Identification of Improvement Factors through Overall Equipment Effectiveness (OEE)

Measurement in Manufacturing Company

Chong Chi Xin

Yunos bin Ngadiman
Faculty of Technology Management and Business
Universiti Tun Hussein Onn Malaysia
[email protected]

Abstract: This study intended to apply Overall Equipment Effectiveness (OEE) as a performance
measurement tool to measure the effectiveness and performance of the production machines in
the selected industrial manufacturing plant. For the purpose of this study, three production
machines were selected from Company V which situated in the Senai industrial area from Johor
Bahru. Apart from this, the issues and improvement factors affecting the OEE figures were
discussed as part of the findings. A case study approach was chosen to conduct the study. This
study employed quantitative method to conduct the analysis part of the study where empirical data
will be computed to provide typical information for decision making. The primary findings of this
study were the possible improvement factors that dominantly affect the equipment effectiveness of
production machines in the selected industrial manufacturing plant. These findings were used to
serve as a guideline to improve the existing problem for the selected production machines. The
expected of result will be identify improvement factor based on the lowest performance rating of
production machines. Ultimately, it was recommended that the selected industrial manufacturing
plant employs OEE as their primary performance measurement tool.
Keywords: Overall Equipment Effectiveness, performance measurement tool, manufacturing
company.
1.0 INTRODUCTION manufacturing process namely the
availability rate, performance rate and quality
Industrial manufacturing has gradually taken rate. The measurement taking account of
over traditional business and expanded it to these three essential elements of a
mass produce and dominate the local manufacturing process evaluates and
economy and eventually the global economy. indicates how effectively a manufacturing
According to Huang et al. (2003), due to operation is utilized. The evaluation supports
intense global competition, companies are the betterment of equipment effectiveness
striving to improve and optimize their and its productivity. Huang et al. (2003)
productivity in order to remain competitive. stated that the OEE concept is becoming
Fleischer et al. (2006) stated that the increasingly popular and has been widely
competitiveness of manufacturing utilized in industries over the world as a
companies depends on the availability and quantitative tool essential for measurement
productivity of their production facilities. The of productivity especially in the
manufacturers have to identify the production semiconductor manufacturing operations.
losses and eliminate them in order to remain Manufacturers in other industries have also
competitive. The condition has triggered the employed OEE as a quantitative
need for a rigorously defined performance measurement tool to improve their total asset
measurement system that is able to take into utilization.
account different essential components of Therefore I choose OEE as my study
productivity in a manufacturing process. field to measure the effectiveness of the
Nakajima (1988) had launched a production machines of an industrial
total productive maintenance (TPM) concept manufacturing plant. The result of OEE can
to offer a quantitative metric namely the evaluate the plant’s current performance and
Overall Equipment Effectiveness (OEE) for from there we can seek for the improvement
measuring productivity of individual factor.
equipment in a manufacturing plant. The
quantitative metric (OEE) can identifies and
measures losses of crucial parts in a
1.1 Background of Study utilization of the industrial manufacturing’s
plant’s overall equipment. As to achieve high
According to Malaysian Industrial utilization or effectiveness of the overall
Development Authority (MIDA, 2005), equipments in an industrial manufacturing
manufacturing is the largest economic drive plant, a series of factors has to be identified.
in Malaysian industrial development
constituting 32% of overall economic and An interview has been conducted with the
specifically 79% of the total exports to other production manager of few company to
countries in comparison to other contributing identify the problem related to production
sectors. Referring to the same source, machines. From the feedback I noticed that
Malaysia is reported as one of the world’s Company D, Company S and Company V
largest exporters of electronic and having the issue related to production
semiconductors components. Achievement persists. According to the production
for better economic pursuit in Malaysia is manager, Company V does face some
greatly influenced by manufacturing productivity issues recent months. Few
industries and hence, focuses and attention operating machines do not achieve the
should be allocated for the company to expected productivity level. The production
further improve and maintain the manager also stated the need for the
development. immediate identification of the root cause that
impede the productivity. Hence, OEE was
In conjunction with the stated report that selected as an appropriate performance
electronic products is Malaysia most measure to identify the losses in the current
dominant manufacturing company for operations.
exporting, Company V has been chosen for
this study. Company V is situated in the Senai 1.3 Study Question
industrial area from Johor Bahru. The
company specialist in Plastic Injection 1. How to identify the current
Molding(one of the largest in the region), performance and effectiveness of
Plastic Secondary Finishing, Tools design a manufacturing company’s
and fabrication, PCB assembly via Surface production machines?
Mount Technology(SMT), Auto Insertion(AI), 2. What causes the fluctuation of the
Chips on Board(COB), Manual Insertion(MI), Overall Equipment Effectiveness
Final Product Box Build having the same of a manufacturing company?
capability like any world renowned Electronic
Manufacturing Services companies. 1.4 Objectives of Study

