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What is the best metric for improving manufacturing productivity?

The best metric for measuring improvements in manufacturing productivity for most applications is OEE (Overall Equipment Effectiveness). OEE is particularly effective for manufacturing processes where throughput is primarily constrained by equipment.

Even better – follow this best practice. Measure OEE with a breakdown of OEE losses into the Six Big Losses and a further breakdown of OEE Availability Loss into Down Time Reasons. This will provide you with an excellent information foundation.

A word of caution. While it is possible to drive significant improvements by focusing on a single metric, it’s important to maintain a balanced scorecard of metrics. For example, focusing solely on OEE can lead to overproduction (e.g., increasing the size of product runs by reducing the number of changeovers) or overspending (e.g., adding operators to increase throughput of equipment).

So while it is a best practice to use OEE as a primary productivity metric, it should always be balanced with other metrics to provide a full view of your business.

What is the difference between OEE and TEEP?

OEE (Overall Equipment Effectiveness) measures equipment effectiveness during Planned Production Time. The simplest way to look at OEE is as the ratio of Fully Productive Time to Planned Production Time. If your OEE score is 100% then you are making only good parts, as fast as possible, with no stops, during Planned Production Time.

TEEP (Total Effective Equipment Performance) measures equipment effectiveness during all time (24/7). It takes into account both equipment losses (as measured by OEE) and schedule losses (as measured by Utilization). The simplest way to look at TEEP is as the ratio of Fully Productive Time to all time (24/7). If your TEEP score is 100% then you are making only good parts, as fast as possible, with no stops, around the clock.

Measuring TEEP tells you how much capacity is waiting to be unlocked in your “hidden factory”. In other words, it shows how much potential you have to increase throughput with your current equipment. In many cases, reclaiming time from your hidden factory is a practical and preferred alternative to capital outlays for new equipment. TEEP is also often used to get a sense of your potential sales capability as it takes into account the full capacity of your manufacturing plant. Keep in mind though, that even a world-class manufacturing plant typically achieves only 80% to 90% utilization of this capacity.

Some plants also calculate Mechanical Efficiency as a measure for how reliably the equipment runs when it is supposed to be running. Mechanical Efficiency differs from OEE in that Planned Stops, such as Changeovers, are excluded. In other words, from a Six Big Losses perspective, Mechanical Efficiency includes Unplanned Stops, Small Stops, Slow Cycles, Production Defects, and Startup Defects, while it excludes Planned Stops. Mechanical Efficiency is often used as a KPI (Key Performance Indicator) for engineering teams that are not held accountable for Changeover Time and other Planned Stops.

What is the difference between Labor Efficiency and Mechanical Efficiency?

Labor Efficiency (often referred to as Labor Productivity) is a measure of Throughput per Labor Hour. It is a particularly useful metric for manufacturing processes where changing the number of personnel directly affects production output (e.g., assembling products by hand).

Mechanical Efficiency is a measure of Throughput per Equipment Hour. It is a particularly useful metric for manufacturing processes that are highly dependent on equipment for production output. Mechanical Efficiency is often confused with OEE. Mechanical Efficiency excludes Planned Stop Time (e.g., Changeovers) while OEE includes Planned Stop Time. In other words, Mechanical Efficiency focuses on how well the equipment is running when it is supposed to be running. Many engineering teams are charged with improving Mechanical Efficiency, while many operations teams are charged with improving OEE.

Engaging People

How do I engage management with my improvement project?

We suggest creating a simple three-part presentation:

  1. Objective (what you plan to deliver)
  2. Benefit (how delivering this will help the company)
  3. Roadmap (incremental steps to delivering the objective)

We can't stress enough the importance of simplicity. Simplicity helps keep people's attention and it makes it easier to successfully deliver. For example, while you may want to deploy autonomous maintenance across the entire site, starting with a single piece of equipment will demonstrate concrete benefits that make it easier to move forward with a larger-scale project. Consider taking an agile approach to your improvement projects.

How do I engage operators, engineers, and managers with my improvement project?

The golden rule is to align everyone's interests when defining your project. Pay attention to creating value for the organization AND for the people with whom you work. In other words, help people understand how the project will help them and not just how it will help the organization. That makes buy-in a whole lot easier. Some other tips:

  • Identify how any proposed changes will affect the habits and routines of the team.
  • Actively seek out, understand, and address any concerns or fears.
  • Provide advance training and education to let people know what to expect.
  • Start with a simple pilot project to build familiarity and buy-in before carrying out a full rollout.
  • Provide regular feedback and lots of encouragement on progress.
  • Always approach things from a positive perspective. In other words – practice positive leadership and also be your best self.

How do I engage people who aren't interested with my improvement project?

You don't. At least not in the beginning. Some people simply need more “proof” to get on board. This may be social proof (e.g., following the lead of others they respect) or physical proof (such as a successfully completed pilot project).

We recommend you start with people who want to be engaged, keeping in mind we are all motivated in different ways. For example some people will support a project immediately because they like new things, while other people will need to literally see and touch the results of the project before they will fully support it.

Invest time to understand which team members will help you be successful right now, and gradually expand over time.

Running Projects

What is the best way to run an improvement project?

