Top 3 MRO KPIs That Impact Business Units
We get a lot of questions here at MROConnection. One that pops up quite often is “how can I improve my company’s financial performance?” There are a large variety of answers to this question, but our answer is that focusing on MRO – maintenance, repair, and operations – can yield huge and unexpected tangible results. World class organizations are rapidly realizing that corporate strategies are moving into the MRO arena and are taking an increased focus on OEE (overall equipment effectiveness) and Cash Flow. Thus, many asset intensive enterprises are turning their attention to MRO (Maintenance, Repair, and Operational supplies). Historically, MRO was looked at as a necessary frustration at best. Money was poured into the acquisition of parts without any tangible measurements in place to determine if the investment actually improved uptime and the profitability of the business. However, the reality is the non-business units who are making decisions related to MRO parts are impacting the entire business whether they realize it or not. Every silo in an organization is affected by MRO and MRO decisions, and conversely decisions made in one operating group can have a large impact on another operating team. So, how do you know how your MRO program is doing? What Key Performance Indicators should you be consulting? Our top 3 MRO KPIs are listed below.
1) Inventory as a % of Asset Value
This KPI is a measure of proportional investment in your MRO inventory relative to the value of the asset it is supporting. For example, if you have a machine on the production line worth $500,000, and have $100,000 worth of parts supporting it, your Inventory as a % of Asset Value is 20%. Year over year, you can compare this investment in inventory versus the asset’s value. This can be used to benchmark performance between sites and/or can be used as a management KPI to set annual performance targets. It can be measured at a site level, or at a network level in a multi-site environment. Regardless of your business setup, it offers insight into the money you are spending on your assets.
2) Inventory Value vs Budget
This KPI is a straight comparison of inventory value at a site or within the network matched up against annual, quarterly, or monthly targets. It ensures site and group level focus on working capital effectiveness, and drives focus on continually improving at the site level. It can be as simple as knowing that your inventory is taking up 35% of your budget. This can be taken a step further when comparing it to a third metric: uptime. If your organization can maintain a 95% uptime with inventory accounting for 35% of your budget, you are doing well. But if that inventory value is strategically and carefully increased to 37%, and uptime rises to 98%, you know you have made a sound investment.
3) Overall Equipment Effectiveness
Overall Equipment Effectiveness, often abbreviated to OEE, is a measure of productive equipment time, net of maintenance, change over, and other pre-defined conditions. It is the ultimate measure of equipment availability and is directly linked to throughput targets. It can be measured at the network level but is most effective and actionable at the site and work center level. The calculation of OEE is a three step process, however the formula is simple:
OEE = Availability x Performance x Quality
Breaking it down further;
Availability = Operating Time / Planned Production Time
Performance = (Total Pieces / Operating Time) / Ideal Run Rate
Finally, we have quality.
Quality = Good Pieces / Total Pieces
Let’s do an example calculation of OEE, starting with availability and breaking down the elements that make it up.
First, the data that is necessary:
|Planned Production Time||7 hours (420 minutes)|
|Ideal Run Rate||65 pieces / minute|
We will start by calculating Operating Time.
OT = Planned Production Time – Downtime (30 minutes) = 6.5 hours = 390 minutes.
Planned Production Time = 7 hours = 420 minutes
Availability = Operating Time / Planned Production Time = 390 / 420 = 0.9286 = 92.86%. Not bad!
Next is performance, where P = (Total Pieces / Operating Time) / Ideal Run Rate.
P = (23,284 / 390) / 65 = 0.9185 = 91.85%.
Note: Performance is capped at 100%, to ensure that if an error is made in specifying the Ideal Cycle Time or Ideal Run Rate the effect on OEE will be limited.
Now we have Quality, where Q = Good Pieces / Total Pieces
Good Pieces = 23,284 – 202 = 23,082
Q = 23,082 / 23,284 = 0.9913 = 99.13%. Outstanding! Now let’s put it all together.
OEE = Availability x Performance x Quality = .9286 x .9185 x .9913 = 0.8455 = 84.55%
The higher the number the better, but more importantly three other KPIs are revealed within this calculation: Availability, Performance, and Quality, which all have an impact on production. The higher the numbers the better on all fronts, of course, but these numbers can draw valuable insight when comparing numbers across shifts at one plant, or across different production locations. One plant may produce a 95% quality rate with 99% performance, while the other produces a 99% quality rate with 95% performance.
These KPIs are all very valuable and can provide unique insights into your business and its operations. What is a good number at one site may not be a great number at another, but remember: these are all about measurement, and improvement. Getting better at what you do starts with data, and KPIs just like these.