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Focus on OEE: Part 1 – The Hidden Costs Undermining Your OEE Score

Hidden Cost
While many manufacturers wrestle with visible problems like breakdowns, missed deadlines, and strained customer relationships, the root causes often remain elusive. Hidden costs relentlessly chip away at your efficiency, masquerading as ‘the way things are.’
The truth is, without actively tracking OEE, these hidden costs tighten their grip on your operations.

Your ability to compete effectively becomes compromised, as do your efforts to streamline operations. Growth is hampered, as difficulties securing funding for new equipment upgrades can leave you lagging behind. Without visibility into OEE, you’re missing out on a powerful tool to pinpoint the root causes of these inefficiencies. You can’t fix what you can’t track.

Imagine a manufacturing world where production runs smoothly, waste is minimized, and investments in equipment generate clear returns. In this series, we’ll expose these hidden saboteurs of your manufacturing performance. We’ll uncover the often-overlooked symptoms they cause, and provide concrete strategies to reclaim your OEE.

Ready to unlock the true potential of your manufacturing operations? Let’s dive in!

1 Inaccurate Production Scheduling:

Production scheduling acts as the blueprint for your operations, and inaccurate schedules lead to a host of issues. Rush orders caused by last-minute changes and urgent production needs disrupt workflows, causing unplanned downtime and bottlenecks. Underestimating production times leads to missed deadlines, strained customer relationships, and potential penalties for late deliveries. Overestimating production times leaves machinery idle, incurring unnecessary labor and energy costs that directly eat into your profitability.

Mitigation: Invest in demand forecasting tools that leverage historical data, market trends, and customer insights to improve schedule accuracy. Establish realistic lead times that genuinely factor in all production stages, setup times, and potential delays. Foster open communication and collaboration between production, sales, and procurement teams to proactively align expectations and manage changes.

2 Excess Buffer Inventory:

Holding excess inventory might seem like a safety net, but it masks inefficiencies and incurs significant hidden costs. Excess inventory ties up working capital that could be better invested in other areas of your business. The costs of warehousing, insurance, and material handling drive up your overhead expenses. Additionally, changes in demand or product design can render excess inventory obsolete, leading to costly write-downs.

Mitigation: Implement lean inventory practices such as just-in-time (JIT) principles to reduce inventory levels and align production more closely with demand. Utilize inventory management software to track stock levels, reorder points, and lead times, enhancing visibility and control. Focus on process optimization to identify and eliminate bottlenecks that necessitate excess buffer inventory, streamlining your operations.

3 Unplanned Changeovers:

Changeovers, while necessary, consume valuable production time and resources.  Cleaning, setup, and calibration required during a changeover all contribute to non-productive time. Changeovers often generate scrap and material waste while machines are adjusted to new specifications.  Additionally, skilled operators are dedicated to changeovers, reducing their availability for other value-added activities within your operations.

Mitigation: Apply Single-Minute Exchange of Die (SMED) principles to streamline and optimize changeover processes. Group similar products together to minimize changeover frequency and maximize production runs, increasing your overall output.  Prevent additional unanticipated changeovers caused by equipment problems through rigorous preventive maintenance schedules.

4 Wasted Energy Consumption:

Energy costs comprise a significant portion of manufacturing overheads. Unnecessary energy consumption results from several factors.  Machines left running unnecessarily during breaks or shifts waste electricity, directly impacting your bottom line. Inefficient processes that rely on outdated machinery or are poorly designed consume more energy than necessary.  Leaks and inefficient systems, such as compressed air leaks, poorly maintained HVAC systems, and inadequate insulation, drive up energy bills, eroding your operational efficiency.

Mitigation: Conduct thorough energy audits to identify energy waste hotspots throughout your facility. Invest in energy-efficient machinery and technologies to reduce baseline energy consumption. Develop and implement behavioral change programs to train and incentivize employees to adopt energy-saving practices, making efficiency a company-wide initiative.

5 Lack of Standardization:

Inconsistencies in processes and procedures undermine OEE in several ways.  Variations in operator techniques lead to defects and rework, impacting product quality and wasting valuable resources.  New employees require more extensive training and onboarding without standardized work instructions, extending the time it takes to get them up to speed.  Troubleshooting equipment failures becomes more difficult with inconsistent processes, making it harder to pinpoint the root cause of problems and hindering efficient resolutions.

Mitigation: Develop clear, step-by-step standard operating procedures (SOPs) for all critical production processes.  Create and maintain a central platform or knowledge base where employees can easily access SOPs and share best practices. Regularly review and update SOPs based on feedback and observed process improvements to ensure they remain relevant and effective.

