Measuring Overall Equipment Effectiveness: The Good, The Bad and The Ugly


As used by many of today’s companies, the Overall Equipment Effectiveness (OEE) metric has been around a long time. Essentially, the OEE metric reports on how effectively a manufacturing operation is utilized. The conventional practice for computing this performance metric is: OEE = Availability x Performance x Quality.

A cursory review of the literature will reveal that when OEE = 85%, the performance is considered to be world-class. Assuming a uniform weighting, we can reverse-compute the percentage for each of the three OEE components. Doing so reveals that .85^(1/3) = 0.9473, or about 94.73%. To confirm this, we simple compute .9473 x .9473 x .9473 = .85, or 85%. This is to say that if Availability, Performance and Quality are each 94.73%, then OEE = 85%.

Of particular interest, let’s zero in on the Quality component. If the Quality portion of the OEE metric is 94.73%, we can convert this to an equivalent Sigma value. Doing so reveals Sigma = 3.12. Certainly, this level of Sigma is not world-class. In fact, it’s not even average (4 Sigma). Also of interest, a great many sources on the OEE metric advocate a quality rate of 60% is quite typical (i.e., average). Interestingly, this converts to 2.5 Sigma. However, after over 30 years of detailed quality benchmarking, we know the typical level of quality is about 4 Sigma.

To reinforce the latter point, just go to the internet and search for the published defect rates of common products and services. For example, consider airline baggage handling. Today, the number of mishandled bags is about 8.83 per 1,000 (reference: http://www.rfidjournal.com/articles/view?10992). This means the quality rate is currently about 1 – (8.83/1,000) = .99117, or about 99.12%, which directly converts to a Sigma value of 3.87.

So why is there such a large discrepancy between OEE’s idea of a typical level of quality and that validated through years of empirical benchmarking?  How does one reconcile the chasm?

What are your thoughts and opinions?

About Mikel Harry

Dr. Harry has been widely recognized in many of today's notable publications as the Co-Creator of Six Sigma and the world's leading authority within this field. His book entitled Six Sigma: The Breakthrough Management Strategy Revolutionizing the World’s Top Corporations has been on the best seller list of the Wall Street Journal, New York Times, Business Week, and Amazon.com. He has been a consultant to many of the world’s top senior executives, such as Jack Welch, former CEO and Chairman of General Electric Corporation. Dr. Harry has also been a featured guest on popular television programs, such as the premier NBC show "Power Lunch." He is often quoted in newspapers like USA Today and interviewed by the media, such as The Economic Times. In addition, Dr. Harry has received many distinguished awards in recognition of his contributions to industry and society. At the present time, Dr. Harry is Chairman of the Six Sigma Management Institute and CEO of The Great Discovery, LLC.
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