There are two questions that anyone in manufacturing management needs to know – “How well is my plant running?” and “Am I making money?”
Manufacturing management needs a proven methodology to determine the profit dollar value of their decisions, connecting the plant floor to the income statement in real-time. Financial Overall Equipment Effectiveness (FOEE) can accurately quantify where a manufacturing company is making or losing money on a per part and per machine basis.
The foundation for Financial OEE starts with the metric Overall Equipment Effectiveness (OEE). OEE is defined as Availability multiplied by Quality multiplied by Performance. For example, world-class OEE is 85 per cent with each of the three factors being at 95 per cent. While OEE is certainly an important metric, it tells management absolutely nothing about the financial side of manufacturing. If you don’t know the relationship of the financials to OEE, the ability to laser target where to start to maximize profit potential is non-existent.
The bridge across OEE to Financial OEE is constructed with a few key planks that can be visualized as connecting the specific details on what is happening on the shop, at the per part level, per machine or manufacturing asset basis, to your income statement.
On the shop floor side of the bridge are the following inputs into Financial OEE:
Manufacturing management and operators alike are using shop floor monitoring systems to track the making of parts to improve their equipment utilization. As plants and shops start to utilize real-time data to monitor their shop floors, the next logical question is: “What are the financial impacts of the decisions that occur on the manufacturing floor?” In order to answer that question, we need to build the other side of our Financial OEE bridge.
On the financial side are the following inputs into Financial OEE:
There are many ERP systems being used today in shops and plants. The ability to speak to these systems in real-time in a bidirectional fashion is critical to the success of Financial OEE.
The true benefits from Financial OEE come when questions such as the following are asked, and ultimately answered, by a thorough understanding of this key FOEE relationship.
Financial OEE allows leadership teams to see exactly how much “hidden factory” exists. Current profit will be more accurate and future profit projections based on projected volumes and upcoming product mixes will be much more realistic.
To read the full article, click here. It was written by David McPhail, president and CEO, Memex Automation, and Dave Edstrom, CTO, Memex Automation.