OEE's Missing Link

To benchmark performance, many companies turn to an increasingly critical asset performance metric, namely overall equipment effectiveness (OEE). This metric recognizes and factors in the major issues of availability, performance, and quality to help balance conflicting demands, including required throughput targets, the need to take equipment offline for maintenance, and desired production quality. World-class companies now operate at an average 85 percent OEE, based on 90 percent availability, 95 percent performance or capacity, and 99.9 percent quality. However, OEE ignores a key element–energy consumption.

Energy costs are the largest portion of maintenance and operating costs for many manufacturers today, so while OEE is extremely useful, it fails to detect important trends that indicate dips in energy performance, which can lead to costly operations. Companies that incorporate energy into this equation obtain a more holistic view of their operational effectiveness. The price and availability of energy has changed the manufacturing landscape forever. Companies with major plants, facilities and equipment are facing a stark reality: energy consumption is eroding profit margins.

Companies are forced to reallocate budgets away from strategic initiatives to cover escalating energy costs. For many manufacturers, this cost is in the hundreds of millions or more, and it is the assets, from equipment on the shop floor to HVAC units in facilities, that consume the most energy.

HOLISTIC OPERATIONAL EFFECTIVENESS

Operational effectiveness is the price of entry for businesses today. Manufacturers must keep costs low and revenue-generating capabilities high. Until recently, many have held separate views of asset performance and energy consumption. This has changed as more manufacturers understand the link between energy consumption and the ability to improve asset operating performance. Those that establish a strategy and global approach to incorporate this new Lean practice can improve operational, financial, and environmental performance.

The current Lean approach of reducing waste in all its forms (e.g., inventory, downtime, and non-value-adding paperwork) – has lowered costs and increased profitability. However, this is no longer enough given the economic and environmental uncertainty of energy. In a challenging environment, manufacturers must leverage all sources of efficiency and effectiveness for critical assets. Using sound Lean practices that include energy efficiency, manufacturers now focus on four major areas of waste to review asset performance: availability, performnce, quality, and energy consumption.

Together, these four elements constitute a new Lean practice: Global Asset Sustainability –

? Availability is critical for the asset to serve as intended, with maximizing uptime as the goal. If production and facility assets are not available, the company is often challenged in its ability to generate revenue.

? Performance reflects how well equipment is behaving or how fast it is operating compared to the theoretical specifications for its operation. When manufacturers make capital investments, decisions rest on this performance rating, so to meet financial goals, assets must perform as close as possible to that rating.

? Quality is the preciseness of the equipment's output, which can have a material impact on the company's margin. For example, keeping humidity at a level where machinery and people can work effectively or ensuring production equipment consistently delivers at or above specification directly impact quality.

? Energy consumption is increasingly costly and has become an integral element of asset performance. An asset's energy consumption may change over time based on the conditions of operation and maintenance, eating into margins if it is inefficient. For example, a single 100 HP motor running continuously at 95 percent efficiency over a five-year period will cost close to $350,000 in energy (assuming 10¢/kwh). If the same motor consumes just 5 percent more energy due to sub-optimal operation, it will cost almost $17,500 more to operate. By monitoring energy usage, companies can gain a view of the asset's true operating costs and take action when excess energy consumption occurs to minimize this waste and associated costs.

These are four foundational elements in the overall ability of a manufacturer, and its assets, to generate revenue, serve customers well, fend off competitive threats, and keep costs low. To compete with companies throughout the world, even small differences in these factors across all critical assets can add up to major improvements in the company's financial performance.

GLOBAL ASSET SUSTAINABILITY

Global Asset Sustainability adds a new dimension to asset management, helping manufacturers manage conflicting business conditions. Soaring costs through higher energy prices and carbon emission taxes (imminent in some regions of the world) are colliding with extreme price pressures due to global competition and changing customer expectations.

To drive this initiative, Global Asset Sustainability establishes a new measure of operational success, the Global Asset Sustainability (GAS) Index.

This key performance indicator combines the four major factors to gauge an asset's performance: availability, performance, quality, and energy consumption. Though valuable for individual assets, GAS goes further and also provides a global, enterprise-wide view of the performance of all assets, both by traditional effectiveness measures and energy consumption, to ensure the best results for the company.

GAS is a compound metric represented by the equation where each factor is a percentage of the theoretical best possible performance of an asset along that line:

Availability x Performance x Quality x Energy Consumption

THE ROLE OF EAM IN THE NEW OEE

Enterprise Asset Management (EAM) is a system of record, a consistent single repository for asset management information throughout the lifecycle of the asset. This system plays a role as assets are purchased, commissioned, operated, maintained, and even retired. In addition to its ability to increase the productivity of maintenance labor and lower maintenance, repair and operating inventory levels and costs, EAM can reduce energy consumption.

EAM can reduce energy through maintenance best practices, but it is not enough–it only scratches the surface. Department of Energy and continuous commissioning studies indicate that there is up to a 20 percent energy savings at stake when energy consumption is incorporated into an EAM strategy. This can only take place by applying Asset Sustainability.

A key requirement in all this is the ability of EAM to measure energy consumption at the asset level and have the intelligence to translate the consumption data into actionable information across financial, operational, and environmental considerations.

Market leaders who place energy consumption and cost reductions as a top-priority initiative of their improvement programs are turning to EAM that goes beyond traditional maintenance practices–one that provides integrated asset sustainability capabilities. Adding this to the OEE equation delivers benefits that extend from more efficient operations to increased shareholder value to improve environmental conditions and new market opportunities.

Manufacturers face an opportunity to further lower costs and ensure reliable, high-quality operations through all of their properties, plants, and equipment. Those who take a global asset sustainability approach can make a major leap in profitability and sustainability.

John Murphy is director of global industry and product marketing for enterprise asset management for Infor, 13560 Morris Road, Suite 4100, Alpharetta, GA 30004, 678-319-8000, Fax: 678-319-8682, www.infor.com.