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OEE Efficiency Check
Benchmark Efficiency – are you world-class?
The Lean Efficiency Metric assesses how well resources (time, effort, materials, assets) are used to produce economic value. Efficiency refers to the capability of an organization to deliver products and services that meet customer requirements in terms of functionality, quality, and service level at minimal resource consumption. The Lean Factory Audit scores conservation level, functional coverage and strategic alignment of efficiency improvements efforts, effectiveness of controls, capability of costing model, quality of efficiency measurements, overhead application approach, value-adding percentage, and effectiveness of waste reduction. The Efficiency Checklist includes 7 points and takes 7 minutes to complete.
Continuously reducing waste (delays, defects) and redundancies (duplications) allow managers to better leverage available resources and maximize the impact of every dollar spent (ROI). Improving efficiency keeps margins healthy throughout the economic lifecycle. A high degree of operating efficiency has become a prerequisite to execute a low-cost strategy and to compete in a commoditizing and globalizing market.
Why Efficiency is important
Efficiency refers to the capability of an organization to deliver products and services that meet customer requirements in terms of functionality, quality, and service level at minimal resource consumption. Measuring efficiency requires assessing multiple dimensions to get to a meaningful result. The lean efficiency checklist shows a simple, yet effective way to determine efficiency levels relative to world-class benchmarks.
How to measure Efficiency?
Most tools available today focus on Overall Operating Efficiency (OEE), the efficiency of machines, and Overall Process Efficiency (OPE), the efficiency of processes, such as manual work. OPE and OEE both require reliable data on availability, speed, and quality. Problem is that most companies do not measure those parameters in a continuous, reliable manner. Efficiency scores are often misleading and trigger wrong responses, driving spot-optimizations at the expense of the overall value chain performance.
Factory Efficiency Example
A factory operates single shift, 8 hours a day. Machines run 6 hours in average per day and are down 2 hours for changeover and maintenance. Availability of equipment is 75%. Machines are designed to process 100 parts per hour but their actual running speed was deliberately reduced to 80 parts per hour due to lower grade raw materials used. The resulting speed is 80% relative to the maximum possible speed per specification. Out of 100 units started, 92 units pass through all processes the first time. Rolled throughput or ‘single-touch’ yield is 92%. This means that 8% units are left for rework, repair, and scrap. With these data we can now calculate OEE, the product of availability, speed, and quality: OEE = 75% x 80% x 92% = 55%.
Human Efficiency Example
Measuring overall processes efficiency (OPE) follows the same principles as measuring overall equipment efficiency (OEE). It requires data on availability, speed, and quality. Let’s look at an example: a worker is paid 8 hours a day of which he spends one hour for breaks, chats, coffee, bathroom etc. His availability for work is 88%. The best operator is capable to finish 22 units per hour under perfect conditions, while our operator finishes 16 units per hour. His speed is 73% relative to the peak performer. During the day our operator finishes 112 units of which 101 worked perfectly the first time, while 11 of 112 had to be ‘touched-up’, repaired and processed a second time. First pass quality is 90%. We can now calculate OPE, the product of availability, speed, and quality: OPE = 88% x 73% x 90% = 58%.
Most businesses run at an overall efficiency level below 50%, while best manufacturers operate at 80% or even above. World-class efficiency is considered 90% in Japan and 80% in Europe and in the United States.
Scoring Efficiency without Data
Without solid data on availability, speed, and quality, we need to employ a more qualitative approach to determine efficiency. We need to assess how the business is configured and how time, materials, effort, and assets are used to meet the demands of the customers. To benchmark efficiency, we need to score conservation level, functional coverage, strategic alignment of efficiency improvements efforts, the effectiveness of controls, capability of costing model, type of efficiency measurements, overhead application approach, degree of value-add, and effectiveness of waste reduction method.
Efficiency Check-1: Conservation
Conserving resources is the easiest way to start. Are people aware how many resources are currently consumed? Just by implementing a conservation policy and making data transparent raises awareness, leading to several percentage points in savings just through simple conservation actions.
Efficiency Check-2: Implementation
What method is used to avoid waste and conserve materials and energy? Which functions are involved? Is it just production or all functions across the value-chain, including Sales, Engineering, and Logistics? The most effective way to drive efficiency improvements is when programs are anchored in a ‘Going Green’ strategy and cascaded down to all functions and levels.
Efficiency Check-3: Controls
Efficiency can only be improved once it is continuously measured and managed. How is efficiency monitored and performance displayed? Directly measured or calculated from other metrics? Are standards established for labor, material, and quality? To go beyond average efficiency levels, standards must cover Bill-Of-Materials (BOM), Bill-Of-Activities (BOA), as well as Non-Performance-Costs (NPC) to account for returns, repairs, and rework.
Efficiency Check-4: Costing
Efficiency translates into money, producing more with the same resources or producing the same with fewer resources. How is cost managed? How is direct labor assigned, fixed or by actual consumption? Activity-Based-Costing (ABC) allows managers to reduce rate and amount.
Efficiency Check-5: Overhead
As plants become leaner and more productive, overhead grows to the largest expense category. Managing administrative costs is one of the largest, often untouched, opportunities to improve business efficiency. Which overhead activities are really required? Which add value? Are overhead activities classified and standardized the same way as they are for direct labor? How is overhead cost assigned? Fixed, as a percentage of direct labor, per allocation key, or by actual consumption? To improve overhead efficiency, the same principles must be applied as in direct labor operation in lean factories – rigorous standardization and systematic reduction of waste, frequency, and amount.
Efficiency Check-6: Value-Add
Value is ‘what customers are willing to pay for’. What level of value-add (VA) is currently being created? Calculate VA%, the value-adding cycle times divided by total lead time. Lead times of manufactured goods are often several weeks while it takes just minutes to produce them. In traditional manufacturing, 99.9% of items are waiting to be worked on or moved to the next station; only 0.1% during the lead-time is used to add value.
Efficiency Check-7: Waste-Reduction
The concept of value and waste is fundamental for improving efficiency. How many people are able to identify waste in their area? What methods are applied to reduce such waste? Is the knowledge solid or more superficial? How many people are trained to “see waste”?
Assess operating efficiency now; it’s FREE and just takes 7 minutes to get your score relative to world-class benchmarks.
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