1.2 Problem Statement 1. To identify the current

performance and effectiveness
According to preliminary study noted that of a manufacturing company’s
OEE began to be recognized as a production machines through
fundamental method for measuring plant Overall Equipment
performance in the late 1980s and early Effectiveness measurement.
1990s during the emergence of maintenance 2. To identify the improvement
benchmarking, introduction of Total factors through Overall
Productive Maintenance and the founding of Equipment Effectiveness of a
the Society for Maintenance Reliability manufacturing company
Professionals. It can be implied that OEE is
still unfamiliar with for those company in 1.5 Scope of Study
Malaysia and majority of Malaysia company
did not even practice OEE. As Malaysia is A manufacturing company has been selected
growing rapidly towards industrialization, it is to carry out this study as suggested by final
very important to implement an effective year project title: Identification of
method to improve the productivity and Improvement Factor Through Overall
contributes to the growth of industries. The Equipment Effectiveness (OEE)
implementation of OEE has to see their Measurement in Manufacturing Company.
predominant factors that exist to affect the The company selected for this study is
located in Senai industrial area from Johor the ideal OEE figure, the 1% OEE
Bahru. The reason is because time improvement effect and the previous study
constraints and financial constraints of the done. The reviews provide extensive
study as nearer to my hometown Kulai. The knowledge related to OEE from the
study is focused on the production machine development of OEE as a measurement tool
effectiveness related to the production. The to its theoretical concept to its application and
findings obtained from the study are not functions in company.
generalize-able and can only be
recommended as a suggestion to the 2.1 Overview of OEE
selected plant. OEE measurement tool was developed from
1.6 Significance of Study the Total Productive Maintenance (TPM)
concept launched by Nakajima (1988). OEE
This study applied the use of Overall is defined as a measure of total equipment
Equipment Effectiveness extensively to play performance, which is the degree to which
as a performance indicator measurement tool the equipment is doing what it is supposed to
and also to identify the improvement factors do (Williamson R.M., 2006). Bulent Dal, et al
of the production machines in an industrial (2000) stated that OEE is used for tracing and
manufacturing plant. The study is to tracking improvements or regression in
showcase the practicability of OEE in equipment effectiveness over a period of time.
measuring a plant’s performance and outline Production losses, together with other
the capability and usefulness of OEE as a indirect and hidden costs, constitute the
benchmark tool for continuous improvement. majority of the total production costs
As studied, OEE provides clear visibility on (Ericsson J., 1997). Nakajima (1988)
the performance status in a manufacturing suggests that OEE was a measure that
plant and a powerful lever of control. Thus, it attempts to reveal these hidden costs.
is hoped through the comprehension of this
study, the selected company will apply OEE 2.2 Purpose of OEE
in their manufacturing plant for a better The OEE measurement can be applied at
measurement of performance. It is also several different levels within a
hoped that the findings of the study provides manufacturing environment. Firstly, OEE can
a potential guideline or suggestion to the be used as a benchmark for measuring the
studied plant to improve its equipment initial performance of a manufacturing plant
effectiveness and efficiency. Lastly, the study in its entirety. In this manner the initial OEE
is hoped to be used as a reference or measure can be compared with future OEE
guideline to other manufacturing plant and values, thus quantifying the level of
also a source for future study in fields improvement made. Secondly an OEE value,
relevant to OEE. It is hoped that this study on calculated for one manufacturing line can be
OEE contributes to the library of knowledge used to compare line performance across the
relative to OEE and will be embodied as a factory, thereby highlighting any poor line
part into the body of knowledge or the mass performance. Thirdly, if the machines
collection of literatures of this context since process work individually, an OEE
there are less study on this context being measurement can identify which machine
conducted in Malaysia. performance is worst, and therefore indicate
2.0 LITERATURE REVIEW where to focus TPM resources (Bulent Dal, et
al, 2000).
In this chapter, information or literature
related to Overall Equipment Effectiveness 2.3 Chronic and Sporadic Disturbances
(OEE) has been reviewed thoroughly for a Losses are caused by activities that absorb
clear and comprehensive understanding of resources but create no value. Therefore, it is
the OEE measurement itself. This chapter crucial to understand and measure
reviews the overview of OEE, the purpose of disturbances to the manufacturing process
OEE, the chronic and sporadic disturbances (Bulent Dal, et al, 2000). Johnson and
in the measurement, the six big losses and Lesshammar (1999) stated that the losses
taxonomy of OEE, the components in OEE are due to manufacturing disturbance and
measurement and the example of calculation, classify the disturbance as either chronic or
sporadic according to their frequency of
occurrence. Chronic disturbances are
defined as small, hidden and are as an
outcome of several concurrent causes. On Quality rate in OEE measurement takes
the other hand, sporadic disturbances are account of quality loss. Quality loss as
more significant as they quickly and have defined in the literature is the factors that
large deviations from the normal state. produced pieces that do not meet the quality
Sporadic disturbances are more significant standards, including pieces that require
as they occur quickly and as large deviations rework.
from the normal state. Sporadic disturbances
occur irregularly and their dramatic effects
are often considered to lead to serious
problems. However, research evidence
2.6 Ideal OEE Figure
suggests that it is the chronic disturbances
that result in the low utilization of equipment Nakajima (1988) suggested that ideal values
and large costs because they occur for the OEE component measures are: i.
repeatedly (Nakajima, 1988). Availability in excess of 90 percent; ii.
Performance efficient in excess of 95 percent;
2.4 The Six Big Losses
iii. Quality in excess of 99 percent. Such
As discussed, OEE was designated to levels of availability, performance and quality
identify these losses. It is essentially a as suggested would result an ideal OEE
bottom-up approach where an integrated scores of approximately 85 percent. The
workforce strives to achieve OEE by literature concerning appropriate levels of
eliminating the six big losses (Nakajima, availability, performance and quality is
1988). The six big losses are categorized as vaguely defined (Bulent Dal, et al, 2000).
breakdown, waiting, minor stoppages,
2.7 The 1% OEE Effect
reduced speed, quality defects and start-up
losses. Breakdown and waiting are downtime
losses considered for availability rate, minor
stoppages and reduced speed are speed
losses considered for performance rate and
quality defects and start-up losses are quality
losses considered for quality rate.
2.5 Components in OEE

