this fact.

Averages 94.2% 82.7% 95.8% 74.7% 74.7%

Using the data from the example above we can easily calculate the OEE for each department as shown in the table below:

Department Production Time Report (Minutes) Quantity Calculated Times (Minutes)

Calculate Total Times for each Planned Planned Rest
Unplanned Total NAT - Net NOT - Net IOT - Ideal LOT - Lost VAT - Value
Production Data and Department. Note Quantities are shown Production Periods Scrap
Downtime Produced Available Operating Operating Operating Added
Time Calculations by for reference only. Time (Breaks)
Department Weld 480 25 32 2240 50 455.0 423.0 373.3 8.3 365.0
Assembly 840 40 40 679 36 800.0 760.0 604.7 31.6 573.1
Totals 1320 65 72 2919 86 1255.0 1183.0 978.0 39.9 938.1

Availability (NOT / NAT) Performance (IOT / NOT) Quality (VAT / IOT) OEE (A * P * Q) OEE (VAT / NAT)
Department
Process Weighted 1 Process Weighted 2 Process Weighted 3
Process Weighted 4
Process Weighted 4
OEE Calculated by
Department Weld 93.0% 33.7% 88.3% 31.6% 97.8% 37.3% 80.2% 29.1% 80.2% 29.1%
Assembly 95.0% 60.6% 79.6% 51.1% 94.8% 58.6% 71.6% 45.7% 71.6% 45.7%
Totals 94.3% 94.3% 82.7% 82.7% 95.9% 95.9% 74.7% 74.7% 74.7% 74.7%

The OEE calculations suggest that the Assembly process is not as effective as welding.

Using the same base line data is possible for us to calculate the OEE for each customer. When reviewing the data note how the "weighted" factors have changed. Also note that the overall OEE remains the same.

Customer Production Time Report (Minutes) Quantity Calculated Times (Minutes)

Calculate Total Times for each Customer. Planned Planned Rest
Unplanned Total NAT - Net NOT - Net IOT - Ideal LOT - Lost VAT - Value
Production Data and Note Quantities are shown for reference Production Periods Scrap
Downtime Produced Available Operating Operating Operating Added
Time Calculations by only. Time (Breaks)
Customer ACME 480 25 18 450 25 455.0 437.0 337.5 18.8 318.8
Paradigm 840 40 54 2469 61 800.0 746.0 640.5 21.2 619.3
Totals 1320 65 72 2919 86 1255 1183 978.0 39.9 938.1

Availability (NOT / NAT) Performance (IOT / NOT) Quality (VAT / IOT) OEE (A * P * Q) OEE (VAT / NAT)
Customer
Process Weighted 1 Process Weighted 2 Process Weighted 3
Process Weighted 4
Process Weighted 4
OEE Calculated by
Customer ACME 96.0% 34.8% 77.2% 28.5% 94.4% 32.6% 70.1% 25.4% 70.1% 25.4%
Paradigm 93.3% 59.4% 85.9% 54.1% 96.7% 63.3% 77.4% 49.3% 77.4% 49.3%
Totals 94.3% 94.3% 82.7% 82.7% 95.9% 95.9% 74.7% 74.7% 74.7% 74.7%

The OEE calculations in this case suggest that the processes for Paradigm are more effective than ACME.

What if we want to know what to focus on for the assembly operation or what if the customer only cares about their processes?
To calculate the OEE for Paradigm alone, we use the same process as in the previous examples.
In the Customer example below, the weighted OEE and factors are based on ALL processes.

PARADIGM OEE Calculations

Production Time Report (Minutes) Quantity Calculated Times (Minutes)

Customer
Part Planned Planned Rest
Machine Calculate Total Times for all parts Unplanned Total NAT - Net NOT - Net IOT - Ideal LOT - Lost VAT - Value
Number Production Periods Scrap
supplied to Paradigm Downtime Produced Available Operating Operating Operating Added
Time (Breaks)
A A123 Weld Paradigm 10 480 25 32 2240 50 455.0 423.0 373.3 8.3 365.0
C C789 Assembly Paradigm 70 360 15 22 229 11 345.0 323.0 267.2 12.8 254.3
Totals 840 40 54 2469 61 800.0 746.0 640.5 21.2 619.3
 Part Availability (NOT / NAT) Performance (IOT / NOT) Quality (VAT / IOT) OEE (A * P * Q) OEE (VAT / NAT)
Machine Customer
Number Process Weighted 1 Process Weighted 2 Process Weighted 3
Process Weighted 4
Process Weighted 4

