OEE: The Key Metric for Measuring Asset Performance and Optimizing Production
Every business owns tangible assets such as equipment, machines, inventory, software, vehicles, and premises. These assets need proper management to ensure they operate efficiently and add value to your operations.
Key Terms in Measuring Asset Performance
The first step is understanding effectiveness, efficiency, and productivity. While these terms all refer to available resources, effectiveness measures output, while efficiency measures input. For example, an effective asset produces an ROI in terms of engagement, revenue, or other metrics. On the other hand, an efficient asset utilizes the least resources to achieve its desired goals, e.g., less time, talent, or tools.
What is productivity? It is a measure of output versus input. Let’s say a retail company wants to hire a logistics firm for deliveries. A productive logistics system uses less fuel or fewer drivers to deliver the most parcels per day or month. So, when you know how to increase productivity, you leverage available resources to satisfy your customers and make profits.
Essential KPIs For Asset Management
Include these key performance indicators (KPIs) in your productivity plan to make the most of your company assets.
Overall equipment effectiveness (OEE) is an essential metric in the manufacturing industry. The OEE industry-standard measures each asset’s productivity over time. In addition, OEE, meaning in production, shows you how to optimize each piece of equipment in the production line. This metric identifies where you’re making losses and where to improve your manufacturing process. The OEE formula has three parts: measuring OEE availability, performance, and quality.
The OEE availability formula is:
OEE Availability = (Actual Runtime of Assets / Planned Production Time) %
The OEE performance formula is:
OEE Performance = Actual Number of Units Started / (Standard Rate x Actual Runtime)
In this case, OEE performance ensures that manufacturing equipment does what it should. If you’re producing fewer products than the standard number guaranteed by the asset manufacturer, then your production line is ineffective.
The OEE quality formula is:
OEE Quality = (Good Units / Total Units) %
This metric feeds into a company’s quality control process to minimize the number of rejects in a production line. Units that fail quality checks indicate that you need to review or update your productivity plan.
The overall OEE formula is:
OEE = Availability x Performance x Quality
This OEE formula is a combination of all the OEE values above. Knowing how to calculate OEE for multiple machine processes also helps to improve productivity. Compare your score to your competitors to see if you exceed, match, or lag behind the OEE industry standard.
Mean time to repair (MTTR) is a time management KPI for assets that are eligible for maintenance. A quick repair time keeps business processes flowing. In contrast, long repair time indicates the asset needs replacement or maintenance teams to require better tools or training. You can also use MTTR to measure the time taken to respond to an incident, resolve a problem, or restore an asset to full performance. The MTTR formula is:
MTTR = Total Repair Time / Number Of Repairs
Mean time between failures (MTBF) measures the lifespan of a repairable asset by counting the hours between failures. MTBF helps your productivity plan by determining the likelihood of asset failure and planning for maintenance. If you anticipate when your assets may break down, you can extend their lifespan and increase productivity. The MTBF formula is:
MTBF = Total Operational Hours / Total Number Of Failures
Mean time to failure (MTTF) measures the lifespan of non-repairable assets and assets that are cheaper to replace than repair. These assets include calculators, light bulbs, transistors, keyboards, etc. MTTF shows you how to increase productivity by choosing high-quality assets in the first place and training your team to use them appropriately. The MTTF formula is:
MTTF = Total Asset Lifespan In Hours / Total Number Of Assets
Annualized failure rate (AFR) estimates the likelihood that an asset will fail during a year of its use. AFR helps you to choose comprehensive warranties and insurance for business assets to avoid unnecessary losses. The AFR formula is:
AFR = Asset’s Total Operation Hours In A Year /(MTBF)
On-time delivery rate (OTD) measures your ability to meet delivery deadlines for physical and digital products. Businesses aim to deliver their products with minimal technical, staffing, or time management challenges. The OTD formula is:
OTD = (Total Number of Deliveries – Delayed Deliveries) / Total Number Of Deliveries
The inventory turnover ratio measures your sales over time, meaning how often you refill your inventory. A high ITR indicates a valuable product and an effective sales strategy. The ITR formula has two parts: average inventory and turnover ratio.
The average inventory formula is:
Average Inventory = (Starting Inventory + Ending Inventory) / 2
The inventory turnover ratio formula is:
ITR = Total Cost of Goods Sold / Average Inventory
An effective asset management program requires the following key components:
Free inventory managers from the burden of remembering trivial details by adding inventory items that reach minimum re-order levels to the purchase request automatically. Automate workflows for approving purchase of inventory spares, assets etc.
The feature helps you plan the spare requirement for the future based on past usage. Receive notifications for replacing spares nearing their life span to fit only genuine and functional ones to machinery. Intelligent inventory management ensures best spare availability and functionality.
Devise a plan to maintain and repair assets for their continued operation. Define PPM schedules and automate them for hassle free maintenance operations. A Maintenance management workflow is complete only when it covers preventive, predictive, and correct maintenance. A maintenance management software helps you clear maintenance backlogs by connecting all assets, spares, stakeholders and processes in a unified digital pipeline.
Analyze asset performance to identify trends and opportunities for improvement. An EAM application provides you with a customizable Dashboard rich in visual representation of data that helps you maintain budget spend, identify problematic areas to initiate remedial measures.
Enterprise Asset Management application provides a framework to identify and mitigate risks associated with assets. Define clear digital checklists detailing the safety precautions workers need to follow while operating machinery for safe operations.
Asset management reaches completion only when your asset management software provides a clear cut idea on the current depreciation value of assets and helps keep track of asset recycling or disposal.
Asset management is a continuous process that requires collaboration and coordination across different departments and stakeholders. The objective of asset management is to maximize the value of assets and minimize the cost of ownership over their lifecycle.
The asset management metrics provide valuable information to asset managers and organizations on how to improve the management and utilization of their assets, which can help reduce costs and improve overall performance.
Nisha Joseph, Content Manager, Profit.co
In her current role, she leads the content marketing team with experience in various fields, such as science, education, law, and management. She is a well-rounded individual with diverse interests and skills.