How to Calculate Equipment Benefits?
Use the online tool to quantify the financial benefits of machine-centric improvement projects with focus on overall equipment effectiveness (OEE). The following video explains how the calculator works, how to determine the impact of reliability and repeatability on the bottom line.
Impact of OEE Improvements - Financial Modeling
The financial model works for continuous flow production, automated manufacturing, construction, transportation, and utilities. The overall effectiveness is the product of three factors: machine availability, operating speed, and output quality. Improving machine reliability and operating performance creates bottom-line value by selling freed-up equipment to reduce working capital and maintenance costs (use less) or by increase throughput (do more). We will focus on the upside, increasing profits by producing more with the same equipment.
What You Need to Know when Using the OEE Calculator
The financial benefit calculator helps managers, engineers, and controllers to quantify improvement potentials, determine the feasibility of a project, and estimate the return on investment (ROI). Please note that these ‘back-of-envelope calculations’ are based on a simplification of reality. The result is illustrative and depends on the completeness and accuracy of the data entered. This cost calculator is for general information purpose only and not intended to provide specific direction or advice. As each situation is unique, there may be conditions that are not factored into the model. Taking into account the limitations, the financial benefit calculations still provide a great starting point to make quality improvement potentials explicit.
Input Data to Calculate Equipment Effectiveness
- Output: enter number of products or services delivered.
- Profit/Unit: enter profit per output unit in <currency>.
- Utilization: adjust utilization rate relative to operable.
- Availability: adjust availability of equipment to run.
- Performance: adjust average to maximum speed.
- Quality: adjust first-pass quality or throughput yield.
- Results: calculate financials for current & future state.
- Benefit: calculate the financial gain = current – future.
Equipment Effectiveness Cost Model and Formulas
The equipment effectiveness cost model calculates the gap between the current state (with losses) and the ideal state (lossless); formulas applied:
- Equipment Effectiveness (OEE) = Availability x Performance x Quality
- Operations Effectiveness (OOE) = OEE x Utilization
- Loss = Improvement Opportunity = 1 – OOE
- Unit Increase = Opportunity x Output
- Profit Increase = Unit Increase x Profit/Unit
Equipment Performance Data
Equipment Improvement Potential
Definitions and Assumptions to Calculate the Benefits of OEE, OOE, TEEP Improvements
- Overall Equipment Effectiveness (OEE) represents equipment performance relative to planned capacity after downtimes, deviations, slowdowns.
- OEE Calculation: OEE is the product of (a) Availability of machines and systems, (b) Performance or speed relative to capability, (c) Quality of output.
- a) Availability is the percentage of scheduled operating time the equipment is actually available to run after planned and unplanned downtimes.
- b) Performance is the average operating speed relative to the maximum achievable performance per machine specification under ideal conditions.
- c) Quality represents the percentage of output completed in full right first (RFT), passing first time through (FTT) after deducting rework and scrap.
- OEE Example: 80% availability within the schedule x 80% performance relative to specification x 80% first-time quality rate = 51% effectiveness overall.
- OEE = 51% means that the equipment is productive during 51% of the scheduled operating time, after downtimes, slowdowns, and quality losses.
- Overall Operations Effectiveness (OOE) represents actual performance relative to usable capacity after public holidays and imposed restrictions.
- OOE Calculation: product of OEE and Utilization, the percentage of time the equipment is scheduled after shutdowns and idling due to low demand.
- Utilization Example: 250 days operable – 5 days shutdown = 245 days, utilization is 5 / 245 = 98%; OOE = OEE when current capacity is fully utilized.
- OOE = 50% means that the equipment is productive during 50% of the operable time (usable capacity), after public holidays and imposed restrictions.
- Profit Increase represents the financial benefit from maximizing equipment effectiveness and utilization rate, assuming unserved customer demand.
- Equipment Effectiveness Benefit Calculation: the potential financial gain is the product of current loss (1 – OEE), output quantity, and profit per unit.
- Total Effective Equipment Performance (TEEP) represents actual performance relative to theoretical capacity, running non-stop, 24 hours x 365 days.
- TEEP Calculation: TEEP is the product of Operations Effectiveness (OOE) x Operability = Availability x Performance x Quality x Utilization x Operability.
- Operability is to the time the equipment is legally allowed to run during the year; example: 250 days x 12 hours / 365 calendar days x 24 hours = 34%.
