- OEE is a vital metric to most manufacturers, but it is even more beneficial when you view OEE as a financial KPI.
- When converted to a dollar amount, OEE is more widely understood by everyone in the factory.
- Learn how to calculate the cost of OEE using downtime, performance, and quality. (See below for formulas.)
- The cost of OEE helps identify the financial impact of running faster, reducing downtime, and reducing scrap.
The Cost of OEE: Without Context, A Number is Meaningless
OEE as a Financial KPI
OEE Can Provide Other Financial Benefits, Too
“How do I Calculate the Financial Impact of OEE?”
Example of Calculating Downtime
- Total Downtime = 90 minutes
- Hourly Cost with Labor and Overhead = $80
Downtime in Minutes / 60 = Cost of Downtime in Hours
90 / 60 = 1.5
Downtime in Hours * Hourly Cost = Cost of Downtime
1.5 * $80 = $120.00
Example of Calculating Performance
- Ideal cycle time = 30 seconds per part or 2 parts per minutes
- Operating time = 390 minutes
- Actual quantity produced = 730
Operating Time * Ideal Cycle Time in Parts per Minute = Total Target Quantity
390 * 2 = 780
Total Target Quantity – Actual Quantity Produced = Production Deficit
780-730 = 50
Production Deficit / Ideal Cycle Time in Parts per Minute = Minutes to Make Up Part Deficit
25 / 60 = 0.4167
Hours to Make Up Part Deficit * Hourly Cost = Cost of Performance
0.4167 * $80 = $33.34
For clarity, the target total quantity is based on the standard. For example, if you can produce 60 parts an hour and you’ve been running for 1 hour, you should have produced 60 parts. In reality, you’ve only produced 41 which means your 19 parts short of your target.Once, you’ve calculated the production deficit, it will be applied to the next formula of determining quality.
Example of Calculating Quality
- Part Cost = $121
- Total Scrap = 980
Total Scrap * Part Cost = Cost of Quality
9 x $121 = $1,089.00