Machine Monitoring and MEMEX's Financial OEE - Financial Overall Equipment Effectiveness

Mark Albert, Editorial Director of Modern Machine Shop, wrote an article titled: 3 Perspectives on Machine Monitoring in the November 2017 edition of Modern Machine Shop.

Mark is a true thought leader in manufacturing, afirst class individual and a long time friend who I always learn a great deal from whenever we speak.  Thanks Mark for another great article!

This article was based on the Top Shops event  that was held in Indianapolis in September and it was the first ever Top Shops put on by Modern Machine Shop. .   I blogged about the Top Shops event here:

Financial Overall Equipment Effectiveness (FOEE) at Data Driven Manufacturing Panel at Top Shops

The section of the article wrote has a section titled: A Financial Angle on OEE

Below are some of the points Mark brings out in his great article:

"Because OEE is an essential measurement of how well a manufacturing unit is doing, it is one of the most prominent “readings” of machine performance provided by almost all machine-monitoring systems. Mr. Edstrom provided another angle on OEE: financial OEE (FOEE). In fact, Financial OEE is a trademarked name for a feature Memex plans to release in early 2018 as an additional solution for those customers who have the MERLIN Tempus Enterprise Edition (EE), a scalable, extensible and open manufacturing execution system platform.

Mr. Edstrom is the CEO/CTO for Virtual Photons Electrons. In 2006, while at Sun Microsystems, he helped create the vision and framework for MTConnect, the set of interoperability standards for translating machine data into a common, internet-based language. He served as president and chairman of the board for the MTConnect Institute from 2010 to 2014 and was the CTO for Memex for three years.

Mr. Edstrom was asked to talk about how OEE could be linked to information about financial results, because the concept of FOEE shows that machine performance data has value to decision-makers in the front office from a business management perspective. Analyzing FOEE helps a shop understand how machine performance is helping (or hurting) profitability. This insight keeps the focus on the most appropriate productivity improvement efforts.

Mr. Edstrom began by defining OEE as a simple mathematical formula. It multiplies the percentages of availability, performance and quality to yield a single percentage. This result enables similar units (one machine, one department, one plant or an entire enterprise) to be compared to or rated against a target such as a plant’s best record or a benchmark of world-class performance. However, shops and plants must also focus on profitability. Managers have to balance decisions about maximizing the part-making capability of their equipment with decisions about the money-making potential of this equipment. OEE ratings alone provide an incomplete picture.

FOEE answers the question, “What is the value of improving OEE on this particular machine for this particular product?” More to the point, it answers “How much profit is being left on the table by not performing at company-best or industry-best levels for that specific part?” FOEE requires three key financial input values for each product and machine. These inputs are unit sales price, unit material cost and the hourly operational expense (OPEX) of the machine. FOEE is the current-state hourly profit divided by a value representing a world-class level of profit. This ratio tells a company what profit it made compared to what profit could have been made at factory-best or world-class levels.

With FOEE, managers can look at jobs scheduled for a machine and make decisions based not just on utilization, but also on utilization and profit. This enables managers to compare machines capable of running a certain job and determine which machine would yield the highest hourly profit. Just as the OEE figure related to each project or job is a key tool in prioritizing and evaluating continuous improvement projects, FOEE provides a quick view of the profitability opportunity for these projects. FOEE is a tool to make better business decisions for scheduling products, guiding continuous improvement efforts, and driving sales and marketing efforts."

As I have previously written, the first "killer app" I ever saw was VisiCalc. For those of you too young to remember VisiCalc, it was the world's first "visible calculator" or electronic spreadsheet and it came out in 1979. I remember demoing it in 1979 and the concept was so different, that it took a little while for people to truly appreciate what was going on, but when they did, they would push me aside and take over the keyboard. At that point, I would start writing up the order :-)

I believe the MEMEX's MERLIN Financial Overall Equipment Effectiveness  (Financial OEE™ - trademark by MEMEX) will be the killer metric for manufacturing, as VisiCalc was the killer app for the entire business world.

Bob Hansen, of OEE College and R.C. Hansen Consulting, LLC, is the creator and the thought leader who coined the term, Financial Overall Equipment Effectiveness (FOEE).

Here is a link to the blog on Top Shops where I included all of my slides from the Tops Shops event.