REDwire Determining the connection between real-time income and plant performance

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Financial Overall Equipment Effectiveness (FOEE) can accurately quantify where a manufacturing company is making or losing money on a per part and per machine basis.

There are two questions that anyone in manufacturing management needs to know – “How well is my plant running?” and “Am I making money?”

Manufacturing management needs a proven methodology to determine the profit dollar value of their decisions, connecting the plant floor to the income statement in real-time. Financial Overall Equipment Effectiveness (FOEE) can accurately quantify where a manufacturing company is making or losing money on a per part and per machine basis.

The foundation for Financial OEE starts with the metric Overall Equipment Effectiveness (OEE). OEE is defined as Availability multiplied by Quality multiplied by Performance. For example, world-class OEE is 85 per cent with each of the three factors being at 95 per cent. While OEE is certainly an important metric, it tells management absolutely nothing about the financial side of manufacturing. If you don’t know the relationship of the financials to OEE, the ability to laser target where to start to maximize profit potential is non-existent.

The bridge across OEE to Financial OEE is constructed with a few key planks that can be visualized as connecting the specific details on what is happening on the shop, at the per part level, per machine or manufacturing asset basis, to your income statement.

On the shop floor side of the bridge are the following inputs into Financial OEE:

  • Data generated by the manufacturing equipment and the operator input panel;
  • A mechanism to get data off your manufacturing equipment, such as MTConnect, FANUC FOCAS, OPC or any of a number of proprietary protocols and methods; and
  • Manufacturing Execution System (MES) or Manufacturing Operations Management System (MOMS).

Manufacturing management and operators alike are using shop floor monitoring systems to track the making of parts to improve their equipment utilization. As plants and shops start to utilize real-time data to monitor their shop floors, the next logical question is: “What are the financial impacts of the decisions that occur on the manufacturing floor?” In order to answer that question, we need to build the other side of our Financial OEE bridge.

On the financial side are the following inputs into Financial OEE:

  • An ERP system that has financials broken down to the individual part and manufacturing asset level and associated job-costing data;
  • Product standards and product-specific manufacturing data by product and by workstation; and
  • A shop Application Programming Interface (API) that is used to speak bi-directionally with ERP systems and other data silos.

There are many ERP systems being used today in shops and plants. The ability to speak to these systems in real-time in a bidirectional fashion is critical to the success of Financial OEE. 

The true benefits from Financial OEE come when questions such as the following are asked, and ultimately answered, by a thorough understanding of this key FOEE relationship.

  • What continuous improvement path or roadmap should I take to improve my performance to maximize profits?
  • Where in the manufacturing operation should I start?
  • What specific activities make the biggest impact to maximize profits?
  • What is the ROI for effort expended?

Financial OEE allows leadership teams to see exactly how much “hidden factory” exists. Current profit will be more accurate and future profit projections based on projected volumes and upcoming product mixes will be much more realistic.

To read the full article, click here. It was written by David McPhail, president and CEO, Memex Automation, and Dave Edstrom, CTO, Memex Automation.