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OEE as Your New ROI standard in Pharma Manufacturing
OEE as Your New ROI standard in Pharma Manufacturing
Olga-Maria Plessa
Product Owner / Lead Consultant
Return on Investment (ROI) has traditionally been the main driver for investments worldwide. Executives in pharmaceutical manufacturing have been utilizing ROI to evaluate and justify investment decisions. But how can the ROI of pharma manufacturing capital investments be calculated? How can a manufacturing analytics system be integrated into financial analysis to attract the CEO’s attention?
OEE (Overall Equipment Effectiveness) has been used so far primarily as a manufacturing Key Performance Indicator (KPI). With OEE, loss analysis can be performed paving the way for root causes to be detected, and production improvement actions to be taken, but can OEE also be used to provide financial insights that drive investment decisions?
What is Overall Equipment Effectiveness?
Overall Equipment Effectiveness or OEE is a ratio of how well a pharmaceutical manufacturing facility is utilized compared to its scheduled output. It is a conventional manufacturing metric that measures the volume and quality of production compared to the total production. OEE takes into account various key elements of the manufacturing process that reveal the unscheduled downtime, the operating time frame, and the relative impact of minor stops and rejections.
How is Pharma OEE Calculated?
OEE is measured based on availability, performance, and quality. Available time means uptime. This is the total scheduled production duration minus all planned and unplanned interruptions during the manufacturing process. Performance measures the effect of the average actual speed versus the target / validated production speed of a product. Quality measures how many items passed quality testing the first time compared with the overall number of products produced.
In other words, it is a measurement of productivity that calculates the efficiency at which equipment produces finished goods by considering the three fundamental calculations:
Overall Equipment Effectiveness (OEE)
- Availability [A] is the percentage of planned production time that can be allocated for manufacturing or, in other words, the percentage of scheduled time that the production line is available to operate versus the total scheduled time. The losses in this category are unplanned and planned stops of all kinds.
- Performance [P] is the actual throughput of the line during the time it runs, divided by the maximum throughput that it would have achieved by running at the validated speed. We categorize losses as rate loss, which includes reduced speed either under normal operation or during the ramp-down and ramp-up phases associated with every stop, leading to slow cycles.
- Quality [Q] is the quantity of actual production output that meets customer specifications and has no defects (good units) on its first pass through a line (first pass yield) compared to the total produced products, including rejections and reworks.
You can find more information here on what is OEE and why it is important to pharmaceutical manufacturing.
How can OEE Increase Financial Performance?
Let us use as an example a Solid Dosage Forms (SDF) contract manufacturing organization (CMO) that has a total of 7 packaging lines that produce on average 300 cartons per minute which equals 300 cartons x 60 minutes = 18.000 cartons/hour. And let us assume that each secondary packaging line operates 5 days per week for 24 hours per day (3 working shifts). This would mean that each packaging line operates 5 days x 24 hours = 120 hours/week and, assuming 50 working weeks per year, for 6.000 hours/year.
Now, to calculate the output produced per year, we will multiply the machine runtime in hours with the units produced per hour times the overall equipment effectiveness (OEE) of the packaging line.
Assuming the current OEE of the secondary packaging line is 35%, the packaged cartons in a year would be 6.000 x 18.000 x 35% = 37.800.000 cartons/year.
In the event of a 10% increase in OEE (38.5% OEE), the produced output in a year would now be 6.000 x 18.000 x 38,5% = 41.580.000 cartons/year.
41.580.000 – 37.800.000 = 3.780.000 cartons
So a 10% increase in OEE would result in 3.780.000 additional cartons per packaging line, so a total of 3.780.000 cartons per line x 7 lines = 26.460.000 additional cartons.
Assuming an estimated 0.50€ profit per carton, then a 10% increase in OEE would result in 24.460.000 cartons x 0.5€ profit per carton = 13.230.000,00€ in incremental profitability.
Profitability linked to OEE manufacturing KPI
How to Achieve an Increase in OEE?
To begin, the current OEE of the business should be known to establish a baseline. Then, OEE metrics and loss analysis need to be calculated in real-time and displayed on the factory floor, among other production data and KPIs, to optimize decision-making. Although measuring the productivity alone is not sufficient to achieve improvement, it is the absolutely necessary first step towards OEE improvement, as it points problem-solving actions to the right direction and shifts focus on the appropriate areas in order to optimize pharmaceutical manufacturing operations. The journey towards a continuous improvement culture starts with the first step of measuring and mapping the current-state Therefore, Manufacturing Analytics & OEE solutions are critical in identifying opportunities, track the actual speed of the line and other site data in real-time by utilizing Industrial Internet of Things (IIoT)-based edge devices. Monitoring and assessing machine data will drive operational efficiencies and better performance, deliver immediate improvements, and create financial gains.
The information provided by an IIoT-based Manufacturing Analytics & OEE application can help to:
- Identify machine bottlenecks and root causes for all machine stops.
- Provide greater operator awareness about line performance and instant visibility to shift performance for line supervisors.
- Observe production cycles and track their time, output, and performance.
- Compare different batches and Stock Keeping Units (SKUs) and gain meaningful insights.
- Understand the occurrence of scrap, rework, and first-pass yield and how it influences quality.
Collecting and examining this information will enable financial analysis and help drive investments that will create instant value for the pharmaceutical production site, starting with quick-win improvements requiring zero investment but bringing high value. This way, OEE will be increased immediately, resulting in initial profits that can later lead to greater investments and continuous improvement justified by OEE optimization scenarios.
Using the right set of tools will unlock hidden opportunities for achieving production optimization and significant financial gains.
OEE as the new ROI standard in Pharma Manufacturing - An Opportunity that should not be Overlooked
We now know that OEE can be used as the currency of proof to allow manufacturing companies to drive financial decisions. By dividing the total yearly profit by the OEE percentage, we can extract the worth of each percentage point increase in OEE. This is a powerful way to know the exact profit that will be obtained from each investment.
OEE & financial metrics linked to drive ROI
If, for example, one production line of your pharmaceutical / biotech manufacturing facility generates 10€ million of profit each year and has an OEE of 35%, you would divide 10.000.000 / 35 = 285.714,28€.
In this example, each percentage point gain in OEE is worth 285.714,28€ in profit.
The first step is to determine the value of OEE, and then you can optimize your processes and turn those potential gains into reality. In the above example, with a boost in OEE from 35% to 45%, your profit will grow from 10.000.000€ to 12.857.142€.
With Vimachem’s Manufacturing Analytics & OEE solution, even a 1% growth in OEE (from 40% to 41%) would result in an 8054% ROI.
Do not hesitate to invest in the implementation of an IIoT-based software application that will help you gain real-time insights to control and optimize your OEE, leading to significant financial gains.
If you can’t measure it, you can’t improve it.
Lord Kelvin
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Vimachem Manufacturing Analytics - OEE
The Manufacturing Analytics – OEE module is an intelligent Pharma OEE Cloud solution that allows you to collect, store and visualize data across your site / enterprise and apply AI algorithms to optimize production efficiency and product quality.