Overall Equipment Effectiveness. Robert Hansen C.

the situation for Operating Income as shown in section 3.3. Review pages 54-56 to understand the background reasons of the values and to see how relevant this approach is to your own situation.

      As in section 3.3 the financial breakout for Operating Income is: (figures in Millions)

      In case D, the proportion of Total Average Assets was assumed to be $45 million variable with sales and $45 million fixed. Therefore Total Average Assets will increase as follows:

      Total Average Assets case E = $45 M × 1.10 + $45 M= $94.5 M

      Now we can look at ROA in case F with these new numbers:

      Thus, ROA has increased from 10 percent in Case D to 15.4 percent in Case F. In short, an increase of 10 percent in OEE has resulted in a 54 percent increase in ROA:

      This increase becomes our reliability marketing product for case F, and it includes 96 hours of planned OEE education in addition to production scheduled time.

      Earlier in this chapter, the claim was made that a company “could spend $10 for education, reliability improvements, and root cause problem elimination as equivalent to spending $100 in capital for new capacity”. As we have seen, a 10 percent increase in OEE provides 10 percent more capacity with the same equipment resources. In a very rough manner, we can compare this with the capital required for 10 percent capacity increase.

      For the aggressive OEE strategy, assume 4 days of focused training, education, and project work per person, along with an equivalent amount of reliability project dollars, are needed to improve OEE from 60 to 66 percent. This amount represents about 1 week of everyone’s time, which is about 2 percent of the expense for Direct Labor plus an equal dollar amount (an additional 2 percent) for project materials and changes. Thus, the investment expense for an improved OEE approach would be:

      4 percent (approximately) × $24 million, or $960,000.

      For the capital project approach, assume that capital expense for new capacity is a direct ratio of Total Average Assets. Therefore, a 10 percent increase in capacity would cost 10 percent of $90 million, or $9 million. This amount is approximately ten times the expense of aggressively driving OEE to higher levels, consistent with the 10:1 ratio discussed at the Society of Maintenance Reliability Professionals Conference (see section 3.4).

      In addition to this ratio, a difference in tax rates applies in favor of expense dollars for OEE education versus capital dollars for new factory hardware.

      These benefits are for cases in which OEE improves from 60 percent to 66 percent, and were applicable to Ms. Vesier’s client. But what if we start with an OEE of 70 percent and improve to 77 percent (a similar 10 percent increase in OEE)? Using the same numbers and model provides the same ROA percent increase results. The difference, however, between starting at a low or a high OEE is that the opportunities to reduce major losses are more prevalent with low OEE. Breakthrough performance often occurs quickly.

      Another important benefit of aggressively driving OEE over capacity projects is the timing of the benefits. If a decision is given today to start either program, timed to the point of achieving 10 percent more product capacity, the results might be as follows: