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The Six Metrics in an Effective KPI Methodology

Jul 15, 2008
In the late 1980s, there was a revolution made on how businesses are managed and this is through the usage of the balanced scorecard. This is a management tool whose target is to see if the simple activities of the rank and file employees affect the overall goals of the organization. As part of the business scorecard, an organization needs to develop a set of Key Performance Indicators to measure the effectiveness of the employees' work. Obviously, identifying what needs to be measured is not a simple process. There has to be a procedure that needs to be done and this is dubbed KPI methodology.

In some organizations, KPI or Key Performance Indicators do not only focus on the employee's performance. Some companies also measure the overall effectiveness of their equipment and machines. And this is very important since no matter how much employees want to perform well, they will face great challenges if the machines they work with are defective.

This approach in taking care of equipment is called Overall Equipment Effectiveness. Commonly abbreviated as OEE, this is something that is mostly used in the manufacturing industry. This is precisely because there are machines and equipment in the manufacturing industry or factories, as opposed to other companies, such as customer service or business process outsourcing. The key here is to see the variation of these machines as far as the outputs are concerned.

Really, it is not right to assume that only human beings can be and should be measured for there are also sets of KPIs or Key Performance Indicators for machines. This is a great way of ensuring that the machines are working based on their specifications. The numbers that will be derived from the machines' productivity will be indicators of their utilization and effectiveness. If a machine is expected to produce 1000 output, but it is only delivering 500, then it is safe to say that it is only 50% effective and productive.

There are several metrics -- six, to be exact -- that are measured as far as OEE or Overall Equipment Effectiveness is concerned. First is the actual OEE. This is in conjunction with its performance when it is utilized and when the raw materials are available. Another one is the TEEP or the total effective equipment performance. These first two metrics show how effective a machine is based on its design to run or what is expected from it. Once there is a gap in its performance, the root causes are then identified and these root causes are acted upon to prevent future breakdown.

The other four remaining metrics are loading, availability, performance, and quality. Loading has something to do with the performance of the machine based on time against the total number of hours it is expected to work. Availability is its uptime -- the time that the machines are really available to operate. Performance refers to the speed of the machine and quality has something to do with yield.

These are the basic metrics that one needs to measure when it comes to machines. These six metrics make a great guide for managers to KPI methodology, and these can be used in almost any aspect of industry where machines are used to operate.
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