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Why Improving OEE Reduces Your Production Costs

Mark Kobbert • April 16, 2021
Why Improving OEE Reduces Your Production Costs
For years, the ongoing globalization of markets has subjected companies to intensifying competition. Among other things, this has placed pressure on them to keep their local costs down. And since 2020, the Covid-19 pandemic has considerably intensified these pressures at many manufacturing companies.
 
In this article, we show you how improving OEE can lower your production costs and ultimately also boost your company’s overall competitiveness. It’s very probable that there are major opportunities for you to improve your manufacturing operation, potentially generating cost savings on the order of several millions of dollars or euros.
 
The OEE metric is a tool that enterprises can wield to measure the efficiency of production and identify and fix weaknesses. The three most important levers for achieving cost savings are, in line with the principle of OEE:
 
  • Boosting availability, reducing stops, and optimizing retooling procedures,
  • increasing performance and capacity utilization,
  • and optimizing quality, preventing rejects, and saving energy.
In all of these cases, it’s basically about eliminating the causes of wasteful use of valuable resources: expensive materials, machine hours and manpower.
In the following, we show you why improving OEE will automatically slash your production costs.
 

What does my OEE score say about the potential for reducing costs?

The first step is to obtain objective, trustworthy OEE scores – at the very least, for your bottleneck machines. These OEE scores let you perform an initial assessment of the production situation at your company.
 
Companies with an OEE score above 85% or more are models for others to emulate. Is your company in this range? If so, you have one of the world’s most efficient manufacturing operations! Enterprises in the range between 65% and 85% already have considerable potential for additionally reducing their production costs. And manufacturers with an OEE count below 65% are in dire need of improvement.
 
Here are a few examples of how improving individual OEE factors can directly impact production costs.
 

Less capital lockup

At many companies, a production line consists of sequentially arranged machines, each of which can only work on a component until the preceding one has completed its task. This means that if one machine grinds to a halt, so do all downstream ones.
 
If a holdup lasts for very long, it also negatively affects preceding machines, which must also stop working due to limited storage space for partially completed components.
 
To offset this problem, small buffers are often inserted between machines. This way, if one machine stops it won’t immediately impact all of the other machines in the production line. The larger the storage capacity is, the longer production can continue in the event that one machine goes offline.
 
The biggest drawback to this approach is that capital is tied up in partially finished products and valuable space is reserved for temporary storage but only used part of the time. This state of affairs is also inacceptable when the goal is lean production, just-in-time (JIT) delivery, or multiple product versions.
 

Avoiding contractual penalties

The repercussions of impaired production increase with a smaller lot sizes and are greatest with a lot size of one (one-off production). Ultimately, this runs the risk of no longer being able to supply products on time! If a penalty for this case has been agreed on with the customer, the consequences can be very expensive. In extreme cases, a company can even run the risk of bankruptcy.
 
The goal must therefore be to improve machine availability!
Availability is the first important OEE factor. Ideally, a machine should be available 100% of the time. This means that a machine never goes offline when it’s supposed to be producing. In the real world, however, stops are unavoidable. Even with regular maintenance, unforeseen problems can crop up and cause unwanted interruptions of production. However, the following can be achieved by properly capturing stops in real time with the aid of a system of metrics:
 
  • Stops are immediately detected.
  • Action can be taken to immediately eliminate any occurring stops.
  • The causes of stops can be analyzed to prevent them from happening again.
Improving the OEE factor of “availability” reduces throughput times, which positively affects the following cost factor.
 

Lower personnel and energy costs

The OEE factor of performance places the actually produced parts in relationship to the maximum quantity that can be achieved when a machine is consistently producing at the planned rate. However, minor problems or an incorrectly programmed or adjusted machine can often prevent this. By detecting and fixing weaknesses in the production products process, production teams can reduce the discrepancy between the actual and desired situations.
 
The OEE factor of performance, among other things, is critical for profitable production!
Improved performance means that it takes less time to produce a given quantity of parts. If the achieved time saving is large enough, entire shifts can even be eliminated, since it takes fewer of them to produce the planned number of units.
 
In turn, reducing production shifts lowers both personnel costs and energy consumption, since machines are operated less of the time.
 

Lower material costs as a result of preventing rejects

The OEE factor of quality addresses a third aspect involved in reducing production costs. This is the percentage of all produced parts that are defective. Defects can take the form of visual flaws such as bubbles, inclusions, or scratches, or they can be more serious ones that pose safety hazards.
 
Depending on the kind of defect involved, affected parts can be corrected by reworking them. They can then be processed further. Parts that can’t be reworked at all or only at disproportionate cost are rejects and must be disposed of.
 
The quality factor impacts costs both directly and indirectly!
If it’s possible to raise the level of quality, you’ll have fewer rejects and less rework. Fewer parts then need to be produced to complete the required number of fault-free components. Improving quality therefore delivers the same benefits as improving performance as discussed above: lower personnel and energy costs. In addition, cutting down on rejects also leads to:
 
  • Reduced costs for materials
  • Elimination of costs for reworking parts
  • Avoidance of costly recall campaigns
  • Fewer customer complaints and a better reputation

Conclusions

In the preceding, we’ve showed you how improving the three OEE factors of availability, performance, and quality can reduce your production costs. This happens in various ways. Less capital is tied up due to reduced stops, personnel and energy costs fall when performance increases, and material costs drop as a consequence of minimizing rejects.
 
A system of production metrics like SYMESTIC helps you identify opportunities to reduce costs in your manufacturing operation and make the impact of improvements measurable.
 
Would you like to learn more about SYMESTIC, or do you have any questions about how the system can help you reduce your production costs? If so, get in touch with us today so that our experts can advise you free of charge and without any further obligation!
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