Thinking of buying an expensive piece of equipment – look at the ‘OEE’ first!

Blogger – Andrew Northmore, Associate Director

Before you sign on the dotted line or hand over your hard earned cash, take the time to calculate the OEE (Overall Equipment Effectiveness) of your existing kit.

Why?

You may not need to add capacity at this time! It may be more cost effective to make better use of the facilities you currently own.

What is OEE?

OEE is a measurement (usually in percentage format) of the amount of time a piece of equipment (or a production line or an entire factory) produces good, sellable product compared to the total amount of time the equipment is theoretically available (usually 24 hours per day for 365 days a year).

OEE is governed by the cumulative impact of three factors – Availability (percentage of total time that a piece of equipment is available for production), Performance (percentage of available production time that the equipment is producing product at its designed speed – this measures inefficient scheduling and downtime) and Quality (percent of total parts produced that are sellable). The OEE percentage is derived by multiplying the ratios for the three factors mentioned above e.g. 70% availability X 80% performance X 90% good parts = 50% OEE.

A low OEE percentage could be due to any number of factors e.g. working less than 24/7, not working through breaks, poor scheduling, inefficient changeovers, quality issues, machine reliability, running out of parts or materials and more. All of which, will affect your bottom line and cause “profit and cash evaporation”!

As you strive towards world class performance in your enterprise, the OEE measure can make an excellent benchmarking tool. Display the measure where your employees can see it – it makes a good motivational technique, leads to a better understanding of equipment utilisation and drives improved performance.

Make the OEE calculation a mandatory item on your Capital Expenditure Proposal checklist!

While we are on the subject of checklists, here are some other things to tick off before you make your decision.

• Does this fit with my Strategic Business Plan and my Resource Requirements Plan?
• Has the Capital Expenditure Proposal been authorised correctly by all stakeholders?
• How many quotes have we obtained? Are we getting the best value (not the same as lowest price)
• How financially secure is my supplier?
• Has the equipment been designed for fast changeovers?
• Do we have a project team and do we have the right people on the project team to cover financial analysis, training and recruitment, facilities, health and safety, environmental considerations, quality, validations, operations etc?
• What are the risks? Changes in customer demand and buying patterns, market shifts, competitor activity and vendor financial security – very important if you are making stage payments or payment with order!
• Are there alternatives?
• Financial analysis – Payback, Internal Rate of Return, Impact on Key Financial ratios – Return On Net Assets, Asset Utilisation etc.
• Funding method – lease, loan or cash?
• And for those who understand these things – has the equipment been designed for 6 Sigma levels of quality and has it been designed for easy TPM (Total Productive Maintenance)?

Protect your profits and protect your cash – you’ve worked hard for it!