A A123 Weld Paradigm 10 93.0% 33.7% 88.3% 31.6% 97.8% 37.3% 80.2% 29.1% 80.2% 29.1%
C C789 Assembly Paradigm 70 93.6% 25.7% 82.7% 22.6% 95.2% 26.0% 73.7% 20.3% 73.7% 20.3%
Totals 93.3% 59.4% 85.9% 54.1% 96.7% 63.3% 77.4% 49.3% 77.4% 49.3%

It appears that the assembly process for Paradigm parts should be improved compared to the welding operation. Focus should be applied to assembly performance from an efficiency perspective.

If Paradigm is ONLY interested in how their processes are running, then the weighting of the OEE and factors should be calculated for their process as shown in the table below.
Note that the only change is the Weighted OEE. Comparing this table to the above weighted calculations, you can see how Paradigms processes contribute to the overall OEE for the shift.

Part Availability (NOT / NAT) Performance (IOT / NOT) Quality (VAT / IOT) OEE (A * P * Q) OEE (VAT / NAT)
Machine Customer
Number Process Weighted 1 Process Weighted 2 Process Weighted 3
Process Weighted 4
Process Weighted 4

A A123 Weld Paradigm 10 93.0% 52.9% 88.3% 50.0% 97.8% 57.0% 80.2% 45.6% 80.2% 45.6%
C C789 Assembly Paradigm 70 93.6% 40.4% 82.7% 35.8% 95.2% 39.7% 73.7% 31.8% 73.7% 31.8%
Totals 93.3% 93.3% 85.9% 85.9% 96.7% 96.7% 77.4% 77.4% 77.4% 77.4%

ASSEMBLY Department OEE

To calculate the OEE for the Assembly department, again, we use the same process as in the previous examples.
Note that we have kept the weighted factors relative to the TOTALS for ALL parts in the first OEE summary table.

Production Time Report (Minutes) Quantity Calculated Times (Minutes)

Assembly Department
Part Planned Planned Rest
Machine Calculate Total Times for all parts Unplanned Total NAT - Net NOT - Net IOT - Ideal LOT - Lost VAT - Value
Number Production Periods Scrap
manufactured in the assembly area. Downtime Produced Available Operating Operating Operating Added
Time (Breaks)
B B456 Assembly ACME 45 480 25 18 450 25 455.0 437.0 337.5 18.8 318.8
C C789 Assembly Paradigm 70 360 15 22 229 11 345.0 323.0 267.2 12.8 254.3
Totals 840 40 40 679 36 800.0 760.0 604.7 31.6 573.1

Part Availability (NOT / NAT) Performance (IOT / NOT) Quality (VAT / IOT) OEE (A * P * Q) OEE (VAT / NAT)
Machine Assembly Department
Number Process Weighted 1 Process Weighted 2 Process Weighted 3
Process Weighted 4
Process Weighted 4

B B456 Assembly ACME 45 96.0% 34.8% 77.2% 28.5% 94.4% 32.6% 70.1% 25.4% 70.1% 25.4%
C C789 Assembly Paradigm 70 93.6% 25.7% 82.7% 22.6% 95.2% 26.0% 73.7% 20.3% 73.7% 20.3%
Totals 95.0% 60.6% 79.6% 51.1% 94.8% 58.6% 71.6% 45.7% 71.6% 45.7%

Part Availability (NOT / NAT) Performance (IOT / NOT) Quality (VAT / IOT) OEE (A * P * Q) OEE (VAT / NAT)
Machine Assembly Department
Number Process Weighted 1 Process Weighted 2 Process Weighted 3
Process Weighted 4
Process Weighted 4

B B456 Assembly ACME 45 96.0% 54.6% 77.2% 44.4% 94.4% 52.7% 70.1% 39.8% 70.1% 39.8%
C C789 Assembly Paradigm 70 93.6% 40.4% 82.7% 35.2% 95.2% 42.1% 73.7% 31.8% 73.7% 31.8%
Totals 95.0% 95.0% 79.6% 79.6% 94.8% 94.8% 71.6% 71.6% 71.6% 71.6%

How do we determine which operation to work on? Based on the Assembly department above, it appears that Process B needs improvement in both performance and quality to improve the overall OEE.
While there may be no "right" answer, we affirm that the opportunity to pursue is the one that will have the greatest impact to the bottom line.

