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Proper Equipment Utilization Reduces Costs and Improves Margins

When it comes to reducing cost or improving margins, the first place many companies go is their suppliers. Although there may be opportunity there, sometimes the most cost-saving and margin-improving benefits can be found on one's own factory floor. A good tool to measure this is to calculate your Overall Equipment Effectiveness (OEE).

What is OEE?

OEE is a measurement that indicates how effectively equipment is being utilized by identifying the percentage of planned production time that is truly productive. In its simplest form, the calculation is (Good Parts Produced x Ideal Cycle Time)/Planned Production Time. A world class operation would typically have a score of 80% or better. Scores below 60% indicate substantial room for improvement. Measuring OEE is relatively simple and can indicate the scope of the improvement opportunity as well as provide the baseline to track improvement.

An obstacle that some companies face in capturing and analyzing OEE improvement is the cost of software and hardware to implement a full blown Manufacturing Execution System or some other software based solution. However, numerous approaches can provide similar benefits with minimal capital investment.

First step: Calculate the baseline

You need to know if there is a problem, how bad it is and what to measure improvement against. A good example is a company that recently contacted me for help in consolidating its supplier base and negotiating cost reductions to improve margins. Although there was opportunity to reduce supplier costs, a tour of the facility revealed that a number of idle machines and operators. As part of the project, we calculated OEE and found it to be 55%! Nearly half of the available manufacturing time was non-productive. No amount of cost savings in purchased materials could overcome that deficit and deliver the margin improvement they needed or could achieve. For that, they needed to look inside of their own four walls.

Here are examples of low capital investment recommendations that have been shown to be effective in improving OEE:


The quickest and highest return comes from a committed and engaged team with shared goals.

  • Have programmers and process engineers on the floor to listen and assist the operators in identifying and implementing improvements. The emphasis is on listening and observing outcomes, that is, moving from theory to the reality of actual manufacturing. Observations should include, among other things, loading and unloading technique, tooling selection, program sequencing and rejection analysis. Metrics should include improved yield and cycle time reduction.
  • Transition Quality Assurance from policing to partnering as a means to identify conformance issues as they occur. In addition to optimizing measurement tools and techniques, they should review the appropriateness or deficiency of the measurements as they relate to the finished product requirements, not just the intermediate manufacturing step or component to an assembly. Metrics should include both quality yield and reduced measurement time, especially if it is impacting OEE.
  • Educate the planners in the manufacturing process and optimize production planning by including changeover and transition time in the order sequencing decision. Simple planning methods often only include supply and demand in the calculation. This can lead to multiple, lengthy changeovers and can increase non-productive equipment time. Adding factors that optimize equipment uptime will reduce idle time and increase overall output and OEE. This would include scheduling families of parts, not individual sizes, and changeover requirements between families to minimize tooling and line clearance requirements. Rate based planning methods are well suited for this type of planning optimization. Metrics should include reduced idle time for setup and changeover, as well as first article yield.