Availability refers to the machine or cell being

available for production when scheduled.
Availability component in OEE measurement
is concerned with the total stoppage time
resulting from unscheduled downtime,
process set-up and changeovers, and other From the table, the 1% increase of OEE can
unplanned stoppages (Bulent Dal et al, 2000). generate an extra RM 179 per hour rate.
From another perspective, it can be viewed
as a reduce in loss due to waste by RM 179
per hour rate, which is RM1,432 for an eight
Performance rate takes speed loss into hour shift per day, and a sum of RM 7,160
account which includes all factors that reduction in loss for a week.
caused the process of the equipment to 2.8 Previous Study
operate less than the optimum speed.
Performance is determined by how much Yunos et al (2011) successfully developed a
waste is created through running at less than practical new approach named the Overall
optimal speed. Equipment Efficiency on the basis of Overall
Equipment Effectiveness to measure the
performance efficiency of the high capital
equipment purchased in public universities in 3.0 METHODOLOGY
Malaysia.
Ir. K. Batumalay and Dr A. S. Methodology was performed to ensure that
Santhappraj conducted a research on all the data and information obtained during
applying OEE through TPM in Malaysia. The the data collection phase were suitable to
outcome of the research shows the meet the requirement of the study objectives.
predominant TPM pillars (autonomous A case study protocol was structured in this
maintenance, focussed maintenance, chapter as a guideline to conduct the overall
planned maintenance, quality maintenance, flow of the study. The protocol is to be
training & education, safety, health & created prior to the data collection in a single
environment, office TPM, and development case study. Robert K. Yin (2003) presented
management) indeed has impact on the OEE. the protocol as a major component in
Bulent Dal et al (2000) present a asserting the reliability of the case study. A
practical analysis of operational performance typical protocol should have the following
measurement at airbags international Ltd sections:
(AIL) with OEE. The researchers discussed
the potential benefits of developing OEE as • An overview of the case study
an operational measure and contrasts AIL’s (Objectives, issues, literature review)
performance with other application of OEE. • Field procedures (credentials and
The adoption of OEE as the primary access to sites and sources of
performance measure for the weaving information)
department at AIL has highlighted a number • Case study questions (Specific
of weakness. Utilizing OEE, both the questions that the investigator must
operators and management became fully keep in mind during data collection)
aware of what constitutes waste, and how • A guide for case study report (Outline,
such activities could be controlled and format for the narrative)
managed more effectively.
C.J. Barner et al (2003) defined OEE
and explore the purpose of this concept in 3.1 Study Design
modern operations. Their work discussed
OEE as a total measure of performance that The purpose of research design is to answer
relates the availability of the process to the the research questions where every method
productivity and quality of the product. In their has a special feature of technical and data
research, they also stated that the concept of analysis (Mohamad Najib, 1999). This study
OEE was appropriate to all operations was attempted to provide an independent
containing plant and machinery. It was assessment of the applicability of OEE as a
discussed that OEE can be used with an performance measure in an industrial
internally focused benchmark where an manufacturing plant. Therefore, a case study
organization set improvement objectives. approach is appropriate and chosen as the
The research has shown that the most study design. Robert K. Yin (2003) noted that
successful method of employing OEE is to case studies are suitable to obtain the real
use cross-functional teams aimed at data or collect information through interactive
improving the competitiveness of business. methods to achieve the objectives and
