How do you measure your business or plant effectiveness as a Business Head?

As you are aware the famous quote, "what you measure is what you get."

Measuring is very significant for business performance, and what and how you measure is very critical. If you measure wrong or suboptimal or standalone, then your business performance will also be suboptimal.

Typically, we use to measure our business or plant in the following ways.

1. Utilization perspective :

2.Efficiency perspective :

3. Capacity perspective :

4.Machine hour rate perspective:

5. Yield performance perspective:

All those measures are right and serve the purpose to some extent for what it is intended. For example, you may be measuring capacity utilization as the ratio of production qty/capacity installed, which measures say, for example, 80 %, that means you may conclude that 80 % of the installed capacity is utilized. It may not give the other information like the efficiency during the production and how much actively passed through quality specification and how much cost you incurred and so on.

Likewise, all the above typical measurements will give you standalone, suboptimal information to you about each function, and you need to look at altogether to arrive at some common conclusion about your overall business or plant performance.

To overcome the above limitations only, smart organizations adopt one measure, which will give a holistic view of your plant or business effectiveness rather than standalone performance or utilization or yield performance.

Introduction to Overall Plant Effectiveness  or Overall Equipment Effectiveness :

OPE 

In case your plant is small, one or few lines is determining your business profitability. You can take that line for measurement, which will have a direct correlation with your business performance. You can measure as Overall Plant Effectiveness.

OEE:

In case your plant is relatively large and consists of many types of equipment and lines, you can identify the most critical or constraint equipment, which you can measure holistically. There you can measure as Overall Equipment Effectiveness

In a small, emerging organization, if we apply OPE or OEE rightly, this will have a direct correlation with delivery performance, sales turnover, and profitability, as I have seen in my client organizations irrespective of their manufacturing industry classification.

The measure either OPE or OEE will consider the importance of EFFECTIVENESS rather than any standalone measure like efficiency, utilization, or yield performance. 

Now let us discuss the elements of OPE or OEE :

It consists of 3 parts namely, Plant Utilization, Output efficiency, and product yield performance 

 detailed working is given in OEE Introduction to OPE / OEE measurement

In the picture above, 

the plant utilization is given as 75 % as it is derived from the ratio of working hrs ( 6 hrs)  to available hrs  ( 8hrs)

The output efficiency is given as 83 % as it is derived from utilization data. For example, in a given 6 hrs, the plant supposes to deliver 600 nos ( assume 100 per hour), whereas, the plant produces the actual output as 500 no's. hence plant efficiency is  500 / 600 equals to 83 %

the quality performance is given as 80 % as it is derived from efficiency data, For example, 500 no's produced and 400 no's only pass through the quality test, and the final yield is 400/ 500 equal to 80 %

Hence, Overall Plant Effectiveness (OPE) is a multiplication of Plant Utilization and Output efficiency and Yield improvement, ie, 49 %

So, instead of looking at standalone measure either 75 % plant utilization or 83% people or output efficiency or 80 % yield performance, we are getting a HOLISTIC MEASUREMENT to say  EFFECTIVENESS  as 49 %.

This measure will give you a HOLISTIC idea about your plant's Effectiveness at the end of the day.

Business Implication of EFFECTIVENESS measure:

what does 49 % OPE or OEE indicate?

Given your current sales turnover or profitability, whatever you achieve is due to operating the plant at 49 % effectiveness. If you want to improve sales turnover or profitability, it is only possible by enhancing plant effectiveness measures. Improvement of plant effectiveness measures can be working on plant utilization losses, people efficiency losses, and improving quality issues.

Benefits of Holistic measurement :

1. As this measure encompasses utilization, efficiency, and quality performance, you will get a holistic idea about your plant effectiveness at the end of the day

2. Easy to communicate to all FUNCTIONS 

3. Since all functions involved in the improvement of this measure, this measure enhances engagement

4.Helps to focus on the overall performance of the plant rather than standalone areas

5. It has a direct correlation with sales turnover, profitability 

The action point is to understand your current plant or equipment effectiveness and the reason for the losses and the improvement actions to improve the Effectiveness and, in turn, your business performance.

Shifting the focus from Product Quality to Process Quality

In most of the small and emerging organization, we are observing that people spend enormous time, energy, effort in ensuring product quality through inspecting(in some cases 100 % inspection!) the final component both on functional and aesthetic aspects, segregation, rework and documentation.This kind of focus on a product only leads to “somehow” pushing the product to the customer with high manpower cost and long lead time. Moreover, this will set the belief in the organization that defects are unavoidable and the role of quality function to detect, correct and send it to the customer. Ownership also shifts from production to quality function on both delivery and quality. Eventually, the organization does not improve its problem-solving capabilities and culture of problem-solving at the source.

Instead, the organization can shift the focus more on the process quality than product quality. This shift can be demonstrated by ensuring the product quality at the source of production like pre-inspection of material before the process, providing process parameters through standard operating procedures,implementing mistake proofing devices either to prevent or detect the error at source of production, applying statistical process control, making the operator responsible for production and quality.

This focus on process will help the organization to reduce time, effort, energy in reactive product inspection processes, improve the problem-solving competency across the organization and reduce the lead time.

Shifting towards process quality from product quality, to start within the manufacturing process will be the first step towards total quality management in the organization.