Overall Asset Effectiveness

Eight years ago when I was working at KBC (now part of Yokogawa), whose primary consulting focus was on operational excellence (now called OpX), I had an idea to develop an all-encompassing metric that would measure or represent operational excellence. I assembled my ideas in a PowerPoint, but never elaborated it in more written detail. So now I have done so in this article.

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Eight years ago when I was working at KBC, whose primary consulting focus was on operational excellence (now called OpX), I had an idea to develop an all-encompassing metric that would measure or represent operational excellence. At that time, I was leading KBC’s effort for the Petroecuador refinery modernization project in Esmeraldas, Ecuador so my perspective is that from the large continuous, asset-intensive industries, though I don’t see why it cannot apply equally to other process industry segments. I called it Overall Asset Effectiveness and defined it as a measure of actual asset performance over time. And by asset performance, I wasn’t just referring to equipment and process, but also to people (more on this later). Thus, I offered the following equation:

OAE = f (Maximum Asset Potential x Utilization x Sustainability)

where its major components are:

Maximum Asset Potential = f (Process, Energy, Environmental, Technology)

Utilization = f (Availability x Throughput x Quality)

Sustainability = f (Operational Readiness, Organizational Efficiency & Effectiveness)

I elaborated on these definitions as follows:

Maximum Asset Potential (MAP)

The realistic potential performance of the system as established by physics, subject to energy and environmental constraints/objectives, and limited by technology selection.

Utilization

The product of availability times throughput (actual use) times quality, where quality may be defined as meeting minimum specifications, a range of tolerances, and/or giveaway limits. Don’t forget that we need to include process availability too (the chemical type, not business).

Sustainability

Defined as a function of operational readiness, or how ready and capable the workforce is to execute the operating strategy and plans; and organizational efficiency and effectiveness, or how well the organization actually delivers. Inherent in this definition is that safe operations are the number one objective. Note for the purposes of the OAE calculation that Environmental, Heath & Safety (EHS) is included in the MAP component, and not in Sustainability.

As you can see, I mimicked and expanded on the OEE concept. Note also that I have purposely kept the definition of sustainability narrow, rather than the much broader definition we have today. One could call it Scope 1 Sustainability. I wanted to bound the definition on those things that the operating company can fully control.

I thought the term might be unique, but a little research revealed that in 2009 Booz & Co. introduced a similar term for the process industries … Overall Asset Contribution (OAC), which consists of:

·????????Utilization, or actual run time;

·????????Throughput, or actual output per hour;

·????????Acceptance, or quality of produced items;

·????????and the contribution of technology

Figure 1 - Overall Asset Contribution

However, I found shortcomings in the Booz concept and metric:

1.??????It did not address the human element so critical to sustaining performance.

2.??????Nor did it take into account the asset’s Maximum Asset Potential (MAP).

Instead, Booz uses the “Best Demonstrated Output” or BDO.

BDO is the typical management consulting approach that compares the actual performance to the best available case, identifying the ‘gaps” and then implementing a program to drive consistent “Best-Demonstrated Output” performance. In other words, the market leader or best performer is the benchmark to which all others are compared. Hence, while BDO is valuable … it lacks grounding in physics, in which the MAP may well be much higher than the BDO. Nor does it identify all constraints to improvement.

What About Solomon?

Solomon Associates’ benchmark ranking measures many things, including some in great detail, but the understanding is that it is essentially a comparative ranking of actual performance vs. industry BDO and not MAP, nor at the time did it measure the human element either.

Furthermore, many assets cannot be easily compared, if at all, against other companies’ assets, only against their MAP and then ranked as potential value additions across the same company’s portfolio.

Refineries, petrochemical processes (e.g., ethylene crackers), pipelines and terminals, and thermal generation utilities may lend themselves to a reasonable set of classifications (e.g., Nelson Indices for refining complexity, performance quartile comparisons, etc.), but upstream and other downstream industries can be much more difficult to compare internally and externally. Also, if one is the inventor of the process, then one sets the MAP by definition.

Note that since I first developed this metric, Solomon began benchmarking human performance under their Workforce Optimization offering. It leverages Solomon’s proprietary database of operational performance information of 60+ engagements in upstream operations, refining, chemicals, polymers, gas processing, pipelines, terminals, power generation, and integrated operations for over 95 facilities.

Nonetheless, while Solomon may report on their four main indicators: Operational Availability (OA), Energy Intensity Index? (EII?), Maintenance Cost Efficiency Index? (MEI?), and Return on Investment (ROI), I have never seen them attempting to capture overall performance in one metric. Perhaps if this article catches the eye of Solomon, they can comment accordingly.