THE Cost FACTORS:

Refer to the "OEE Documentation" Tab for a more detailed presentation using actual cost data.

Availability:
Availability will have a direct and indirect impact on both Labour and Burden. It could be argued that if a machine is down for an extended period of time, the direct labour could be redeployed to run another
machine or work center. While this makes for a good business case, it also implies that the direct labour will be redeployed to run parts that weren't required to begin with. This isn't exactly Lean Thinking. Also,
depending on the length of time that the machine is down, overtime costs may be incurred to make up for lost production.

The point is that when a machine goes down, there is a price to be paid. The real question is, "How much?"

Performance:
Performance has a direct impact on the Labour and to some degree the burden costs of the operation. Again, this will depend on the net effect of the performance loss. If the loss is significant enough to drive your
plant into working overtime, then there will be increased labour and burden costs.

Quality:
Quality impacts all three costs being considered. Material, Labour, and Burden are all lost when a part is scrapped. In addition to these process costs, there are the administrative and other handling costs
associated with the scrapped materials. Even if the material is reworked, typically the only cost recovered is material. Reworking product also introduces new administrative and handling costs associated with the
rework process. New burden costs not normally incurred in the original process are also introduced when repairing product.

Sorting, Repair, or any other type of containment activitiy will result in NON-VALUE ADDED Costs. These costs should be part of the consideration when determining process improvements.

Part Cycle Time Availability (NOT / NAT) Performance (IOT / NOT) Quality (VAT / IOT) OEE (A * P * Q)
Machine Department Customer Material Labour
Number Seconds Process Weighted 1 Process Weighted 2 Process Weighted 3
Process Weighted 4

A A123 Weld Paradigm 10 93.0% 33.7% 88.3% 31.6% 97.8% 37.3% 80.2% 29.1%
B B456 Assembly ACME 45 96.0% 34.8% 77.2% 28.5% 94.4% 32.6% 70.1% 25.4%
C C789 Assembly Paradigm 70 93.6% 25.7% 82.7% 22.6% 95.2% 26.0% 73.7% 20.3%
Totals 94.3% 94.3% 82.7% 82.7% 95.9% 95.9% 74.7% 74.7%
 Overall Equipment Effectiveness (O.E.E.)

OEE is to be tracked for each major cell for every shift of production.

OEE http://www.leanexecution.wordpress.com

Overall Equipment Effectiveness is the measure of Productive Time / Planned Production Time Vergence Business Associates - Manufacturing Consultants
In other words, it is the measure of VALUE ADDED Time / Planned Production Time Redge Semplonius - President & CEO
Toronto, Ontario, Canada
Overall OEE = Total Time To Make a Quallity Part @ Standard Lean Execution Advanced Strategy Team
Total Planned Production Time Providing Solutions in Real Time for Real Results
Focus For Success
Definitions: Lean Manufacturing, Six Sigma, Quality Systems (TS-16949, ISO9001)

OEE - Overall Equipment Efficiency = Performance * Availability * Quality

- World Class = 85%

Availability: 90.0% DOWNTIME LOSS - Breakdowns, Stockouts

Performance: 95.0% SPEED LOSS - Cycle Time Efficiency
Quality (FTT): 99.5% YIELD LOSS - Scrap, Rework, Containment
OEE 85.1%

Performance
- Cycle Time (Standard Labor)
- Stampings - Actual Strokes per Minute
- Assembly - Button to Button Cycle Time - NO Efficiency Factors Added

- Standard Labor
- Headcount of personnel required to staff each operation with no sort, rework, or containment
- Acceptable = Rework included in Standard Process only or Customer mandated Product Launch

Availability
Total Available Time
- Gross Available Time = Actual SCHEDULED Time, Maximum 1 Shift 480 minutes

- Planned Downtime Frequency Time Totals

- Breaks (10 minutes x 2) 2 10 20
- Lunch (20 minutes x 1) 1 20 20
- Clean Up (5 minutes x 1) 1 5 5
- Planned Downtime 45

- Net Available Time = Total Available Time - Planned Downtime 435 minutes

- Unplanned Downtime
- Changeover (Dies / Tools)
- Breakdown
- Tip Changes
- Coil Changes
- Material Handling
- Any Other Unscheduled Events

Quality (FTT)
- Parts Scrapped
- Weld Destruct
- Coil Ends
- Rework on the Line
- Containment

- 0% is automatically assumed for any product subject to:

- Online or 3rd party containment
- Rework that is not part of the standard process

Calculating OEE

- OEE = Performance % X Availability % X Quality %

Note: Quantities of parts are a measure of TIME. Quantity X Cycle Time = Time Required to Produce Parts

Total Equipment Effectivenss Performance

- TEEP = Asset Availability / Net Time Available * OEE

This provides a measure of how well the assets are being utilized in the plant or facility.

