Overview:

Overall Equipment Effectiveness (OEE)

By David Gustovich and Chris Visnic

IQity Solutions, LLC
3000 Stonewood Drive, Suite 120
Wexford, PA 15090
(724) 933-6133

www.iqitysolutions.com

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Executive Summary
Does your production have variability that you cannot explain?
Could automation equipment be a bottleneck that is driving variability and waste in your
manufacturing process?
Can the equipment in your operation achieve more capacity that could be easily and
inexpensively tapped?

Overall equipment effectiveness (OEE) is a hierarchy of metrics which focus on how effectively a
manufacturing operation is utilized. The results are stated in a generic form which allows
comparison between manufacturing units in differing industries. OEE measurement is also
commonly used as a key performance indicator (KPI) in conjunction with lean manufacturing
efforts to provide an indicator of success. This paper will present the basics of OEE and how to
calculate it in a real world manufacturing operation.

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Table of Contents
What is OEE? 4
Availability 4
Performance 4
Quality 4
OEE: Sources of Business Loss 6
Downtime Loss 6
Speed Loss 6
Quality Loss 7
Summary 8
Six Big Losses 9
Definition 9
Corrective Actions 10
Equipment Breakdowns/Failures 10
Equipment Idle Time 10
Minor Equipment Stops and Reduced Speed 10
Startup Rejects and Production Rejects 10
OEE Calculation 11
OEE Formula 11
OEE Calculation Example 12
World Class OEE 13

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What is OEE?
OEE is a "best practice" for quantifying, monitoring and improving the effectiveness of your
manufacturing processes (i.e. automation equipment, manual labor, etc.). OEE shows the
effectiveness (in percentage) of actual versus ideal performance of the manufacturing
operation. The OEE metric starts with the idea of Theoretical Operating Time which is the
maximum amount of time that a facility could be open and available for the manufacturing
process to produce. From Theoretical Operating Time, you subtract a category of time called
Scheduled Shutdown, which includes all the events that should be excluded from efficiency
analysis because there is no intention of running production. The leftover available time is the
Loading Time and the OEE calculation begins with it.

OEE takes the most common and important sources of manufacturing business loss and
categorizes them into three main areas:

 Availability –Availability takes into account Downtime Loss, which includes any events
that stop planned production for a relevant length of time (several minutes or long
enough to be defined as an Event). Examples include equipment failures, material
shortages, and changeover time. Changeover time is included in OEE analysis, since it is
a form of downtime. Although it is not currently possible to eliminate changeover time,
it can be minimized. The remaining available time is called Operating Time. Availability
is a percentage and is calculated by dividing the Operating Time by the Loading Time.

 Performance – Performance is a percentage and is calculated by the number of actual

products (Actual Output) processed divided by the theoretical maximum products
(Theoretical Output) that could be processed in the Operating Time. Performance takes
into account Speed Loss, which includes any factors that cause the process to operate at
less than the theoretical maximum rate. Examples include machine wear, sub-standard
materials, operator inefficiency, etc. The remaining available time is called Net
Operating Time.

 Quality – Quality is a percentage and is calculated by the amount of good products

processed (Good Output) that pass manufacturing quality standards divided by the total
number of products processed, or the Actual Output. Less than 100% Quality Rate
indicates Quality Loss. Quality takes into account Quality Loss, which accounts for
produced units that do not meet quality standards, including units that require rework.

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 The remaining time is called Full Productive Time. The goal of all operations is to
maximize Full Productive Time.

OEE quantifies areas of loss to provide a gauge for measuring the performance of the current
operational environment and where to focus the efforts of the operations team for
improvements that contribute directly to operating income. OEE is frequently used as a key
metric in Lean Manufacturing programs. It provides a consistent way to measure the
effectiveness of Lean and other initiatives by providing an overall framework for measuring
operational performance.

This white paper will cover the following main topics:

1. OEE: Sources of Business Loss – The primary drivers of business loss within the three
OEE components.

2. Six Big Losses – Manufacturing processes have six common types of waste, better
known as the Six Big Losses. The Six Big Losses distinguish the most common causes of
business loss in a manufacturing operation.

