On OEE (Overall Equipment Effectiveness)

This article explains the definition of OEE (Overall Equipment Effectiveness) with an example. It might remind you to have a second thought about an OEE monitoring & reporting system or the one you are using or evaluating.

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As Industry 4.0-approaching production gets introduced and adopted more and more in the manufacturing industry, people hear and talk about the abbreviation “OEE” for “Overall Equipment Effectiveness” and OEE monitoring & reporting system more and more frequently in their business and shop floor environments.

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In the manufacturing industry, OEE is used as a performance index to measure the effectiveness of the time spent earning money on a production machine, production line, production cell, production system, or collectively called production equipment. A concise definition of OEE is either of the two as follows:

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<1> OEE is the performance index, in percentage, that quantitatively measures how effectively production equipment utilizes its time to produce parts for sale at a standard production speed (standard work hour, standard output rate).

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<2> OEE is the performance index, in percentage, that quantitatively measures how efficiently production equipment utilizes its time to produce good parts for sale at a standard production speed (standard work hour, standard output rate).

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For example, when a part’s standard work hour from production equipment is 45 seconds per piece while the production equipment produces 550 good parts in total during 12 hours, then the OEE of the production equipment in those 12 hours is [(45x550) / (12x3600)] x 100% = 57.29%.

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For managerial focusing, more frequently, OEE is expressed in the form of the product of three component performance indices, which are the utilization rate of the production equipment, running efficiency of the production equipment, and yield rate produced by the production equipment.

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Equation (1):

Utilization rate:

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The definition of the utilization rate of production equipment - the percentage, in a specific period, that the equipment time occupies to produce manufacturing order parts (including both good and defective), among which the good parts are supposed to be sold and delivered to customers to bring revenue and hopefully profit as well for the company.

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Continuing with the example above, when the tagged equipment running time for a manufacturing order producing parts during 12 hours is 8 hours, then the utilization rate of the production equipment in the 12 hours is (8 / 12) x 100% = 66.67%. ??

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So far, the most reliable way to correctly tag the equipment time specifically running for manufacturing orders is manual. Current sensing technology in Industry 4.0 application in this field is only capable of telling the equipment is either at run or stop state and unable to distinguish whether the equipment’s run time is for a manufacturing order making money or non-money-making works such as engineering test, pilot run for mass production transfer, ineffective process condition trial & error. An OEE monitoring & reporting system claimed to be automatic without the need for human assistance senses the equipment’s run and stop states only and then uses the sensed total run time to calculate its utilization rates, which is mistakenly over-rated and inherently leads to an incorrect OEE analysis result from the very beginning.

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This component performance index directs the company to focus its management on the amount of the equipment’s earning time utilized to make profits and generate the return on the equipment’s investment.?

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Running efficiency:

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The definition of running efficiency of production equipment - the percentage, in a specific utilization time, that the equipment time occupies for producing the total quantity of the parts (including both good and defective) at the production speed of standard work hour (standard output rate).

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The work hour (output rate) of a part refers to the production speed of equipment to produce a single part, which means the amount of equipment time used to output a single part, no matter whether it is a good or defective one.

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The standard work hour (standard production speed, standard output rate) of a part is defined as the fastest production speed that production equipment can perform to produce good parts stably. It means that once the production speed is faster than the standard work hour, the equipment starts producing defective parts.

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The standard work hour of a part should be studied, verified, and determined at the NPI (New Product Introduction) phase at the latest before the project is transferred into the mass production phase. It should be a reasonably challenging number and target to be benchmarked against so that the production team can do their best to maintain the equipment healthy and running in the most efficient state for the long term. ?

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Continuing with the example in this article, in the tagged 8-hour utilization time, when 80 defect parts are also produced in addition to the 550 good parts, then the running efficiency of the production equipment is [(550+80)x45 / (8x3600)] x 100% = 98.44%.

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This component performance index directs the company to focus its management on a part’s standard work hour and the equipment's maintenance so that the equipment can keep running most efficiently when producing parts and does not decay in its service life.

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Yield rate:

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Straightforwardly, the yield rate is generally known as the percentage of the good part quantity produced out of the total part quantity produced. With the example in this article, it is [550 / (550+80)] x 100% = 87.30%.

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From the equipment time utilization point of view, the yield rate has an equivalent definition, which is the percentage of the equipment time used to produce the good part quantity at the production speed of standard work hour out of the time used to produce the total part quantity at the production speed of standard work hour. With this example, it is [550x45 / (550+80)x45] x 100% = 87.30%.

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This component performance index involves quality inspection and pass/fail decisions. Therefore, for an OEE monitoring & reporting system that claims to be capable of real-time monitoring & reporting, the entire production equipment must include an in-line quality inspection device to measure the part quality right after each part is produced and make an immediate quality pass/fail decision for the subsequent real-time data processing and analysis. Some OEE systems might merely do automatic part quantity count and directly assume every part produced is a good part. Some more advanced OEE systems monitor and report variations in some process parameters of equipment instead of direct in-line quality inspection on each part to presume good or defective for each produced part. Logically, as long as the quality inspection team remains to do off-line patrol or final check on the produced parts, we should understand that the present real-time performance is likely to be over-rated and overturned by the off-line quality inspection decision some amount of time later.

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This component performance index directs the company to focus its management on the quality of the produced parts.

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As summarized below, we can re-organize the OEE equation (1) to become equation (2), then transform equation (2) into equation (3), which exactly meets the concise definition of OEE mentioned at the beginning of this article. ??

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Equation (2):

Equation (3):

Ending the example of this article, derived from the equation (1), the OEE= 66.67% (utilization rate) x 98.44% (running efficiency) x 87.30% (yield rate) = 57.29%, which is very the same as derived from the most concise OEE definition [the equation (3)].

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