How OEE Impact Profit & Loss

The Relationship Between OEE and P&L: How to Improve OEE Many businesses overlook the relationship between Overall Equipment Effectiveness (OEE) and Profit & Loss (P&L). What these businesses need to realize is that improving OEE can have a major impact on the bottom line. So first, we’ll discuss the relationship between OEE and P&L and some strategies for improving OEE. How to calculate Overall Equipment Effectiveness in manufacturing plants?  OEE is a term first used in the 1960s by Seiichi Nakajima as part of his Total Productive Maintenance program. It measures how well a manufacturing operation is utilized and is calculated by multiplying three factors: Availability, Performance, and Quality. The first step in calculating OEE is to determine your plant’s Availability. This is the percentage of time that your equipment is operational and available for use. To sum it up, divide the total amount of time your equipment is active by the total amount of time it could be functional. For example, if your equipment is operational for 8 hours out of 10, your Availability would be 80%.

(Run Time = Planned Production Time – all planned and unplanned stops)

The second step is to calculate performance. This considers slowdowns due to start-up or shut-down procedures and breaks for maintenance or repairs. To calculate performance, you need to know two things: your equipment’s Ideal Cycle Time (the minimum amount of time necessary to produce one good unit) and your Actual Cycle Time (the actual amount of time required to make one good team). Once you have those numbers, divide your Actual Cycle Time by your Ideal Cycle Time. For example, if it takes 5 minutes to produce one good unit, but it could take 4 minutes if everything went perfectly, then your performance would be 80%. The last step in calculating OEE is Quality. Quality accounts for scrapped units, units that fail inspection. To calculate the Quality, you need to know two things: the Total Units Produced during the shift and the number of Good Units Produced during the change. Good Units are units that meet all quality standards set forth by the customer or end user. To calculate the Quality, divide the number of Good Units by the Total Units Produced. For example, if you produce 1,000 units and 950 of them are good during a shift, your Quality would be 95%. Now that we’ve gone over how to calculate the three individual components of OEE—Availability, Performance, and Quality—we can put them all together to get an overall picture of how effectively our manufacturing plant is running. To do this, multiply Availability x Performance x Quality. Using our earlier examples

OEE Waterfall Chart: The chart below illustrates all potential root courses that contribute to the result of OEE in Availability, Performance and Quality.

How Does OEE Impact P&L?

OEE impacts P&L in two ways: through production losses and scrap costs. Production losses occur when machines are down or running at less than full capacity; this results in lost production time and opportunities. Scrap costs arise when machines produce defective parts; these parts must either be reworked or scrapped completely, which incurs additional charges. By reducing production losses and scrap costs, businesses can improve their P&L statement. Now that we’ve discussed how OEE impacts P&L, let’s take a look at some strategies for improving OEE:

Expand to the Six Big Losses

The three OEE factors, Availability, Performance, and Quality, are associated with six extremely common losses in discrete manufacturing. As a result, the Six Big Losses are an outstanding framework for understanding and, most importantly, for taking action on losses exposed through your OEE initiative.

How can I improve my company’s OEE? 

Many factors contribute to OEE, and each company is different, so it is important first to assess to see where there is room for improvement. Once you have identified areas for improvement, there are some general steps you can take to improve your company’s OEE:
TIMWOOD is an acronym for the seven (7) wastes found in manufacturing: Transportation, Inventory, Motion, Waiting, Overproduction, Overprocessing, and Defects.


Improving overall equipment effectiveness (OEE) can significantly impact profitability; however, many businesses overlook the relationship between OEE and profit & loss (P&L). We discussed how OEE impacted P&L through production losses and scrap costs and shared some strategies for improving OEE levels within your organization. Implementing these strategies can improve your bottom line while reducing production losses and scrap costs.

By regularly calculating OEE for our manufacturing plants, we can stay on top of our operation’s effectiveness and make changes as necessary to keep things running smoothly.

Colin Koh (許国仁)
Colin Koh (許国仁)

Industry Leader I Author I Speaks regularly at | IoT | Industry 4.0 | Smart Manufacturing | Digital Transformation | Energy | 30K Followers

Butuh bantuan untuk meningkatkan OEE PABRIK ANDA?

Klik tombol dibawah ini

Table of Contents