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Know How Data is Calculated - OEE example

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This is a section from the performance chapter in my new book, Clarity First, which addresses a problem we often see with measuring OEE (overall equipment effectiveness). To order the book: www.clarityfirstbook.com.

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Know How Data is Calculated - OEE example

  1. 1. Clarity First: Know How Data Is Calculated Section from the Performance chapter in Karen Martin’s latest book, Clarity First Even when data is clear, clean, complete, and correctly interpreted, organizations may create ambiguity by using nonstandard approaches to calculating various measures. Overall equipment effectiveness (OEE) is a classic example. This common manufacturing metric is frequently misinterpreted due to differences in how it’s calculated—specifically the definitions of the factors that go into the product. OEE reflects the health of a production line. It’s as critical to a manufacturer as heart rate, blood pressure, or body temperature are to a doctor assessing a patient. It provides insight into operating margins, capital utilization, and process efficiency and effectiveness. OEE is the product of three variables—availability, performance, and quality—and is expressed as a percentage. Sounds simple, right? Nope. We find that many manufacturing leaders can’t list the three variables. Even when leaders can name them, they are not always clear how each variable should be calculated, and the same method of calculation is not always used by everyone in the same organization. Availability is typically based on scheduled production time, and yet some teams use a 24- hour clock. Some organizations calculate the quality variable based on end- of- line quality, which can obscure in-line rework that’s occurring or scrap that’s accumulating, both of which are costly problems. Quality could be 99 percent or 75 percent, depending on who’s measuring and how they’re measuring. Such confusion can render a critical measure useless as a performance improvement tool. If you don’t know what goes into the final number, how can you understand what OEE is telling you? And if you don’t understand what OEE is telling you, there’s no way to know how well you’re doing or what you need to do to improve performance. OEE is only one example of a common problem we see concerning measurement and performance clarity. Be very clear on what the organization is measuring, what questions the metrics answer, how the numbers are obtained, what the numbers mean, and what conclusions leaders can draw based on what they learn. If multiple departments or levels in your organization do their own calculations, standardize the method across the organization so that everyone is using the same formulas. Visit us as www.ksmartin.com