In the production of fast-moving consumer goods (food) cost control is key. Margins are relatively small, and the cost of ingredients varies with the world market. Therefore, keeping cost under control is the α and Ω.
To improve your competitiveness cost reduction is important. When working on the reduction of costs, you can work on labor cost in process or packaging. Or you concentrate on packaging material. Another one is reduction of the cost of ingredients. The following graph shows you what happens when reducing the cost of packaging material.
There is an increase in the margin of 1.7% of the sales value (red). Such reductions of the cost of the packaging material do carry the risk though, that the new, cheaper material does not function as required, causing other, new problems.
Another approach is trying to get more finished product in the same time with the same resources. If you can increase the amount of sellable product you make better use of the resources. This approach is going for the output side and not for the input side. If you produce more products with the same people in the same time, the result is an increase in profit while the costs are already payed for. It is much more effective than reducing the cost of packaging material while you improve on all aspects - labor, packaging material and ingredients - simultaneously. Improving your effectiveness is a two-edged sword, it cuts on two sides, it increases output with the same resources and simultaneously reduces losses and wasted labor.
Below is the same overview as used before. We increase the output by 10%. The retailers share increases accordingly. The overhead will not increase. The consumption of ingredients and packaging material grow with the increased volume. Labour cost stays the same.
Of course, the best is to use both methods; increase your output and at the same time reduce costs.
It will be clear that this increase involves work, but there are less risks such as changing packaging material or ingredients. To be able to organize this increase and to understand where we have losses, we have to measure the process.
To measure this, we use Overall Equipment Effectiveness. In other words, how well do we use our equipment. Using this method over a longer period makes it possible to measure increases or decreases. It gives objective information. No discussions whether it is good or bad. The numbers speak for themselves.
The first question is: where do we stand? Is our performance poor medium or good, and the next is, where can we improve? First start simple, and then, slowly work your way to a more and more sophisticated approach that will give step by step more information. That information has one single purpose: give leads where there is potential for improvement. You will notice, this is a rat race. It never ends. But when done right, involving everyone, creating information tools enabling all participants to see the results, it can become fun and a stimulus for every-one.
In simple words: OEE is the degree in which you make use of the available capacities.
An oven is purchased with the specification of 500 KG/Hour.
The line runs 5 days /week, 3 shifts = 120 hours.
Theoretical production 120 x 500 = 60.000 Kg / week.
Delivered to warehouse in a given week is 32.400 Kg
OEE over that week is 54%; not too bad, average
The big question is where did the missing 46% go. Please calculate for your own line what is the value in money of that lost production. Imagine you can deliver that missing production and sales can sell it; you will be the champion.
First it is important to understand fully the concept of OEE. That achieved, is will be clear what information is required to calculate the OEE and it will become clear which are the drivers, and which are the buttons we have to turn to get an improvement.
The concept or OEE is shown in the following graph
The above schematic explains the concept. The basis is time. All time is only productive time in a 24/7-year-round operation. If we stop for the weekend, the planned production time is less. The difference is planned shutdowns, legal breaks etc. These are counted out. This schedule loss offers a chance to increase production time when required. (work the weekend)
That leaves us with the planned production time. During production there are stops, format change, product change, breakdown of equipment, but also stops for maintenance or cleaning. Here we also include stops due to missing materials or personal. That leaves the net operating time. These stops reduce the planned operating time with the availability losses. The net operating time over the planned operating time gives the availability %
If we cannot run the equipment at the specified speed (irrelevant of the reasons) this counts in the performance. As we are calculating in time, we have to translate the speed difference to time. (see an example below) Under this title we also count the mini stops. All short (unplanned) stops like jamming of a product in the infeed of a wrapper or film breakage are included here. These losses are defined as performance losses. The run time over the net operating time gives the performance %
In production, there will be quality controls such as ejection of products too wide or too high, or ejection of under- or overweight packages; cartons that are not properly closed, etc. All these losses are calculated and result in the quality loss. These losses (in units) over the total production (in units) results in the quality %
Multiplying Availability % times performance % times quality % gives the OEE.
Now it is not necessary to go through this calculation. Above I showed a simple way to calculate the OEE. The theoretical calculation helps to understand which are the components of the loss and helps you to understand where the losses are and consequently, where you can improve.
Example for performance: The recipe of the biscuit has changed, and you cannot run the oven at 500 Kg/hour, but at a lower speed; let’s say 460 Kg. There is no possibility at this moment to increase the volume to 500 Kg/Hr. That means that we lose 40Kg / Hr. or 40/500= 8% in performance. Knowing that you cannot change this for the moment, don’t spend time on it and go looking for other losses. It is important though, that you have identified 8% of the missing 46%
Example for the OEE calculation: the above mentioned 500 Kg/ Hour is packed in packs of 250 Gr, resulting in 2000 Packs / Hour. The shift time is 8 hours. There has been a breakdown of 2 machines, resulting in a downtime of 1,2 hours. Thus, the availability is (8-1.2)/8 = 85%
Instead of running 500 Kg/hr the oven produces 460 Kg. That equals in time: 40/500 x 6.8 Hr = 0.544 Hr. There are short stops (new packaging material, film break; jam at the feeder; problems at the dribble board etc. that add up to a total stop time of 48 minutes or 0.8 Hr. Adding now 0.8 + 0.544 we get 1.344 Hr. This gives a performance of (6.8 – 1.344) / 6.8 = 80.2%
Finally, due to new (thinner) packaging material, of each 1000 produced packs, 145 have failures in the seals and are over or underweight. This results in a quality percentage of (1000 – 145)/1000 = 85.5%
Now we multiply 85% x 80.2% x 85.5%, thus the OEE is 58.3%
We have at the end 58.3% x 8Hr x 2000Pack/Hr = 9.328 good packages. Or in weight: 9.328*250 Gr = 2.332 Kg.
The oven is projected for 500 Kg x 8 Hr = 4000 Kg. The OEE is 2332 / 4000 = 58,3%
The theoretical approach matches the real output.
The following schematic summarizes and sets basic rules
Source: Vorne Industries
I can imagine that it may be difficult to calculate the losses of a cracker or biscuit line where products are lost in the turns of the cooling belts, on the dribble board, in the vibratory chutes, in the feeder, etc. You may be able to judge the amount leaving the oven and you can measure exactly the delivered weight to the warehouse. The difference are the losses. Your checkweigher may help you to define the give-away in this line. You may use that in the performance loss or in the quality loss. Define where you put it and don’t change that assuring consistency in your data.
The same is applicable to other industries whether food, pharmaceutical, non-food products.
I hope you understand that OEE helps to define in an objective way the performance of your production line and that it will help you to find where you can improve the line. In the next article, I will describe simple and clear methods how to measure, how to analyze etc.
Leading image: By Arfa adam/Shutterstock.com