What Is Overall Equipment Effectiveness And Why Is It Important For An Organization?

The key to success in business is achieving optimal productivity as far as your resources are concerned. There are KPIs or key performance indicators for both workers and equipment. When it comes to equipment productivity, measurement is done by overall equipment effectiveness or OEE. 

The effectiveness of your equipment would depend on QPA or quality, performance, and availability. The goal of any organization is achieving zero defective parts as quickly as possible with the least downtime. A score of 100% in all three pillars would mean your organization is performing at the highest possible efficiency.

Calculation Of OEE

Now that we know what OEE is, let’s see how it is calculated. In very simple terms, OEE is calculated by multiplying the three components that decide OEE – Quality X Performance X Availability. Each component needs to be calculated before we can start the oee calculation


The higher the good parts compared to the total parts manufactured, the higher the quality. The formula for measuring quality is good count or total count. Optimal quality is achieved when the parts that don’t require rework or meet quality standards are minimized.


The faster the production, the higher the performance. It is measured as the ratio of Net Run Time/Run Time. Performance is optimized when the manufacturing process is running at the maximum possible speed.



The lower the equipment downtime or stop time, the higher the availability. It is the ratio of Run Time/Planned Production Time. You can achieve optimal availability when the manufacturing process has the highest uptime. 

The quality, performance, and availability of your equipment would depend on the predictive maintenance strategy of your organization. Predictive maintenance is the latest version of preventive maintenance, where the condition of your assets is monitored using sensors. You will know when maintenance needs to be scheduled or when the asset needs to be replaced. 

Reasons Why OEE Is Important For Your Organization

OEE is the gold standard when it comes to measuring the effectiveness of manufacturing. Here are some reasons why your organization needs OEE –

Higher Revenues

There is a direct correlation between productivity and profits. If your equipment is running at optimal capacity with minimal wastage and the highest quality, your long-term strategic objectives are met. When you can provide the best products and services in a time-bound manner with OEE, client satisfaction will be higher and you will get more business. 

Higher ROI

Equipment requires substantial investments when it is purchased along with recurring operational expenses. You can measure the productivity of your equipment with OEE and make the changes needed to increase it. With higher productivity, you produce more with the same equipment and increase revenues without increasing manufacturing costs.

With higher revenues at the same investment cost, you add to your bottom line. Your ROI or returns on investment are higher. 

Optimal Performance Of Machinery

With OEE, you can determine the six big losses that hinder the optimal performance of your machinery. These losses can be found in performance, availability, and quality. We look at each loss individually. 

Availability losses can be classified into equipment failure and set up and adjustment losses. While equipment failure is an unplanned stop, set up and adjustments are planned stops. 

Performance losses are of two types – Idling and minor stops and reduced speed. Small stops include idling and minor stops, while reduced speed comes under slow cycles. 

Quality Losses can be divided into process defects and reduced yield. Production rejects are process defects and startup rejects lead to reduced yield. 

When you take remedial measures for these six biggest losses that lead to equipment-based productivity loss, you achieve OEE or fully productive time. 

You can see visible improvement in the performance of your machinery after the implementation of OEE in a short time. You can start with the new machinery and then implement it to other existing machines. 

Improves Productivity At All Levels

Information regarding the production process is available at all levels of the organization, from the shop floor to the top management. Each member of your organization gets an insight into what needs to be improved and can act accordingly. OEE encourages problem-solving as a team and fosters an environment of healthy competition between teams. 

OEE provides valuable inputs to top management so that they can take strategic decisions in a more informed way. This ensures that your company maximizes profitability since the entire organization is focused on areas for yielding the highest returns. 

Identifying Weaknesses

To be more competitive, you need to keep production losses to a minimum. The reasons for the production losses can be identified using OEE metrics data. When you have identified the reasons for using a cloud-based OEE software and taken corrective action, your production line will function at maximum capacity. 

Scope For Maintenance Improvement

With OEE, you can get insights into unknown areas of maintenance that could help you improve your productivity further. This unknown information can be found with live data visualization and can help you in reducing unplanned stops and making planned stops faster. 

The correlation between unplanned stops and planned stops will help you in lowering costs, increase equipment availability, and reduce material consumption. 

Lower Machinery Repair Costs

With OEE you know the condition of the machinery and any performance issues with it. You can schedule future repairs when it is required and keep downtime to a minimum. You can anticipate any unexpected shutdowns or reduced speeds and lower costs associated with such events. 

Hidden Factory

OEE helps you unlock the untapped potential of your manufacturing unit. You can determine the additional production possible without any additional investment. There are three major benefits of OEE for your organization: 

  • Lower Conversion Cost: Your fixed overheads are lower since they are spread over more units
  • Higher Flexibility: Higher machine efficiency leads to lower inventory, improved lead times, and shorter production cycles. 
  • Deferring Spending: When you increase the life of your equipment through OEE, you spend less on the acquisition of new machines. 

Become More Competitive With OEE

Doing more with less, that’s the central idea of OEE. You don’t invest more, but your profits go up. Your existing equipment will run at its peak capacity, they have maximum uptime, and costs of repairs and replacements are down to a minimum.

Employees at all levels of the organization know what needs to be done since OEE provides tangible performance benchmarks. Take your revenues to the next level with OEE. 

About Carson Derrow

My name is Carson Derrow I'm an entrepreneur, professional blogger, and marketer from Arkansas. I've been writing for startups and small businesses since 2012. I share the latest business news, tools, resources, and marketing tips to help startups and small businesses to grow their business.