Production efficiency is not easy and studies show most companies are squandering 50% of their key resources—labor and equipment.
Based on 250,000 hours of observation of businesses in a variety of industries, the real overall equipment effectiveness (OEE) is approximately 60%. This performance level has an immediate impact on labor, which typically runs at 50-55% productive. It’s not that people aren’t working. The problem is that they’re toiling away on non-value-added tasks—looking for information, fixing errors and fighting fires.
While it’s not reasonable to expect 100% production efficiency, the best performing companies achieve around an 85% OEE. But how do you do that? Here are five ways to get started on the road to efficiency. Use them to gain a measurable advantage, become more competitive and fatten your bottom line.
1. Build the Foundation
Your foundation for production efficiency needs to address processes, planning and management behaviors.
You need Sales and Operations Planning (S&OP) that aligns finance and operations, tying revenue and cost targets of the financial world to the activity-based measures of operations. Why is this so important? Because it’s how you translate sales forecasts into resource requirements. It also sets the stage for effective production scheduling.
To ensure smooth running processes, you need to take the time to understand and observe the downtime that occurs at the constraints. You’ll see where the bottlenecks occur, when machines jam and workers stray from the line, seeking information or parts. Production, of course, does not work in a vacuum. Support functions will have similar process issues that tend to slow or degrade information that keeps OEE front and center. So, focusing on process and removing operating problems at the constraints enables them all to work together with reduced incidents of downtime.
Lastly, you need managers who actively manage. After all, they control most of the resources that your company consumes, and the decisions they make are critical. Active management includes developing a superior plan, setting clear expectations and direction, and following up to ascertain variances and performance issues. In thousands of studies, we have observed that managers spend less than 2% of their time actively managing their process. Instead, they spend most of their time reacting to unplanned events (fighting fires), performing administrative tasks or plowing through work they should be delegating.
2. Match the Schedule to the business plan
Most companies already have a schedule. The problem is they often don’t work and fail to match the revenue or cost needs of the business. Businesses’ MRP and ERP systems, for example, will be handicapped by inaccurate data, whether that be poor inventory accuracy, inaccurate lead times, bills of material, yield or order quantities. These challenges can and will lead to over production or under production which will quickly lead to excessive schedule changes, which is a major cause for downtime.
If the parameters are right, the next task is to ensure that the schedule expectation (typically in units) matches the revenue expectations of the business in dollars. In turn the schedule must also match the costs that the business has committed to consume in the form of material, labor or equipment.
3. Make the important measures visible
Businesses the world over have more and more data to measure their business. The downside is that it is often difficult to see which data point is the one that is most important. To address this, you need to get clarity on the key drivers of profit, things like downtime at the constraint, yields and schedule attainment. Once you are sure that you have the right measures, make them visible. At the point of execution, visibility will be in the form of operating values. At the leadership level, visibility may be in the form of dollars but they need to be a translation of what is seen at the point of execution. When you make the important things visible it is understood to be important. When you make everything visible the important measures disappear.
4. Manage Downtime with better Management Behaviors
Once you’ve systematized your schedule and made it visible, you will find that there’s downtime to tackle. A manager that actively manages the schedule will find positive and negative variances to scheduled output. Positive variances need to be understood so that they can be duplicated and built into the planning process. Negative variances need to be analyzed and problem solved. Problems may be related to skills deficiencies, which triggers training events. Problems may be related to faulty or cumbersome methods that will trigger observations or a sigma or lean event. Problems may be related to employee behavior, which will trigger a communication event between manager and staff. Lastly the problem may relate to planning or upstream or downstream processes that will trigger an escalation to a more senior level.
5. Get an Objective Viewpoint
You may know that you have operational problems. When you work in an environment daily and are eyeball deep in the pressures of meeting production requirements, however, it may be hard to determine the root causes. That’s why it’s good to bring in a third party who can take a fresh look at the situation. Not only do they view things from a new perspective, but they also have experience with other organizations that help them to identify problems and solutions more rapidly.
Food for Thought: Production Efficiency Gains
A food processing technology supplier was experiencing excessive machine downtime and had little visibility into scheduling and productivity measures. Production suffered, and labor costs rose.
To combat the issue, they asked us to offer the outsider’s perspective and dig into our knowledge base to steer them in the right direction. With our guidance, they streamlined processes in engineering, sales and purchasing, improving information flow and materials management. These front-end changes enabled production to schedule operations efficiently. They installed tools to schedule jobs and increase the visibility of capacity and constraints in manufacturing. Then, they managed actively, taking daily walks around the production floor to review results and take action as necessary.
Management also addressed downtime. Recognizing setup as a major component of lost production time, they pre-staged upcoming projects during machine runs.
With these changes and many others, production efficiency and utilization both increased by 12%. Also, overtime and temporary labor costs reduced by 50%. Now that’s food for thought.
This example shows the rewards available when companies take a proactive, strategic approach to addressing production efficiency.
