OEE Rescue: OEE is composite and does not tell much per se

Overall Equipment Effectiveness (OEE) is probably the most widespread and well-known among KPIs in industry, which does not mean that everyone likes it. OEE rescue is a series of posts that aim to balance the love-hate comments about this KPI as well as debunking some myths and misconceptions.

In this post: OEE is composite and does not tell much per se

Yes, OEE is composite. OEE is expressed in a single dimensionless value. It’s a ratio, a multiplication of 3 other ratios (availability, performance and quality).

Not familiar with OEE? Follow this link

What I immediately liked when I discovered OEE is the fact that multiplying 3 fractions leaves the result smaller than the smallest fraction, meaning it is a very aggressive and challenging KPI.

Any worsening of one of the 3 constituent will amplify the worsening of OEE, which in turn should trigger quick countermeasures to stop the KPI to plunge.

I do not agree OEE per se doesn’t tell much. The original intent, I assume, was to provide management with a single value in order to get an instant feeling about how the overall performance stands, as well as a convenient benchmark when comparing machines, lines, workshops or factories. And it does the job well..

This advantage of being synthetic is also a drawback as it is necessary to “disassemble” OEE to its components in order to understand which of the availability, performance or quality is the evildoer.

But again, I see here an interesting “constraint” for management: the head of department will review OEEs and get a broad feeling about how well the various lines or cells of his/her realm are doing. When intrigued or alarmed by a poor OEE, he/she will turn to the supervisor or line leader to get more information.

The latter needs to know more precisely what’s going on as it is his/her responsibility to keep OEE at best. This required dialog is, from my point a view, a good way to have management commit to interact in both directions: top-down and bottom-up.

I suspect that the managers not liking OEE struggle to drive and maintain theirs on the expected level. Instead of looking how to boost their OEEs, they probably prefer criticizing the concept.

It is one thing to display a quality rate of 93%, a machine availability of 90% and a performance rate of 95%, which at first glance look good, and another thing to report a OEE of 79.5% which is exactly the same (0.795=0.93×0.90×0.95), except for the perception.

Yes, OEE is humbling.

By the way, there are other KPIs that are composite like the On-Time-In-Full (OTIF). When OTIF is bad, is it the On-Time or the In-Full part that hurts? You don’t know until you dig deeper into the details. Would you dare replying to your furious customer measuring your performance with OTIF that this KPI is composite and does not tell much per se?

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Goal Tree chronicles – Clarity in objective setting

The action takes place in a big meeting room of a major leader in food industry’s plant. The top ranking managers (about 20 people) are assembled to listen to the CEO’s strategic plan, built on a Goal Tree. I attend as a guest, head of the consultants’ team and support to the CEO.

Goal Tree

It has been a kind of struggle to prepare this meeting, first in restating the Goal to make it more appealing, second to define all Critical Success Factors (CSF), key elements for deployment which were simply ignored by the Chiefs.

The concept of CSF and Goal Tree was unknown to the top executives, which is no excuse for not having defined the necessary breakthroughs and improvements to achieve the Goal, nor thought further how to align all contributions toward the Goal, nor how to cascade top objectives and so on.

The CSF statement had been a story for itself, related >here<

Once the CSFs SMARTly set, it was time to communicate and start cascading.

The CEO made a good speech (thoroughfully prepared) and asked the audience if there was any question. There was none.

Not really knowing how to go on, the CEO announced “Well, Chris will tell you about the next steps” and took a seat.

Bandeau_CH6This part was not really prepared but was no problem though. Facing a majority of engineers asking for pragmatic and practical advice, I summarized the former speech while drawing the Goal Tree live on a board. I drew one box on top for the Goal and four boxes underneath for the CSFs. I wrote each CSF in its box and started explaining what was meant.

One of the four CSFs was to improve customers satisfaction through an OTIF>96%

OTIF stands for On Time In Full, a common KPI to monitor demand management and supply chain performance. 96% means that considering all orders, at least 96% off all order lines should be delivered timely, completely in one shipment. Implicitly at the right location, complying with the specifications, QC passed ok, and all other basic requirements fulfilled.
OTIF> 96% is not very ambitious in this industry, yet from the actual state, achieving this objective can be called a quantum leap.
This company only operates in B2B

When I came upon OTIF, I asked the audience if everybody knew what OTIF is?
Silence.
I know how powerful silence can be and kept staring and waited long enough for the first people uncomfortable with silence to speak up or shake heads.
In the whole audience, only roughly one fourth had an idea about what OTIF is.

I asked the Supply Chain Manager to briefly lecture his colleagues on this matter and we went on with other CSFs.

What this story tell us

What this story tell us is that clarity in objective setting is not only a matter of good wording or complying with SMART objective stating. Clarity is also about making sure people understand what is behind the SMART objectives.

The OTIF CSF was carefully stated, but had we assumed this correct statement to be sufficient for the management to understand and start aligning their department’s contributions on it, we would have experienced some disillusionment latter on.

Furthermore, I was disappointed by the managers’ not knowing what OTIF is and not asking for explanations. But this is another story unrelated to Goal Trees!

This post is part of the Goal Tree chronicles series


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