Every successful production schedule starts with a single, powerful metric: overall equipment effectiveness (OEE). For supply chain professionals, mastering OEE isn't just important — it's the key to unlocking your company's true manufacturing capacity. By measuring what a machine can produce, OEE empowers you to create smart, viable schedules that align with what's actually possible on the factory floor. 

What is OEE?

According to the ASCM Supply Chain Dictionary, OEE is the measurement of the effectiveness of a company’s equipment based on the product of its availability, performance and production quality. Fleshing that out a bit, it’s a gold-standard metric that helps manufacturers understand finite capacity by recording and learning from losses in these three key areas.  

To calculate OEE, you first must break down machine availability, performance and production quality. Then, by multiplying these factors together, you get the OEE score, which is expressed as a percentage. 

Availability captures all downtime losses, including breakdown and preventive maintenance, minor stops, and time spent in setup or changeover. It’s calculated as actual operating time divided by planned production time. For instance, a packaging line might experience downtime due to an unexpected equipment failure or a planned two-hour changeover for a new product, which reduce its actual operating time.  

Begin by figuring out actual operating time by subtracting downtime losses from the planned operating time: 

Actual Operating Time = Planned Operating Time – Downtime Losses 

Now, you can calculate availability: 

Availability = Actual Operating Time ÷ Planned Production Time

Next, performance captures loss in productivity when equipment must be run at less than the throughput rate. For example, chemical batches can take longer to heat up or react if residue has built up on vessel walls, thus impeding heat transfer. Similarly, rotating machinery, paper winding equipment or plastic film processing equipment might run at slower speeds if bearings are worn.  

Performance is calculated as follows:

Performance = Actual Throughouput ÷ Rated Throughput 

Finally, quality captures the loss in equipment productivity when an out-of-specification product is made, including material that must be scrapped or reworked to be acceptable, as well as yield losses during startup or when coming back from a product changeover. A bottling company may need to rework bottles that were improperly labelled; a batch of machined metal components could be out of tolerance and must be scrapped; or an electronic circuit board fails a final test due to a soldering defect, which requires it to be reworked.  

Following is how to calculate quality:

Quality = Quantity of First-Grade Material ÷ Total Quantity Produced 

Now that you have availability, performance and quality, OEE is then calculated as follows: 

OEE = Availability × Performance × Quality 

So, if you have the following results: 

• Availability = 93.75%
• Performance = 80%
• Quality = 95%

Then, OEE = 0.9375 x 0.80 x 0.95 = 0.7125 

This means your operation is running at 71.25% of its full potential.

Note that OEE can be measured manually, with operators recording unplanned downtime and causes, time lost doing changeovers, equipment slowdowns required by poorly performing equipment, and defects and scrap. However, there are also automatic performance-monitoring systems, which are connected to the programmable logic controllers controlling the line equipment to track flow issues electronically. The best of these also do an effective job of analyzing the measurement results and presenting them on electronic dashboards. 

The benefits of measuring OEE

By identifying the three core components of OEE — availability, performance and quality — you can gain a clear, data-driven understanding of your equipment's true capabilities in order to create more realistic and achievable schedules and avoid costly over-promising. Instead of relying on guesswork, OEE provides the numbers needed to create schedules that align with what your equipment can truly produce, leading to higher throughput.

OEE also serves as a guide for continuous improvement efforts. By pinpointing exactly where your losses are occurring — whether it's due to unexpected downtime, minor slowdowns or quality defects — OEE tells you where to focus your resources and improvement initiatives.

A robust OEE tracking system is also a cornerstone of successful total productive maintenance, which the ASCM Supply Chain Dictionary defines as preventive maintenance, plus continuing efforts to adapt, modify and refine equipment to increase flexibility; reduce materials handling; and promote continuous flows. Traditionally, there has been a view that reliability and availability could be increased by increasing the maintenance budget. TPM breaks that paradigm by enabling reliability and availability to be raised without budget increases. In fact, TPM frequently reduces overall maintenance cost, even while increasing equipment uptime.

Because operators are now doing all routine maintenance, fewer mechanics may be needed. With less frequent breakdowns, fewer repair parts are consumed. OEE is one of the best measures of how effective your TPM programs are, and detailed OEE measurements tell you where to focus improvement efforts as a component of TPM initiatives. 

Nonstandard OEE metrics

Although there are clear standards on what losses should be included in the OEE metric and how to calculate it, many plants don’t follow the standard. There are several possible reasons for this: a lack of understanding of what should be included, the process being perceived as too difficult, a deliberate attempt to hide problems, or a strategic decision to emphasize factors considered most important for improvement. 

The first two reasons — a lack of understanding and perceived difficulty — can often be overcome with better education on the value of OEE as a driver of productivity. The third is the least excusable and requires a change in corporate culture. The message from leadership must be clear: OEE is not a metric to be used for punishment; it is a tool to understand where and how an operation can improve. Using a different formula to emphasize specific factors can be appropriate, as long as it isn’t done simply to hide embarrassing data, and the included factors are truly where the operation most needs to improve. Also, everyone involved must understand what is actually being measured.

Another common mistake is multi-plant companies using a different version of OEE for each plant. This is often done because plants want to look better when compared to their sister plants. Not only is this a poor practice, but it's also unfair, as different plants may have different generations of equipment or more difficult product mixes. 

Beyond the metric

OEE can be a very useful metric to drive improvements in operating performance, which is the ultimate goal of TPM. It does this by highlighting the various wastes that impede smooth flow and require additional inventories and can therefore drive lean improvement. But it must be done with full understanding of what is being measured and how to interpret the results. And maximizing OEE must be a team effort that involves all qualified employees in maintenance activities. Only then will it provide a realistic view of true capacity, leading to significantly improved schedules.