3. Calculating OEE – The calculation of OEE is illustrated and World Class OEE is defined.

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OEE: Sources of Business Loss
The three primary components of loss within OEE are: Availability, Performance and Quality
which were already defined. The primary drivers of business loss within these three OEE
components are:

 Downtime Loss – Downtime loss is defined as the time during which automation
equipment should be producing, but is not. It refers to two sources of loss:

1. Equipment Breakdowns/Failure – A sudden and unexpected equipment

breakdown or failure results in loss of production time. The cause of the
malfunction may be technical as well as organizational (i.e. operational error,
poor maintenance, etc.). OEE measures the way the breakdown manifests
itself.

2. Equipment Idle Time – Setup and adjustment time where the equipment is idle.
The equipment can be idle for many reasons (i.e. changeover, maintenance or
work breaks). In the case of a changeover, the equipment usually has to be shut
down for some time in order to change tools, dies, or other parts. SMED (Single
Minute Exchange of Die) defines the changeover time as the time between the
last good product of the previous series and the first good product of the new
series. For the OEE, the changeover time is the time when the machine does
not generate any products.

3. Manufacturing Line Restraint – Equipment idle time due to material supply and
transport (conveyor) problems in a production line, or a series of linked
manufacturing processes, is classified as manufacturing line restraint.

 NOTE: Because stoppages in this category originate somewhere in the

production line and not in the equipment itself, this category of loss can
be left out of the OEE measurement of the equipment.

 Speed Loss – Speed loss implies that the equipment is operating, but not at its
maximum theoretical speed. There are two types of speed losses:

1. Reduced Equipment Speed – Reduced speed is the difference between the

actual set speed and the theoretical or design speed. There is often a
considerable difference between what an operator believes is the equipment’s
maximum speed versus the theoretical maximum speed. In many cases, the
production speed has been optimized in order to prevent other losses such as
quality rejects and breakdowns. Losses due to reduced speed are, therefore,
often ignored or underestimated.

2. Minor Equipment Stops – When equipment has short interruptions and does
not deliver constant speed then a smooth flow of production does not occur.

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 These minor stops manifest subsequent losses of speed and are generally
caused by small problems, such as product units blocking sensors or getting
stuck in conveyor belts. These frequent slowdowns can drastically diminish the
effectiveness of equipment.

 NOTE: In theory, minor stops are a type of time loss. However, being
very short (usually shorter than 5 minutes) they are not frequently
registered as a time loss in the calculation of OEE.

 Quality Loss – Loss of quality occurs when equipment performance contributes to

products that do not satisfy the company’s defined quality criteria the first time through
the manufacturing process. Two types of quality losses are distinguished:

1. Scrap – Scrap are those product units that do not meet the quality specifications
even if they can be sold as “sub-spec.” The objective of every manufacturing
operation is to have “zero defects” and thereby manufacture quality products
the first time. A specific type of quality loss is the start-up loss. This loss is
defined by:

 Instability in production when the equipment is started up causing the

initial product units to not meet quality specifications

 Production at the end of a production run is not stable and the products
no longer meet quality specifications

 Product units which are no longer counted as part of the production

order and, consequently, are considered a loss

These are usually hidden losses and are often considered to be unavoidable.
However, the magnitude of these business losses can be significant.

2. Rework – Reworked product units do not meet the quality specifications the
first time through the process, but can be reprocessed into good products.
Reworking products may not seem to be a loss because the product unit can still
be sold at the normal price. However, the product unit was not right the first
time and is therefore a registered as quality loss just like scrap.

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Summary – OEE: Sources of Business Loss

OEE Loss OEE Component

Scheduled  Typically, not included in the OEE calculation.

Shutdown  Loading Time = Theoretical Operating Time – Scheduled Shutdown Time

 Availability is the ratio of Operating Time to Loading Time

 Operating Time = Loading Time - Downtime Loss
Downtime
 Calculated as the ratio of Operating Time to Loading Time.
Loss
 100% Availability means the process has been running without any recorded
stops.

 Performance is the ratio of Net Operating Time to Operating Time

 Net Operating Time = Operating Time - Speed Loss
 Calculated as the ratio of Ideal Cycle Time to Actual Cycle Time, or alternately
Speed Loss
the ratio of Actual Run Rate to Ideal Run Rate.
 100% Performance means the process has been consistently running at its
theoretical maximum speed.