- Weighted OEE factors for PERFORMANCE, AVAILABILITY, and QUALITY

OEE = Productive Time / Planned Production Time

Net VALUE ADDED Operating Time @ Standard

OEE % =
Planned Operating Time or Net Available Time

Productive Time ONLY occurs when a quality part is produced at rate. (Time to make parts that can be sold or used in subsequent processes).

From the example below, the overall weighted OEE = (Total Time to Produce A Quality Part @ Standard) / (Total Planned Production Time)

Although alternative methods are presented to calculate the weighted values for the OEE factors, all resolve back to the same fundamental formulas.
OEE Measures how effectively the time for a piece of equipment or process is utilized. Be cognizant of processes that yield more than 1 part per machine cycle.
Although Quality (FTT) appears to measure quality based on Quantity of parts, this is directly correlated to the TIME required to produce the parts.

- EXAMPLE: (Working Model) Data input fields are indicated by the TAN Background

Part Standard Cycle Time Total Parts Scrap Total Good Scheduled Production Time Planned Down Time
(Seconds) (Maximum 1 Shift = 480 minutes) (Minutes)
A 75 290 10 280 480 40
B 75 150 0 150 240 15
C 15 1250 0 1250 480 40
D1 7.5 1000 1000 0 240 15
E 1
52 500 500 0 480 40
Total 3190 1510 1680
1. Parts D & E are ON CONTAINMENT = All Parts Scrapped

- AVAILABILITY Refer to Notes for Unplanned Downtime event details. Actual Operating Time = Net Available Time - Unplanned Down Time

AVAILABILITY
(Time Available to Produce Parts) Availability %

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 Refer to Notes for Unplanned Downtime event details. Actual Operating Time = Net Available Time - Unplanned Down Time

Part Net Available Time Unplanned Actual Operating Time Availability - (1&2) Availability Weighted
Down Time % %
Total Available Time - Planned Down (Net Operating Time Actual)
Time (Minutes) (Minutes) Actual Operating Time Availability % * Planned Time
(Planned Production Time) Planned Time Total Planned Time
(Minutes)

A 440 10 430 97.73% 24.29%

B 225 30 195 86.67% 11.02%
C 440 20 420 95.45% 23.73%
D1 225 92 133 59.11% 7.51%
E1 440 5 435 98.86% 24.58%
Total 1770 157 1613 91.13% 91.13%
Availability =91.13%
Total Actual Operating Time
- PERFORMANCE Total Net Available Time

Actual Rate (pcs / hr) Standard Cycle Time

Performance % = Standard Rate (pcs / hr)
OR Actual Cycle Time

Gross Operating Time = (Standard Cycle Time / 60) X Total Parts Made

Note: Unit of Measure = Minutes

Performance
(Time to Produce ALL Parts @ Standard)
Part Actual Cycle Time
Actual Operating Time * 60
Total Parts Produced
(Seconds)
Performance %
Gross Operating Time Performance (1) Performance (2) Performance Weighted
@ Standard % (%) %
(Time to Produce Total Parts Gross Operating Time Standard Cycle Time Performance % * Actual Operating Time
@ Standard Cycle) Actual Operating Time Actual Cycle Time Total Actual Operating Time
(Minutes)

A 88.97 362.5 84.30% 84.30% 22.47%

B 78.00 188 96.15% 96.15% 11.62%
C 20.16 313 74.40% 74.40% 19.37%
D1 7.98 125 93.98% 93.98% 7.75%
E1 52.20 433 99.62% 99.62% 26.87%
Total 1421 88.09% 88.09% 88.09%
Performance = 88.09%
Total Operating Time to Produce Total Parts @ Standard
Total Actual Operating Time