- TEEP Example: 50% Operations Effectiveness (OOE) x 34% Operability = 17% TEEP; it means that only 17% of the time the equipment is producing value.
- TEEP Investor View: each hour, equipment adds cost from depreciation and maintenance, only creates value when running, not when idling or down.
Equipment Effectiveness Formulas:
Overall Equipment Effectiveness OEE = Availability x Performance x Quality
Overall Operations Effectiveness OOE = OEE x Utilization
Total Effective Equipment Performance TEEP = OOE x Operability
Availability = Uptime / Scheduled Time
Performance = Average / Top Speed
Quality = First Pass / Total Output
Utilization = Scheduled / Operable Time
Operability = Operable Time / All Time
OEE, OOE, TEEP - What Is the Difference?
Overall Equipment Effectiveness (OEE)
OEE is the most broadly used manufacturing metric to understand and improve equipment performance by reducing downtimes, slowdowns, and defects. It is the gold standard for equipment planning, operations, and asset care. OEE helps you to identify potential losses and improvement opportunities. But there are two more important metrics to improve operations – OOE and TEEP – which use different definitions for availability. For OEE, availability is the time the equipment is scheduled to run, taking into account current limitations and actual customer demand. If there are no orders, machines are shut down, not planned to run.
Overall Operations Effectiveness (OOE)
OOE defines availability as the percentage of time the equipment could run, taking into account public holidays, imposed restrictions, and asset utilization. OOE represents equipment performance relative to usable capacity, regardless of market demand. It is calculated by multiplying OEE with the actual utilization. OOE is the key metric to assess capex-free improvement potentials, assuming maximum utilization and unrestricted demand. The financial benefit model (above) for equipment performance is based on OOE to calculate incremental output and incremental profit when operating at maximum equipment utilization and effectiveness.
Total Effective Equipment Performance (TEEP)
TEEP defines availability as the percentage of time the equipment could theoretically run: 24 hours a day, 365 days per year. TEEP represents equipment performance relative to theoretical capacity, regardless of demand and restrictions. TEEP is used by investors to compare investment options and manufacturing footprint optimizations, comparing total effective equipment performance when operating in different locations and countries. For example, an assembly plant located close a residential area might only be legally allowed to run 12 hours x 250 days = 3000 hours per year, while the same factory could run non-stop, 24 hours x 365 days = 8760 hours per year at a different location. The leverage in capacity by relocating the factory is 8760 / 3000 = 2.92x.
Case Study: Laundry Equipment OEE, OOE, TEEP – Incremental Profits from Improving Effectiveness
- A commercial laundry is open for business 1 shift x 8 hours x 4 days = 32 hours per week to satisfy customer demand at current capacity.
- During 32 hours open-time, the equipment is loaded and unloaded for 8 hours and requires 4 hours cleaning time, actually running 22 hours.
- The equipment is capable to wash 100 kg per load, but because customer orders are packed in separate bags, only 90kg can run per load.
- After washing, in average, 3 of 100 orders are not spotless and require an additional cleaning cycle, making first-pass quality = 97 / 100 = 0.97 = 97%.
- Current equipment performance: Availability = 22 / 32 = 0.69, Speed = 90 / 100 = 0.90, Quality = 97 / 100 = 0.97. OEE = 0.69 x 0.90 x 0.97 = 0.60 = 60%
- The same laundry equipment could legally operate 2 shifts x 8 hours x 5 days = 80 hours per week when scheduled at full usable capacity.
- Equipment performance relative to usable capacity: Utilization = 32 / 80 = 0.40, making OOE = OEE x Utilization = 0.60 x 0.40 = 0.17 = 24%.
- In theory, without any restrictions, the laundry could operate 3 shifts x 8 hours x 7 days = 168 hours per week, which is the theoretical capacity.
- Equipment performance relative to theoretical capacity: Operability = 80 / 168 = 0.48, making TEEP = OOE x Operability = 0.24 x 0.48 = 0.08 = 11%.
- The current operating loss is 1 – OOE = 1 – 0.24 = 0.76; lost time is 80 hours operable x 0.76 unutilized capacity = 61 hours available to wash more.
- Profitability is $2/kg and 90kg can be processed per hour, so the equipment could generate additional profits: $2 x 90kg x 61h = $10,980 per week.