We firmly believe in the agile process for running projects. Agile is a project management methodology that breaks large projects into small increments, each of which adds value and is delivered in a short, focused cycle. It is a way of delivering small chunks of business value in short release cycles. For manufacturing, agile provides a way of managing projects that is particularly well-aligned to continuous improvement environments. It is a fun, engaging, and rewarding way to work; especially since it delivers meaningful business objectives consistently and quickly.

Here are some tips:

  • Create an agile roadmap that collects together your most promising projects in one simple document.
  • Select a project that you are confident will deliver strong value. Stay mindful of the importance of improving the constraint.
  • Break the project into small pieces – each of which is its own deliverable (in agile these are called stories).
  • Pick a pilot area and pilot team to make it easier to deliver a quick win. This is a form of prototyping (testing your concept on a small scale).
  • Brush up on your leadership skills and how to be your best.
  • Use a structured review process to keep people at each level of the organization aligned with your project.

What's the most effective way to launch a new improvement project?

There are many ways to successfully launch an improvement project. Here are some ideas that may help you with your projects:

  • Start with a solid information foundation. In other words, make sure you can accurately measure gains in productivity. As described earlier, the gold standard is to measure OEE with a breakdown of OEE losses into the Six Big Losses and a further breakdown of OEE Availability Loss into Down Time Reasons. You will want to have an accurate information foundation firmly in place before going any further.
  • Decide if you will follow an agile process. We highly recommend agile as a way to accelerate results. Use an agile roadmap to bring clarity to your range of potential projects.
  • Measure your current losses and identify the improvements you expect to deliver with this project. If your project does not address a measurable loss how will you know if you are successful?
  • Strongly prefer projects that will improve the constraint.
  • Identify a return on investment target. There are a lot of ways that improvement projects can save money. Make sure you consider them all.
  • Have a kickoff meeting. Use the principles of great meetings to help ensure a successful launch meeting.

What are the benefits of a pilot project?

By running a pilot project you get an opportunity to:

  1. Deliver a quick win with a small and motivated group of people.
  2. Make technical mistakes and find problems in a controlled environment – and learn how to overcome them.
  3. Uncover any fears or concerns that are relevant to the team and how to address them.
  4. Create proven results that can be shared to get everyone else on the same page.

By creating successful results with a pilot project you will have a much easier job of getting more people to enthusiastically support a full-scale project.

Spending Money

Do I need to spend money?

There are many improvements that can be made without spending any money. Here is an interesting example from our SMED (Single-Minute Exchange of Dies) topic:

SMED Technical and Human Improvement Model

The first two sets of improvements, referred to as Human Improvements, don't involve any spending. They utilize existing staff to get results. In other words – you can probably reap half of the potential improvement benefits while spending very little money. Or another way to look at it is with the 80/20 rule. You can probably reap 80% of the potential improvement benefits by spending only 20% of the money it would take to reap 100% of the benefits. So by all means – look for quick wins that don't require capital outlays or other large expenditures.

One of the goals of this website is to help you make meaningful improvements even if you have no money to spend. With that in mind – let us know about other topics that would be helpful to you or others.

If I do spend money how do I calculate ROI?

Every company has its own rules and guidelines for calculating ROI. So instead of directly answering this question we will provide you with a couple of interesting perspectives.

Make sure your improvements and investments are focused on improving throughput of the constraint. This is one of the best ways to directly tie your investment to results (more profit). To take it a step further, think about how to achieve the following types of improvements (listed in order of priority):

  • Increase throughput (manufacture more product without increasing fixed costs)
  • Reduce investment (tie up less money in inventory and equipment)
  • Reduce operating expenses (reduce the cost of maintaining a given level of capacity)

In our experience it can often be very difficult to accurately profile ROI. Here are ten questions that will help you uncover ROI – all from the perspective of improving OEE.

CategoryWhat to AskEffect on ROI
OutputIf you increase OEE, can you increase output (make more product)?ROI comes from having more product to sell (so long as you can sell it).
Lead TimeIf you increase OEE, can you reduce customer lead times?ROI comes from a more competitive product offering (shorter lead times).
CompetitionIf you increase OEE, can you reduce your costs enough to lower prices and gain market share?ROI comes from increased market share.
QualityIf you increase OEE, can you improve product quality?ROI comes from decreasing the amount of defective and/or reworked product.
MaintenanceIf you increase OEE, as part of that have you reduced maintenance costs?ROI comes from maintenance cost savings as investments in autonomous maintenance activities reduces expensive breakdown repairs.
CapitalIf you increase OEE, can you defer spending on capital equipment purchases?ROI comes from keeping money in the bank (or investing that money elsewhere).
InventoryIf you increase OEE, can you reduce inventory?ROI comes from having less money tied up in inventory (and fewer quality issues caused by part damage in inventory).
LogisticsIf you increase OEE, can you reduce distribution and storage costs by manufacturing product closer to local markets?ROI comes from reduced logistics costs. This is especially significant for when manufacturing consumable products such as food and drink.
OvertimeIf you increase OEE, can you reduce overtime?ROI comes from lowered labor cost (reduced overtime).
LaborIf you increase OEE, can you reduce the number of shifts?ROI comes from reduced labor costs (reduced operating expenses). As described earlier – this should be the lowest priority (a last resort). Prefer increasing throughput (and market share) to reducing operating expenses.
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