So How Would OAE Function?

First, we need to define the contributing factors to the major components.

MAP is the physical capacity of the asset, but we need to find a way of balancing the contributing factors, including technology perhaps reflected as BAT or Best Available Technology, which may or may not be economically justified. MAP can be assessed through modeling and simulation compared to actual performance. With the emergence of digital twins, some of the work may already be done. And if we look at discrete manufacturing, for example, the entire CAD/CAM, PLM, control systems, and production lines can be simulated during design as well as for comparison once the line is in actual operation. We rarely do this in the process industries, but with newer digital technologies able to model the entire asset lifecycle digital thread, the process industry is catching up to what can be done in discrete.

On the other hand, Utilization is a relatively easy metric in widespread use. Note that while I have mimicked OEE to an extent, I have consciously stayed away from using OEE as the measure of utilization as it can be misleading.

And there’s the Sustainability component where we would need to develop the contributors in more depth. For starters two are proposed:

·????????Operational Readiness

·????????Organizational Efficiency and Effectiveness

Do we need more? And just how detailed do we make this effort especially when there are no accepted industry standards? Solomon could construct one using its proprietary database. No doubt other consultants as well as the operating companies themselves could produce such a matrix. Weighting the various factors will also be a challenge.

The questions behind Operational Readiness are simple, “Do we have the organization and workforce that can get it done (safely)? Do we have the right level of personnel in the right positions, properly trained and equipped, and able to do the right things the right way at the right time? If not, what are the consequences of the capability gap? And what are we doing about it?”

Operational Readiness has always been important but today we are in transition, losing senior personnel to retirement and adding digitally oriented junior personnel that no longer stay 20+ years with the same company. And there is no line of people waiting to work in the less-than-green process industries. The talent issue is the single biggest challenge operating companies face. As we found out when I was working at LNS, the leading transformational companies are hard at work on this issue.

For example, a competency matrix for a process engineer in plant technical services might look like this:

Figure 2 - Example Simplified Competency Matrix

In addition, Best Practice processes, policies, and procedures must be in place to guide the work. The Association for Supply Chain Management (APICS) Supply-Chain Operations Reference (SCOR) model provides a framework and metrics translatable to the company's situation and covers many of the areas that Solomon’s continuous process manufacturing operational focus does not adequately address, for example, to name a few:

·????????Materials sourcing and procurement

·????????Inbound and outbound logistics

·????????Inventory and warehouse management

·????????MRO optimization

·????????Sales and operations planning

When looking at Operational Efficiency and Effectiveness, many of the traditional Solomon and APICS/SCOR metrics apply across the value chain, so there is no shortage of metrics to consider.

But here is where I think we need to be careful not to have too many metrics or we will never reach an agreement on the major components of OAE.

OAE Benefits

What would be the advantages and benefits of OAE? First, OAE ties together the factors that we know to be true from years of operating experience. It provides a true time-based measure of asset performance. Second, it integrates technology and consulting, though there are still some gaps to fill. Third, it works equally well upstream and downstream, noting that refining, petrochemicals, chemicals, and utilities have long been benchmarked. And, it can be easily extended to hybrid/batch and discrete industry segments. So why not OAE?

Epilogue

The purpose of this article is to generate dialogue around an idea that I had in 2014. Was it a new idea? I doubt it. Does it make sense and is it workable? I don’t know. Measuring Overall Asset Effectiveness is a relative metric and faces simar challenges that we have in measuring risk ... what factors do we include and how should they be weighted? And yet despite these challenges, we still want to measure both and understand how well we are doing, and how we can do better. Am I pushing a rope or am I on to something? You tell me. If I am on to something, there is surely much more work to be done.

Thanks for reading my article.

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If you would like to read more of my insights into operational excellence and risk, you can find them on the LNS Research website:

https://blog.lnsresearch.com/hs-search-results?term=Joe+perino&type=SITE_PAGE&type=BLOG_POST&type=LISTING_PAGE

And stay tuned as my former LNS colleagues, Allison Kuhn and Peter Bussey, will be completing new Future of Industrial Work for LNS Research members to help manufacturers implement policies to enable a sustainable, workforce. I am looking forward to their findings and insights.

APPENDIX

Overall Equipment Effectiveness (OEE)

Defined as: Uptime (Availability) x Rate x Quality

MTBF = Mean Time Between Failure

MTTR = Mean Time to Repair