Manufacturers usually monitor several key performance indicators (KPIs) across the plant to see how various functions are performing a particular process. In manufacturing facilities, these parameters are usually shown on a dashboard or board and may be reviewed monthly.

We’ve already examined what OEE is, but let’s look at the definition and monitoring of OEE one more time. OEE is a lean manufacturing tool that allows us to visualize and reduce the big losses in production. Each of the big losses costs manufacturers money, so it makes sense that improving OEE will benefit all cost-related KPIs.

The Relationship between Common Manufacturing KPIs and OEE

Manufacturing KPIs often vary between manufacturers and plants, but we will focus our attention on the most common ones, and how they work together when we improve OEE.

  • Running cost per hour

Running cost per hour is the manufacturing KPI that shows us whether we are pricing our products properly. Your shop rate includes different kinds of costs, like manufacturing, operator wages, utilities, maintenance, repair, etc. Of course, you want to reduce these costs, because it brings you more money or you can price your products more competitively.

By improving OEE you can reduce three kinds of costs:

  1. Utility Cost – by improving OEE, you reduce cycle time as well, which in turn results in lower electricity usage.
  2. Operators’ Wages – improved OEE means more productivity, which means that we pay less in wages for each product produced.
  3. Maintenance Cost – Eliminating unplanned downtime caused by unscheduled maintenance is one method manufacturers try to increase OEE performance, which leads to decreased operating expenses.
  • Throughput

Throughput is a very useful KPI because it represents the number of units that can be produced in a certain amount of time, for example, 50 units in an hour, or 100 units a day. Beyond the most obvious application, throughput is helpful because it tells you how much your plant can produce at any time point, which is crucial for your plant operations.

For example, if you are operating at 60% OEE, and your throughput is 100 per day, if you increase OEE by 10%, you’ll increase your throughput by 10 units per day. Another benefit is that you don’t have additional costs, rather you can focus attention on improving productivity and efficiency.

  • Productivity & efficiency

Productivity is the proportion of output to input. Efficiency is the ability to do a task without wasting resources, time, or energy. Efficiency and productivity are pretty much the same things, so it is enough to pick one as your preferred KPI.

If you improve an operation’s overall equipment effectiveness (OEE), you will improve both efficiency and productivity. This is because OEE is a reflection of how well you manage the big losses in a manufacturing process. To improve OEE, you need to reduce one of these losses; for example, material scrap.

  • Capacity utilization

Capacity utilization calculates the percentage of your available production time that is being utilized. If we reduce unplanned downtime, the OEE score will increase and we’ll have more time available for production. Which of course leads to increased capacity utilization.

  • Lead time

The lead time is the interval between receiving a client order and its delivery. You reduce lead time for two reasons, to react to changes in client demand more swiftly, and to produce a product faster, which results in turning inventory into cash faster too. So basically, improvement in OEE will decrease the time of production, which will improve lead time in the end.

  • Takt time

Takt time is the interval between the start of one unit’s production and the start of building a new one. OEE, like takt time, enables us to evaluate and keep track of over/under production. It does this by comparing the actual production rate at a given time against the rated output for that same period. Therefore, improving OEE means we also improve takt time.