Is your management closing the loop on the promises of the past year and demanding measurable progress for the coming year? If support departments are doing their jobs, the improvements should show up in the annual financials and the monthly P&L.
Derivation: Nowadays, any business that wants to stay in business must plan, work, and keep score as a strategic team. The team consists of at least marketing, product engineering, production engineering, sales, production, quality, distribution, and accounting. Each year the team develops a definition of success that includes market development, sales, product development, production, and distribution. Sales volume, capacity, staffing, financing, procurement, quality levels, and a host of other parameters must be aligned to spend appropriate resources and provide the agreed-to levels of support in their respective areas. No strategic partner can succeed if any of the others fail. From a strategic perspective, sales that aren’t fulfilled, production that isn’t delivered, designs that aren’t brought to market, and production of inadequate quality are all failures.
Somehow, in an amazing number of organizations, production that doesn’t make it through the factory and throughput volume that doesn’t make good use of production capital aren’t seen as management failures. Somehow the “imponderables” of shop-floor production are still seen as mysteries that can’t be predicted and managed. The number of these firms, though large, is shrinking. Some are going out of business and some are waking up to controlled reliability and maintenance. Our recommendation is that you help your company join the latter group.
Technology now enables us to design discovery maintenance, cyclical downtime, and all other equipment mysteries out of business strategy. Production capacity can be wasted, stolen, sold, traded, or given away, but it cannot be simply “lost.”
Each year, the strategic plan for a manufacturing company is developed, including either statements or assumptions about the production capacity that will support the effort. In some cases capacity will be a limiting factor in the amount of business that can be transacted. In others, markets, raw-material availability, financing, logistics, or other external controls may set the pace of production. It is always true though that, when production is expected, resources are expended for a day of production. If equipment availability does not support these investments, a portion of them will be wasted, and profitability will suffer.
Significance: Production capacity is usually one of a manufacturing company’s biggest expenses, as well as its major source of income. If equipment does not produce world-class quality and volume when called upon, the company will miss orders or pay more for production capacity than it should. Whether equipment is failing to produce some of the time or is taking, say, three shifts to produce two shifts’ production, waste occurs.
If companies will use overall equipment effectiveness (OEE) instead of budgetary output to measure equipment effectiveness, it will simplify the discussion. OEE should be computed for major production assets. It is easily monetized for inclusion in strategic plans and budgets. Once OEE is being measured, improvement or degradation can be planned and budgeted with predictable financial impact. At this point, an important part of the “mystery” of production is clarified, and opportunities for cost reduction and increased output become clear for current and future years’ strategic plans.
The effectiveness of the maintenance operation is also a contributor to OEE. The forward-looking KPIs that we have been discussing in the 2013 “Management Measures” columns will also provide a set of measures that can be built into the strategic plan. They can also be monetized, though with a bit less precision than OEE.
Getting started: OEE is an excellent beginning for negotiated production effectiveness within the strategic planning and budgeting processes. Key assets are usually easy to identify, as are assets that are costing the company capacity. The OEE calculation is not difficult, and the steps required to compute it are an education for managers who wish to improve their control of capacity, maintenance, and reliability. As always, we suggest involving your financial people early in the process.
If a suite of KPIs has been developed to measure and share maintenance effectiveness, then it should also be part of the strategic plan. The forward-looking KPIs may not fit the organization’s budgeting style, but they always belong in the strategic plan.
Perhaps a first year strategic objective to develop OEE and a set of maintenance and reliability KPIs would be a good first step. As long as management demands quarterly updates and a baseline to support next year’s budget process, it will support progress. Demystifying maintenance is a difficult step, but so is job hunting. Our suggestion is to get moving on OEE, if you haven’t already done so.