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Why is OEE a popular manufacturing operations KPI?

Getting a big picture indication of how well plant processes are doing is important for manufacturing. Here's how OEE can help you determine just that.

Overall equipment effectiveness (OEE) is a measurement of manufacturing operations that is generic enough to be applied to manufacturing in many different industries, allowing simple comparisons across dissimilar processes. Because it is not very specific, however, it is not particularly definitive as a management tool in any particular situation.

As a general measurement of manufacturing operations performance, however, it can provide a sound "big picture" indicator of how a plant is operating and, more importantly, it can quantify the results of improvements or changes.

In the simplest of terms, OEE is the product of availability x performance x quality.

  • Availability is the percentage of scheduled time that a work center or machine is available to perform work. Availability, similar to a standard measurement called utilization, focuses on keeping people and equipment productive to the planned level. Availability is reduced by unscheduled downtime, which can have many causes, but the primary culprits are usually equipment breakdowns or the unavailability of materials or tooling.
  • Performance is the actual speed at which an operation runs or the number of units produced in a given time compared to the designated or standard speed. Performance is expressed as a percentage. Performance, similar to traditional measures of efficiency, can be higher than 100% for a particularly smooth running operation or for a talented operator.

Note that the product of availability and performance is quite similar to the APICS-defined Rated Capacity (utilization x efficiency), which indicates the actual level of production throughput compared to the planned level. Rated Capacity is an important thing to understand when scheduling for a plant and when quoting lead times to customers; however, it doesn't indicate the effectiveness of that production. OEE puts production speed in context by including quality.

  • Quality is the percentage of good parts in the total number of parts produced. It is relatively easy to speed up a process, but if the faster pace comes at the cost of more scrap, rework or customer complaints, it is penny-wise and pound-foolish. Slower production at higher quality is more effective and yields a higher OEE.

A process with 95.6% availability, 97.3% performance and 99.1% quality would have an OEE of 92.2%

The value and reason for the increasing popularity of OEE is that it is relatively comprehensive, while remaining quite straightforward and understandable. OEE allows for simple overall performance comparisons between companies in very different situations using very different processes. More importantly, OEE provides a general measure of manufacturing operations performance to help track changes brought about by process improvements, quality improvements, lean manufacturing and other improvement initiatives.

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