6 Aug
2019

OEE and Profitability

Managing OEE, or Overall Equipment Effectiveness, can be a way for manufacturers to significantly improve financial results including profitability.

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OEE and Profitability
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Food & Beverages Processing
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Consumer Product Goods
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Material Building & Construction
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Original Equipment Manufacturer (OEM)
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Pharmaceuticals & Supplements
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Packaging & Co-manufacturing
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Every business seeks to maximize profits and control costs and manufacturing businesses are no different. It's not enough to be average in today's market. That being said, although OEE can help to identify inefficiencies of manufacturing equipment, it is sometimes difficult to quantify the exact impact of OEE on the financial performance of a plant. It is still however an incredible resource for improving efficiency and increasing profits. We're going to review what companies can do to improve OEE. Some of the recommendations will help you to link your OEE efforts to profitability.


OEE Best Practices for Improving Profits

OEE is best used on a single piece of equipment or synchronized line, where you can isolate a single process for improvement. Measuring OEE for an entire plant is useful as a yardstick for measuring improvement, but not as useful for driving improvement as it is more difficult to isolate problems so they can be better understood and addressed when looking at such a big scale. This level of focus also can help you to build momentum within your organization because isolating your efforts to one machine or synchronized line allows you to be able to calculate the quantifiable impact on profitability that you've made with your OEE improvements.

Key Benefits of Measuring OEE

1. Measure and optimize efficiency

Measuring OEE across the factory in real time helps ensure that processes are working efficiently and lets you benchmark where you are in your OEE improvement journey. As noted above, however, you'll need to focus your efforts on a smaller scale to use OEE to deliver insights that lead to meaningful changes.

2. Gain productivity from the same machinery

By collecting data on every machine you can make sure machinery is running efficiently, and using a smart factory solution will help pinpoint equipment that are underperforming compared to the rest of the factory. 

3. Improve process quality

By using real time data collection, you can ensure that quality products are coming off the line. Quality is a factor of OEE, so optimizing for OEE also means optimizing quality.

4. Gain insights to measure and decide

The best use of OEE is to gain insights to decide where to make the most impact to improve plant efficiency. These insights can be used to improve our overall continuous improvement efforts.

Understanding Costs Through OEE

To maximize efficiency and profits, inefficiencies and costs must be minimized. As the famous Edward Deming quote goes, “you can’t improve what you can’t measure.” As such it is essential to understand your cost structure. This can be done by preparing a very detailed OEE Model that shows the relative costs associated with the three loss factors. This model is used for calculating actual incurred costs to determine a Cost Weighted OEE Index. 

Cost Allocation

By allocating certain costs to different OEE factors, we can determine certain processes or products to target for improvement, and pinpoint the corrective actions that will have the most impact on operations. These factors include Availability, Performance, and Quality. 

Become More Predictable

In addition to measuring and monitoring OEE in a plant, a business can better understand the factors of their production process. Increasing predictability may not seem like a big deal, but it can make a big difference for profitability. For example being able to predict material usage may allow a company to reduce inventory levels, which would have an immediate impact on the bottom line. 

Another huge benefit of becoming more predictable is in regards to product turnaround.  If a company can better predict project turnaround, it may be able to cut time from a business’s order to cash cycle. It can also help reduce demurrage and help improve just in time fulfillment. Less product waiting to be shipped or fewer shipping resources waiting for products to be ready can have an incredible effect on profitability.

Improve Customer Satisfaction and Gain New Customers

As the smart factory revolution continues, customer standards are following suit. As customers become more aware of the impact of smart factory analytics, they are increasingly asking for or requiring accurate OEE reports, rather than the approximation of these metrics in traditional factories. Quality smart manufacturing and Internet of Things Technologies are vital for providing customers with this information in real time, so that they can trust that finished products will arrive on time with consistently high quality.

By being able to provide customers transparency into the manufacturing process manufacturers can attract new customers, and increase satisfaction among existing customers.

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