6 Unforeseen Equipment Breakdowns:

Unexpected breakdowns cause significant disruptions and ripple effects throughout your operations.  Emergency repairs are often far more expensive than planned maintenance, leading to inflated costs. Production delays become a regular challenge, crippling your production schedules and ultimately leading to missed deadlines and dissatisfied customers. Frequent breakdowns have a negative impact on worker morale, as operators become frustrated with unpredictable workflows and unreliable equipment.

Mitigation: Implement a robust predictive maintenance system that utilizes sensor-based monitoring and analytics to detect early signs of equipment wear and tear. This allows you to proactively replace critical components before they reach their expected failure point, minimizing costly breakdowns.  Maintaining an optimized spare parts stock ensures that necessary repairs can be carried out quickly, further reducing downtime.

7 Overallocation of Labor Resources:

Misaligned labor allocation directly impacts OEE and your bottom line.  Unnecessary overtime or hiring additional workers when processes are inefficient drives up expenses unnecessarily. Operators waiting idly for machines to become available or tirelessly dealing with bottlenecks reduces overall throughput. Overstaffing specific areas limits your ability to react to shifts in demand, hindering your operational flexibility.

Mitigation: Conduct a thorough workload analysis to identify areas where labor is either insufficient or overallocated, relative to actual production requirements.  Invest in cross-training your employees, equipping them with multiple skills to enhance flexibility and optimize resource utilization throughout your operations. Process mapping provides a visual representation of your workflows, making it easier to pinpoint inefficiencies and better align your labor needs with each specific production step.

8 Difficulty Justifying Equipment Investments:

Securing approval for capital expenditures becomes a significant challenge without accurate OEE data to support your proposals. Without the ability to quantify the potential ROI from upgraded or new equipment, modernization efforts stall. Decisions often become reactive, driven by breakdowns rather than by strategic improvement initiatives.  This reactive approach can lead to a competitive disadvantage, as your operations fall behind technologically, limiting your ability to compete on efficiency and quality.

Mitigation: Establish a robust OEE tracking system to clearly demonstrate the performance gains achievable with new equipment. Use concrete OEE metrics to support your investment proposals, making a data-driven case for upgrades.  Calculate the total cost of ownership (TCO) for new equipment, factoring in maintenance, energy savings, and productivity gains to provide a holistic view of the long-term benefits.

9 Reduced Operational Agility:

A lack of agility leaves you vulnerable to market shifts and unexpected disruptions. Inflexible processes hinder your ability to quickly ramp up or scale down production in response to demand fluctuations. Rigid systems that can’t adapt to supplier delays or material shortages expose your supply chain to costly disruptions.  The constant need to expedite deliveries or rush orders to meet changes in demand inflates your overall expenses.

Mitigation: Foster collaboration between your production, engineering, and procurement teams to enhance your overall responsiveness.  Proactively develop contingency plans for potential disruptions through scenario planning. Invest in flexible equipment such as multi-purpose machinery or modular systems that can be easily reconfigured, increasing your operational adaptability.

10 Difficulty Benchmarking Performance:

Without reliable OEE tracking, evaluating your performance against industry standards is challenging.  This lack of external comparison leaves you with competitive blind spots, making it difficult to identify where you stand relative to your peers. Key opportunities to learn from best practices within your industry are overlooked.  In the absence of external benchmarks, mediocre OEE numbers may be seen as “good enough,” creating a false sense of security and hindering continuous improvement efforts.

Mitigation: Participate in industry surveys or partner with benchmarking organizations to gain valuable insights. Engage with manufacturing communities to share insights and learn from the best practices of others.  Use benchmarks as a springboard for continuous improvement, recognizing that achieving excellence is an ongoing journey.

Conclusion: It’s Time to Take Control

The hidden costs we’ve examined are merely symptoms of a larger issue – overlooking OEE as a vital indicator of your manufacturing health. By recognizing these symptoms and addressing the underlying causes, you embark on a journey toward OEE mastery. It’s not a matter of achieving perfection but rather of relentlessly pursuing continuous improvement.

Don’t let these hidden costs dictate your future. Acknowledging their existence is the first step. The next is taking action. Remember, you don’t have to embark on this journey alone.

How POWERS Can Help

At POWERS, we’re passionate about helping manufacturers unlock their OEE potential. Our team of experts brings decades of experience and deep industry knowledge to guide you through the process. We provide:

If you’re ready to uncover the hidden costs eroding your OEE and embrace a data-driven path toward operational excellence, contact the experts at POWERS today. Let’s transform your manufacturing operations together.

Take the First Step

Optimize your manufacturing processes and achieve unprecedented efficiency. Contact POWERS today to learn how our expertise can drive your company’s success. Let’s start the conversation by calling us at +1 678-971-4711, emailing us at info@thepowerscompany.com, or filling out our contact form to request an assessment.

Don’t wait. Start your journey to operational excellence and achieve peak overall equipment effectiveness with POWERS.

Continue Reading from this Mastery Series

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