(Cycle Time @ Standard / 60) X Good Parts Made

Quality
Time to Produce Quality Parts @ Standard Quality %

Part Net Operating Time Quality (1) Quality (2) Quality Weighted Quality Weighted
@ Standard % (%) % %
(Time to Produce Quality Parts Net Operating Time Good Parts Planned Operating Time * A% * P% Gross Operating Time @ Standard
@ Standard Cycle) Gross Operating Time Total Parts Total Planned Operating Time * TA% * TP% Total Gross Operating Time @ Standard

(Minutes)

A 350.0 96.55% 96.55% 24.63% 24.63%

B 187.5 100.00% 100.00% 13.20% 13.20%
C 312.5 100.00% 100.00% 21.99% 21.99%
D1 0.0 0.00% 0.00% 0.00% 0.00%
E1 0.0 0.00% 0.00% 0.00% 0.00%
Total 850.0 59.82% 59.82% 59.82%
Quality = 59.82%
Total Time to Produce Quality Parts @ Standard
Total Time to Produce Total Parts @ Standard

Part OEE %
A OEE (1) OEE (2) Weighted OEE
% %
OEE % * Planned Time
A*P*Q A*P*Q Total Planned Time

B 79.55% 79.5% 19.77%

C 83.33% 83.3% 10.59%
D1 71.02% 71.0% 17.66%
E1 0.00% 0.0% 0.00%
Total 0.00% 0.0% 0.00%
48.02% 48.02% 48.02% 48.02% Net Operating Time @ Standard
Total Net Available Time

Total Net (VALUE ADDED) Time / Total Planned = 48.02%

Using OEE to Manage Change

General:

Understanding OEE and it's related factors, is key to managing "process" changes.

While OEE determines how efficiently time is being used by a particular machine or across the entire plant - it doesn't measure the TOTAL cost of inefficiencies!

Availability: DOWNTIME LOSS

Performance: SPEED LOSS (Cycle Time Inefficiency)
Quality: YIELD LOSS

Labour Variance:

OEE can be used to measure Labour Variances: Availability X Performance

Availability: Time lost due to inability to produce parts.

Performance: Time lost (for all parts) due to cycle time inefficiency

Direct Labour Impact:

When deciding which process to address first, consider the total direct labour required to run it.
Two processes running at the same overall OEE may have considerable cost implications (differences).

Material Variance:

Quality: Material lost due to scrap parts, coil ends

When deciding which process to address first, consider the cost of material required to make the parts.
Two process running at the same overall OEE and Quality may have significant differences with respect to cost impact.
Salvage / Recovery revenue should also be considered in the overall part assessment.

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 Learn to appreciate the difference in value of materials. Example: Gold and Silver.

Burden Variance:

Availability: Unexpected machine repairs, replacement parts

Performance: Equipment repairs required to address machines running at reduced speeds due to wear and tear.
Quality: Rework, Containment, Inspection, Material Handling support.

VOLUME:

The effect of volume should be clear as the cost differences will vary accordingly.

EXAMPLE of Cost Implications: NOTE That the OEE is the SAME for both processes.

Process Direct Labour $27.20 A P Q

A 8 $217.60 95% 90% 70%
B 2 $54.40 95% 90% 70%

Direct Labour Cost - Variance Calculations

Direct Labour is Redeployed while machine is down

Direct Labour Cost for Net

Process P Quantity Required Labour Variance
(Performance)
A 90% $241.78 $24.18
B 90% $60.44 $6.04

Direct Labour Cannot be redeployed while machine is down

Direct Labour Cost for Net

Process A*P Quantity Required Labour Variance
(Performance)
A 86% $254.50 $36.90
B 86% $63.63 $9.23

Material Cost - Variance Calculations

Process Q Standard Material Cost Actual Cost Material Variance

A 70% $0.25 $0.36 $0.11
B 70% $150.00 $214.29 $64.29

RECOVERY / SALVAGE Costs

Scrap material may be sold and as a result could return revenue to offset the overall cost impact.

Putting it ALL Together: From the example above:

Variances
Process Salvage
Labour Material Total
A $24.18 $0.11 $24.28 $0.02
B $6.04 $64.29 $70.33 $9.64
A-B $18.13 $(64.18) $(46.05) $(9.63)

EFFECT of Volume

Total Cost Impact due to

Process Annual Volume Recovery Net Impact (Recovery)
Variances
A 170,000 $4,128,436.51 $2,732.14 $4,125,704.37
B 50,000 $3,516,507.94 $482,142.86 $3,034,365.08
A-B 120,000 $611,928.57 $(479,410.71) $1,091,339.29

In this example, it is clear that while the labour cost for process A presents a cause for concern and should be addressed before looking at Process B, the material cost variance presents a much greater opportunity for process B.
Putting it all together, based on Volume, the real process to focus on is Process A.

