Viewpoints: Consider the Downside of OEE
There's a great deal wrong with OEE (overall equipment effectiveness). OEE comes up short as an equipment management device, and is poorly cast as a centerpiece of total productive maintenance (TPM). Moreover, linking OEE to lean is perverse.
The OEE calculation, by now well known, is: availability rate times production (or efficiency) rate times quality rate. The first two elements, availability rate and production rate, are in conflict with lean's essence: Produce/deliver just what the next process requires.
In most industries, the next process wants variety, which lean provides primarily through quick changeover. Managers know just what to do to achieve high availability and OEE scores: Go for fewer time-consuming changeovers. That means longer production runs and more units than needed at next processes, requiring storage of the excess. Lean loses.
Lean expert Michael Baudin points to another demerit of availability. He notes that a machine's primary role may be "event response," which it cannot fulfill "if it is busy with routine production 100% of the time." Then, he says, "100% utilization translates to 0% availability," ensuring that prototyping, product development, tool and die work, and so on cannot find machine time. More generally, if a producer's niche is quick customer response, it cannot tolerate high machine utilization/availability rates.
Much of the leadership in the lean community, including lean accounting, has long argued that the machine-utilization metric is anti-lean and should be scuttled. Few, however, have gotten around to saying the same thing about the availability metric. That is unlikely to last since, as Baudin shows us, what's wrong with utilization is also wrong for availability, and OEE.
Lean's mandate, to make/deliver what the next process wants, is compromised by the productivity component of OEE. If the machine's capacity is 200 units/hr but customers' needs add up to just 100, the machine must make just 100—and stop. That yield's a miserable 50% productivity rate. But that is good (lean), not bad (fat).
Total productive maintenance is often held up as an adjunct to lean manufacturing. As such, for reasons already given, TPM is ill-served by OEE—at least as an ongoing performance metric. OEE does, however, have a positive attribute: shock value. A producer's initial calculation of OEE may be compared with OEEs for similar companies. The (likely) large gap says to the CEO, president, or general manager: Our competitiveness is badly compromised by the sad state of our equipment and facilities. Help!
History provides a like example. In the early 1980s, Western manufacturers were getting hammered by leading Japanese producers, largely for quality reasons. Quality beacons Philip Crosby and Armand Feigenbaum provided the prod our financially driven leaders needed. They advised companies to calculate their cost of (bad) quality—the sum of the costs of internal failure, external failure, quality appraisal, and prevention. Commonly, cost of bad quality turned out to be a double-digit percentage of total sales revenue.
Overall equipment effectiveness has strong word appeal, as do its three components: availability, productivity, and quality.
Every company would like its equipment to be highly available to serve customers. But expressing availability as a rate creates a dilemma. There is no right rate. Too low means equipment is down excessively—a costly waste. Too high, and demands become backorders; customers defect, and earnings are lost. By-the-numbers management cannot work when there is no correct number.
With productivity rate, it seems that high is good, higher better. The problem is that, in application, productivity always invites gamesmanship and, as an element of OEE, conflict. What do supervisors do when pressed for higher productivity? They crack the whip, extend production runs, forego training, and never mind the growth of unneeded inventory. And they put off preventive maintenance—the ultimate offense, given prevention's central role in OEE,TPM, and lean.
With quality rate, the unimpeachable ideal is 100% good, zero defective. But quality rate is composed of many quality variables. Combining them into a single number shifts attention away from multiple root causes in need of correction and toward an abstract number.
As mentioned earlier, once quality management has been established in the trenches, trying to manage it at a distance with high-order numbers becomes a redundant distraction.
For companies new to lean and TPM, OEE may be able to serve the useful role of awakening management. Aside from that, it's time to turn off OEE, since its numbers are wobbly, application redundant, and effects perverse.
This article was first published in the December 2008 edition of Manufacturing Engineering magazine.