 Quality is the ratio of Full Productive Time to Net Operating Time

Quality  Full Productive Time = Net Operating Time - Quality Loss
Loss  Calculated as the ratio of Good Product Units versus Total Product Units.
 100% Quality means there have been no rejected or reworked product units.

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Six Big Losses
One of the major goals of any manufacturing operation is to minimize the Six Big Losses. The
following table lists the Six Big Losses, and shows how they relate to losses in OEE.

Six Big Loss OEE Loss

Event Examples Comment
Category Category
There is flexibility on
• Tooling Failures where to set the
threshold between an
Equipment • Unscheduled Maintenance
Downtime Loss Equipment Breakdown
Breakdowns/Failures • General Breakdowns (Downtime Loss) and a
• Equipment Failure Minor Equipment Stop
(Speed Loss).
• Setup/Changeover This loss is often
• Material Shortages addressed through Lean
Equipment Idle Time Downtime Loss • Operator Shortages Manufacturing setup
• Major Adjustments time reduction
• Warm-Up Time programs.
• Obstructed Product Flow Typically only includes
• Component Jams stops that are under five
Minor Equipment Stops Speed Loss • Miss-feeds minutes and that do not
• Blocked sensor require maintenance
• Cleaning/Checking personnel.

• Rough Running Anything that prevents

the process from
Reduced Equipment • Below Theoretical Capacity
Speed Loss running at its theoretical
Speed • Equipment Wearing maximum speed (a.k.a.
• Operator Inefficiency Ideal Run Rate).
• Scrap
Rejects during startup in
• Rework
early production.
Startup Rejects Quality Loss • In-Process Damage
Possible causes are
• In-Process Expiration improper setup, etc.
• Incorrect Assembly
• Scrap
• Rework Rejects during steady-
Production Rejects Quality Loss
• In-Process Damage state production.
• Incorrect Assembly

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Corrective Actions for the Six Big Losses
Performance optimization systems that combine Business Intelligence, Operational Intelligence,
and Human Intelligence via data collection (from all levels of the enterprise) facilitate very
accurate analyses of OEE. The first step in creating actionable intelligence that drives
profitability is to collect data from automation equipment and manual labor in the
manufacturing process. The closer to real-time that data is collected and synthesized into
actionable intelligence, the quicker the corrective steps can be taken to drive out variability and
waste, thereby maximizing operating income.

Equipment Breakdowns/Failures
Eliminating unscheduled downtime is critical to improving OEE. Other OEE Factors cannot be
addressed if the process is halted. It is important to know how much downtime your process is
experiencing and when it happens. It is also important to be able to attribute the lost time to
the specific source or reason for the loss (i.e. Reason Codes). If Downtime Loss and Reason
Code data are tracked, then Pareto Charts can be created that correlate the significant few
process variables that drive the downtime events.

Equipment Idle Time (Setup and Adjustments)

Equipment Idle Time is generally measured as the time between the last good product unit
produced before setup to the first consistent good units produced after setup. This often
includes substantial adjustment time in order to consistently produce product units that meet
quality standards. Tracking setup time is critical to reducing this loss, together with an active
program to reduce this time, such as the SMED (Single Minute Exchange of Dies) program.

Minor Equipment Stops and Reduced Speed

Minor Stops and Reduced Speed are the most difficult of the Six Big Losses to monitor and
record. Cycle Time Analysis should be utilized to quantify and track these loss types. In most
processes that record data for Cycle Time Analysis there must be automation. By comparing all
completed cycles to the Ideal Cycle Time and filtering the data through a Minor Stop Threshold
and Reduced Speed Threshold the errant cycles are categorized for analysis. The reason for
analyzing Minor Stops separately from Reduced Speed is that the root causes are typically very
different.

Startup Rejects and Production Rejects

Startup Rejects and Production Rejects are differentiated, since the root causes are frequently
different between startup and steady-state production. Production units that require rework of
any kind should be considered rejects. Tracking the timing of reject events during a shift can
highlight potential causes and/or trends. Six Sigma drives the goal of achieving a defect rate of
less than 3.4 defects per million “opportunities” and is used to focus attention on a goal of
achieving ”near perfect” quality.

