OEE as a business case to justify service and upgrade investments

How to use OEE and DuPont model to provide financial justification for investing into service and upgrades

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OEE software
by Marc Leroux

OEE is now universally accepted as a significant Key Performance Indicator (KPI) for all manufacturers. But there is still a strong need to educate people on what OEE is, what it is highlighting from the  operations and what the opportunities for improvement are. I had an insightful discussion with a customer (that I called Fred) who went through all the pitfalls of implementing an OEE project in his organization and discovered many good reasons to do this exercise.

After looking into the three main components of OEE - Availability, Performance and Quality - described in "OEE as a performance KPI", Total Productivity measure described in "OEE as a business KPI", our discussion shifted to financial terms.

How service investments help drive profits

Did you know service investments help drive profits? It’s true. In fact, it may be the best investment you could make. By influencing Overall Equipment Effectiveness (OEE), service contributes to greater quality. Greater quality leads to profitability. So don’t cut costs or raise prices; find out why service is a better long-term option.

Justifying projects to the “C” level

The upper management often consider OEE as a manufacturing metric, not a business metric. How to change that perception?

In the article "OEE as a financial KPI"  I showed a diagram based on the DuPont model to visualize the impact that manufacturing improvements can have on financial performance.

I have found that engineers aren’t very comfortable explaining improvements in financial terms, and that hurts them when they are trying to justify projects to the “C” level, particularly to the CFO. I’ve found that the DuPont model is a great way to depict the impact that manufacturing can have on financial performance. It links OEE to the metrics that the “C” level understands very, very well.
Engineers aren’t very comfortable explaining improvements in financial terms, and that hurts them when they are trying to justify projects to the “C” level, particularly to the CFO

The DuPont Model of Financial Analysis

More explanations for the above diagrams in "OEE as a financial KPI"

Will your service and upgrade project improve OEE?

Fred was impressed with the results and asked for a copy of the spreadsheet I used to build the above model. I got a call from him about three weeks later. He started the conversation by saying “You need to come down here and buy me lunch real soon.”

I agreed that would be a good thing to do and asked if there was any special reason. He explained that he had sat down with his controller, and they had jointly put together a presentation for the executive level. “That went really well. They’ve asked me to start a new project to look at how we could implement some of the ideas.”

I replied that it sounded like he should be buying me lunch if that was the case. Fred started to laugh; “Right! No, you’re buying. Now I have all this extra work to do!”
Now that people understand the value of OEE, it looks like we can provide the justification for some of those upgrade projects we were talking about.

OEE meaning

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