Making it Happen - NEXT Steps

Establish Clear Standards - Material, Cycle Time, Labour

Quick Die Change

Inventory Management Initiatives: Min-Max Targets, Inventory Turns, PULL

Quality: Scrap, Rework, Containment

Process Cycle Efficiency (Lean Metric)

Value-Added Time / Total Lead Time

Total Equipment Effectiveness (Performance)

- Definition:

Measures how well assets in the plant are being utilized in an area or total plant. This is typically based on a 24 hour day, 7 days / week, 365 day base line.
For a shift the TEEP will be based on a full 8 hour day (480 minutes).

Total Net Available Time * OEE Total Net Value Added Time
TEEP OR
Total Available Asset Time Total Available Asset Time

It is possible for OEE to show continued improvement, however, equipment utilization is affected by volume and product mix based on customer demand.

The weighted OEE does not provide an indicator of how effectively the equipment is being utilized. Consider 1 High performance job running in 1 of 2 machines versus 2 Lower performance jobs running in 2 of 2 machines.

Example: Shift Comparisons

Extreme caution should be exercised when comparing the OEE between two shifts, production areas, or plants based on overall performance unless they present the same "product / process" mix. In the example below, Shift A has a higher weighted OEE
when compared to Shift B although there is real no difference between them. When considering the TEEP, Shift B actually outperforms shift A by a large margin because more asset capacity was used to make parts. When comparing line item processes,
both ran equally well.

SHIFT A
Part / Process OEE % Available Asset Time Net Available Time Weighted OEE TEEP (Asset Utilization %) Weighted TEEP

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 Net Available Time * OEE Net Available Time * OEE Net Available Time * OEE
TOTAL Net Available Time Available Asset Time TOTAL Available Asset Time

A 90% 480 440 90% 83% 28%

B 85% 480 0 0% 0% 0%
C 80% 480 0 0% 0% 0%
Weighted OEE used TEEP (Asset Utilization %):
TEEP for Overall TEEP 1440 440 90% 28% 28%
Total Net Available Time * WEIGHTED OEE
Total Available Asset Time

Shift B
Part / Process OEE % Available Asset Time Net Available Time Weighted OEE TEEP (Asset Utilization %) Weighted TEEP
Net Available Time * OEE Net Available Time * OEE Net Available Time * OEE
TOTAL Net Available Time Available Asset Time TOTAL Available Asset Time

A 90% 480 440 30% 83% 28%

B 85% 480 440 28% 78% 26%
C 80% 480 440 27% 73% 24%
Weighted OEE used TEEP (Asset Utilization %):
TEEP for Overall TEEP 1440 1320 85% 78% 78%
Total Net Available Time * WEIGHTED OEE
Total Available Asset Time

- TEEP Summary

Improved OEE performance will yield a lower TEEP as more capacity is made available. The objective then becomes filling this available capacity.

OEE Documentation
Confidential Page 8
02/23/2011 / 09:13:12
G138:
Refer to Notes for Unplanned Downtime event details.

H138:
Actual Operating Time = Net Available Time - Unplanned Down Time

H145:
Total Actual Operating Time
Total Net Available Time

G156:
Gross Operating Time = (Standard Cycle Time / 60) X Total Parts Made

Note: Unit of Measure = Minutes

G163:
Total Operating Time to Produce Total Parts @ Standard
Total Actual Operating Time

F172:
(Cycle Time @ Standard / 60) X Good Parts Made

F179:
Total Time to Produce Quality Parts @ Standard
Total Time to Produce Total Parts @ Standard

E195:
Net Operating Time @ Standard
Total Net Available Time

J336: TEEP (Asset Utilization %):

Total Net Available Time * WEIGHTED OEE

Total Available Asset Time

J348: TEEP (Asset Utilization %):

Total Net Available Time * WEIGHTED OEE

Total Available Asset Time

Notes
Confidential Page 9
02/23/2011 / 09:13:12
 © Vergence Business Associates - Manufacturing Consultants
Toronto, Ontario, Canada - 14-Jun-09

Vergence Business Associates - Toronto, Ontario, Canada

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