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OEE Calculation
The OEE calculation is based on the three OEE Factors of Availability, Performance, and Quality.
If there are no losses then the OEE equals 100%, or the “ideal” automation equipment. The
product of these three factors equals the OEE value:

OEE = Availability Rate x Performance Rate x Quality Rate (%)

Elements of OEE Calculation Element Formula
Availability Rate (%)
=
Availability Rate
Operating Time / Loading Time
Availability Rate is the time the equipment
=
is actually producing products versus the
Operating Time / (Operating Time – Unscheduled Time)
maximum theoretical time that it could
=
have been producing. Less than 100%
[(Operating Time – Unscheduled Time) –
Availability Rate indicates Downtime Loss.
(Breakdowns + Idle Time + Line Restraints)] /
(Operating Time – Unscheduled Time)
Performance Rate
Performance Rate is the actual output
compared to the maximum theoretical
Performance Rate (%)
output (expected output given the
=
theoretical maximum speed of the
Actual Output / Maximum Theoretically Output
equipment and the actual production
time). Less than 100% Performance Rate
indicates Speed Loss.
Quality Rate Quality Rate (%)
Quality Rate is the good output (amount of =
good products) compared to the actual Good Output / Actual Output
output. Less than 100% Quality Rate =
indicates Quality Loss. [Actual Output – (Scrap + Rework)] / Actual output

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OEE Calculation Example
The table below contains hypothetical shift data, to be used for a complete OEE calculation,
starting with the calculation of the OEE Components of Availability, Performance, and Quality.
Note that the same units of measurement (in this case minutes and units) are consistently used
throughout the calculations.

Item Data
Shift Length 8 hours = 480 min.
Short Break 1 @ 15 min. = 15 min.
Meal Break 1 @ 45 min. = 45 min.
Downtime 60 minutes
Ideal Run Rate 90 units per minute
Total Units 29,999 units
Reject Units 229 units

Preliminary Calculations
Loading Time = Shift Time – Break Time = 480 – 60 = 420 Minutes
Operating Time = Loading Time – Downtime = 420 – 60 = 360 Minutes
Good Units = Total Units – Reject Units = 29,999 – 229 = 29,770

Availability = Operating Time / Loading Time

 Operating Time = Loading Time – Unscheduled Downtime
= 420 – 60 = 360 Minutes
 Availability = 360 / 420 = 85.7%

Performance = (Total Units Processed / Operating Time) / Ideal Run Rate

 (Note: The basis is Total Units processed, not Good Units processed. The Performance
metric does not penalize for Quality.)
 Total Units Processed / Operating Time = 29,999 / 360 = 83.33
 Performance = 83.33 / 90 = 92.6%

Quality = Good Units Processed / Total Units Processed

 Good Units = Total Units – Reject Units = 29,999 – 229 Good Units
 Quality = 29,770 / 29,999 = 99.2%

OEE Example
 Availability of 85.7%
 Performance is 92.6%.
 Quality is 99.2%.
 OEE = 85.7% x 92.6% x 99.2% = 78.7%

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World Class OEE
In practice, the generally accepted World Class goals for each OEE Component are quite
different from each other, as is shown in the table below.

OEE Components “World Class” OEE

Availability 90.0%
Performance 95.0%
Quality 99.9%
OEE 85.0%

Worldwide studies indicate that the average OEE rate in manufacturing plants is 60%.
Therefore, there is room for improvement that can result in $MM’s to the Company’s bottom
line.

About the Authors: David Gustovich is Founder and President, and Chris Visnic is Vice President
of Account Management, of IQity Solutions, LLC. IQity Solutions offers a cloud-based Operations
Performance Management platform for manufacturers that provides real-time visibility into the
true costs of plant performance and quantifies hidden value – equipping companies to better
control variation, deepen cost reductions, and increase capacity and profits. For more
information, contact IQity Solutions at (724) 933-6133 or visit www.iqitysolutions.com.

© Copyright IQity Solutions 2012

IQity Solutions
3000 Stonewood Drive, Suite 120
Wexford, PA 15090
724-933-6133
www.iqitysolutions.com

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