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How can Automation help you?

Many business owners and operators are often faced with the decision “Should I automate my industrial processes?”  Often the decision is very hard to make.  The manager must consider several questions in making that decision.

The list can go on making the decision very important and difficult.  Managers have many stresses already running the business and the thought of having to make a risky decision is uncomfortable.  Still, if the manager lets their process fall behind, competition may over take their market share.

Decision Analysis:

I believe the foundation for industrial automation is based on two measures.  The OEE (Overall Equipment Effectiveness) and Labor. It sounds simple to see it in print, however let me explain my thinking in more detail.

OEE (Overall Equipment Effectiveness) – The measure of the relative productivity of a piece of equipment compared to its theoretical performance.

OEE Ratio is calculated as:       

OEE = Availability X Performance Rate X Quality

The three major components of OEE are Availability, Performance Rate, and Quality expressed in percentages.  Each component in the calculation has a compounding effect on the overall OEE rate. Whenever you multiply percentages, the resultant percentage is always less.  This is one of the key pieces of data in the automation decision.  If you just look at the individual components, you may miss the interlocking effects they have on each other.  Let me expand on the individual components of OEE.


Availability = Actual operating time / Planned operating time * 100%

Planned operating time is the total time it is possible to operate the machine after deductions for planned down time.  Planned down time could be Holidays, No orders to fill, and planned maintenance.

Actual operating time is the total time the machine was producing after any deductions for unplanned down time.  Unplanned down time could be breakdowns, set-ups, lack of materials, or any unplanned production stoppage.

Example Availability – Plan to run for 40 hours this week.  Machine had a breakdown and it took maintenance 2 hours to return to service.

Availability = 38 (actual operating time in week) / 40 (planned operating time) * 100%

Availability = 95%

Performance Rate

Performance Rate = Actual production rate / Theoretical production rate * 100%

Theoretical production rate is the rate the machine was designed for production.  It is the production rate as specified at purchase.  Often times the guaranteed production rate is over looked.

Actual production rate is the number of items produced / actual operating time.  The production rate measures the number of parts entering the machine for production and does not consider the quality.

Example Performance Rate – Machine rated for 1000 parts per hour by the machine manufacturer.  Parts counter on the machine reveals 800 parts were produced in the test hour.

Performance Rate = 800 (parts produced) / 1000 (performance specification) * 100%

Performance Rate = 80%

Quality Rate

Quality Rate = The number of good items produced / The number of items produced * 100%

The number of good items produced is the number of items produced minus the number of items scrapped.  (How many quality parts that can go in the box)

The number of items produced is the number of parts produced while the machine was running.  (How many parts passed through the machine?)

Example Quality Rate = 750 parts passed quality checks / 800 parts produced by the machine

Quality Rate = 750 (quality parts) / 800 (produced parts) * 100%

Quality Rate = 94%

In each component the resultant percentages look pretty good.  Now let’s look at the compounding effect when we factor all three components into the OEE calculation.

OEE = Availability X Performance Rate X Quality

OEE = 95% X 80% X 94%

OEE = 71%

What happened?  Again the individual component rates are compounded to achieve the most realistic evaluation.  World Class OEE is considered as any OEE > 85%

So in our examples we have some work to do.  B y measuring the individual components, we can drill down deeper to determine the factors that are hurting the OEE.  It was once said “You can’t fix anything until you first measure it”.  This is the most powerful concept behind OEE.  B y measuring the individual component rates, it forces us to understand areas needing improvement.


Let’s talk briefly about labor.  Labor should be measured to be used in the decision process for evaluating the need for automation.  There are many components involved in the labor rate and will vary among different companies.  For the purposes of this discussion, lets consider the labor rate as the $/hour of labor with all of the administrative loadings included. (Health care, retirement, taxes, etc.)

I believe the consideration for labor should be the labor cost per part produced.

Example labor – ($20 per hour labor cost * 8 hours) / (800 parts produced per hour * 8 hours)

Labor factor = $.025 per part produced

So the labor factor is another measure to watch when evaluating automation.  If automation could reduce or nearly eliminate labor cost, profitability will increase and so will the payback period for the installation.

If we could reduce the labor required in the above example to 1 hour, the cost of labor to produce would decrease from $.025 / part to $.003125 per part.  A very significant savings to enjoy.

The Bottom Line

So if we look at OEE and Labor Factor we can accurately predict our actual conditions and also predict our future desired conditions.  If we look at the OEE rate as a factor in a monthly production case the effects become very significant.  Suppose that a machine is capable of producing $100,000 dollars per month.  By changing the OEE the results become evident.

OEE = 71%        $100,000 x 71% = $71,000 dollars produced and $29,000 lost in sales.

OEE = 85%        $100,000 x 85% = $85,000 dollars produced and an additional $14,000 in profit.

OEE = 90%        $100,000 x 90% = $90,000 dollars produced and an additional $19,000 in profit.

Automation can assist in many ways; however it will be different for each case.

If we want to increase the Availability Rate we automate the machine to run with less involvement by the operators.  The machine continues to run when the operator is on break.  We can install automatic lubricating control systems etc. that make the machine break down less.  Many things can be done to improve Availability.

If we want to improve the Performance rate we can install automation systems that automatically feed the machine and sequence the machine in the most efficient and timely manor.

If we want to improve the quality rate we can automate the machine to improve process control (temperature, vacuum, pressure, speed, time, etc.) by a closed loop control that accurately and continually adjusts for the specified conditions.  We can accurately measure the quality criteria at various stages of the production against the specifications.  If we fail an early acceptance test we can discard the part or rework the part and not tie up the entire production cycle only to find the part is bad at the end.

If we want to improve the labor factor we can automate the machine to reduce or nearly eliminate (we still have to push the start button to get it going) the required labor to run the machine.

When we add all of the improvements together, we can then apply the cost of money, increased sales, etc. and evaluate the payback periods.


If we can measure and/or predict the data, we can make a more informed decision about automation installation.  If we can improve the production process we can improve the bottom line profit.


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