Lastly will be the research conducted answers to the research questions.
by Ki Young Jeong and Don T. Philips (2001)
This study utilized quantitative method in the
presenting a methodology for constructing a
data analysis. Prior to the analysis, data
data collection system and developing the
collected were in two forms, primary and
total productivity improvement visibility
secondary data. Primary data was obtained
system to implement the proposal OEE and
by conducting cordial interview with the
related analyses. In the research, it is stated
production manager to acquire more
that accurate estimation of equipment
knowledge on the issues occurred in the
utilization is very important in capital-
production machines while secondary data
intensive company since the identification
collected were such as production times,
and analysis of hidden time losses are
production downtime, preventive
initiated from these estimates.
maintenance duration and other required 3.4 Secondary Data
data in the OEE measurement.
Working The number of working hours as
3.2 Case Study Protocol hours according to full work schedule.
The full work schedule consists
The case study protocol constructed is to of working hours for different
ensure the process of the study to conduct shifts and days of operation.
smoothly. Each item in the flow depends on Number of The number of units produced
the successful completion of the previous units per week.
item. It is therefore important not to skip a produced
single step to ensure the successfulness of Planned Planned downtime includes time
the study. The list of items in case study Downtime for rest interval, planned
protocol in sequence: maintenance activities, waiting
or idling time and initial testing
1. Preliminary interview with the
time.
production manager
Unplanned Unplanned downtime includes
2. Identify objective and scope of
Downtime stoppage time due to
research
unexpected events and
3. Literature review
changeover and set-up time.
4. Data collection – Primary data and
secondary data Machine The length of time for production
5. Data analysis – Quantitative analysis Time machine to produce each time.
using Microsoft Excel Units Quantity of defect products per
6. Discussion and scrapped week
conclusion The data collected from Company V were as
categorized in the table above. Much of the
3.3 Interview data obtained were not suitable for direct
application into the OEE formula and needed
The interview is a two-way conversation that to be reconfigured in order to be useful for
gives the interviewer the opportunity to OEE measurement.
participate actively in the interview (Robert K.
Yin, 2003). Interview is one of the most 3.5 Data Analysis
important sources of case study evidence.
The interview can focus more directly on A spreadsheet was prepared to simplify the
areas that are related, at the same time being OEE calculation. The spreadsheet was
insightful and providing perceived causal designed to follow the production process of
inference. the machine from beginning till end listing
the potentially lead to losses. The four
The respondent that involved in the interview week’s data for each production machine A,
section was the production manager. B and C were entered into the spreadsheet
Selected interviewee was considered to be which includes:
involved in the performance measurement
process and operation process of Company 
V. The type of interview was face to face 
interview which involved direct meeting with 
the interviewee. It was an unstructured 
interview which is informal and do not offer a 
limited, pre-set range of answers for a 
respondent to choose. The questions were 
adapted to meet the respondent's 
intelligence, understanding or belief. Through 
the process of interview, the issues or  Changeover and set-up time (min)
problems existed in Company V and the 
operations of the selected production 
machines were better understood. 


  Quantity produc Johnson. H.T. and Lesshammar. M. (1999)
 “Evaluation and improvement of
 manufacturing performance measuring
 systems - the role of OEE.” International
 OEE rate (%) Journal of Operations & Production
(Source: Chan 2013) Management. 19(1): 55-78.

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