# Improve OEE vs Buy a New Machine Calculator

> Source: https://netray.co/tools/improve-oee-vs-buy-new-machine-calculator
> Publisher: Netray (netray.co), AI and integration engineering for ERP and manufacturing systems.
> Section: Free Tools

## Short answer

Compare the annual cost per extra unit from an OEE improvement project against buying more capacity.

## Category

cost-finance

## Industry

Discrete Manufacturing

## Audience

- Plant manager
- Operations controller
- Continuous improvement manager

## Tool

**Kind:** calculator

**Currency:** $

**Inputs:**

#### Existing fleet planned hours per year

**Key:** fleet_hours

**Type:** number

**Default:** 16000

**Min:** 0

**Step:** 500

**Unit:** hours

**Help:** Sum of planned production hours for all existing machines doing this work.

#### New machine planned hours per year

**Key:** new_hours

**Type:** number

**Default:** 4000

**Min:** 0

**Step:** 100

**Unit:** hours

#### Ideal rate

**Key:** ideal_rate

**Type:** number

**Default:** 100

**Min:** 0

**Step:** 1

**Unit:** units/hour

#### Current fleet OEE

**Key:** current_oee

**Type:** slider

**Default:** 60

**Min:** 10

**Max:** 95

**Step:** 1

**Unit:** %

#### Target fleet OEE

**Key:** target_oee

**Type:** slider

**Default:** 72

**Min:** 10

**Max:** 95

**Step:** 1

**Unit:** %

#### OEE improvement cost

**Key:** improve_cost

**Type:** number

**Default:** 80000

**Min:** 0

**Step:** 5000

**Unit:** $

**Help:** One-time cost of the improvement program.

#### Evaluation horizon

**Key:** horizon

**Type:** number

**Default:** 5

**Min:** 1

**Max:** 20

**Step:** 1

**Unit:** years

**Help:** Used to spread both costs evenly.

#### New machine installed cost

**Key:** new_cost

**Type:** number

**Default:** 650000

**Min:** 0

**Step:** 10000

**Unit:** $

**Help:** Purchase, installation, tooling and commissioning.

#### New machine annual running cost

**Key:** new_run_cost

**Type:** number

**Default:** 40000

**Min:** 0

**Step:** 1000

**Unit:** $/year

**Help:** Maintenance, floor space, utilities and added labor.

#### Expected OEE of new machine

**Key:** new_oee

**Type:** slider

**Default:** 75

**Min:** 10

**Max:** 95

**Step:** 1

**Unit:** %

**Outputs:**

#### Extra units per year from OEE gain

**Key:** gain_improve

**Expr:** fleet_hours * ideal_rate * (target_oee - current_oee) / 100

**Format:** integer

#### Extra units per year from new machine

**Key:** gain_new

**Expr:** new_hours * ideal_rate * new_oee / 100

**Format:** integer

#### Annualized cost of improvement

**Key:** annual_improve

**Expr:** improve_cost / horizon

**Format:** currency

#### Annualized cost of new machine

**Key:** annual_new

**Expr:** new_cost / horizon + new_run_cost

**Format:** currency

#### Cost per extra unit, improvement

**Key:** unit_improve

**Expr:** annual_improve / gain_improve

**Format:** currency

**Primary:** true

#### Cost per extra unit, new machine

**Key:** unit_new

**Expr:** annual_new / gain_new

**Format:** currency

**Primary:** true

#### Annual cost avoided by improving

**Key:** diff_year

**Expr:** annual_new - annual_improve

**Format:** currency

**Description:** Positive when improvement is the cheaper route, ignoring unit differences.

**Chart:**

#### Cost per extra unit vs target OEE

**Type:** line

**X:** target_oee

**From:** 61

**To:** 85

**Steps:** 25

**Series:**

- unit_improve
- unit_new

**Disclaimer:** Simplified straight-line comparison. It ignores tax, financing, residual value and the risk that the improvement does not reach target.

## Content

**Intro:** When capacity runs short, the request is often for another machine. Before approving it, compare what the same units would cost from improving the OEE of the equipment you already own. This calculator puts both routes on a cost per extra unit basis so the capex request is tested against hidden capacity.

**Sections:**

#### How to use it

**Body:** Enter the planned hours and the ideal rate of the existing fleet, current OEE, and the OEE you could reach with a defined program. Add the improvement cost and the evaluation horizon. For the alternative, enter the installed cost of a new machine, its running cost, its planned hours and its expected OEE (a new machine rarely hits its best OEE in year one, so be cautious). The result is the annualized cost per extra good unit for each route and the annual cost difference.

**Bullets:**

- Base current OEE on at least a quarter of data
- Keep the same ideal rate definition for both routes
- Use a realistic OEE for the new machine's first years

#### The method

**Body:** Extra units from improvement equal fleet hours times ideal rate times the OEE gain divided by 100. Extra units from the new machine equal its hours times ideal rate times its OEE. Annualized cost is a straight-line spread of the one-time cost over the horizon plus any running cost. Cost per extra unit is annualized cost divided by extra units. This is a deliberately simple screen. It tells you which route deserves a full business case with discounted cash flow, not which to buy.

#### Reading the result

**Body:** With the defaults, raising OEE from 60 to 72 percent yields 192,000 extra units a year at an annualized cost of 16,000 dollars, or about 8 cents a unit. A new 650,000 dollar machine costing 40,000 a year to run yields 300,000 units for 170,000 dollars a year, about 57 cents. Improvement looks much cheaper, but it carries delivery risk, and it uses existing hours that might be needed already. Where demand exceeds even the improved capacity, you may need both routes, with the improvement done first.

#### Common mistakes

**Body:** Comparing a hoped-for OEE gain against a guaranteed machine capacity is the main bias, so apply a haircut to the OEE target. Another is using the new machine's nameplate rate with unrealistic OEE, or forgetting extra operators, floor space and tooling. Finally, remember a new machine does not fix poor planning or changeover practice. It often inherits the same losses as the old one.

**Bullets:**

- Haircut the OEE target before comparing
- Include installation, tooling and operators for the new machine
- Fix the loss causes first or the new machine will repeat them

**Cta:** If you need a defensible capacity case, we can help pull planned hours, actual run time and downtime from your ERP so the inputs are not guesses.

**Faq:**

#### Is improving OEE always cheaper than buying a machine?

**Answer:** Often, but not always. Gains are limited by how much avoidable loss exists, and by whether the line is the constraint. If OEE is already high, buying capacity may be the only route.

#### How should I treat risk?

**Answer:** Apply a haircut to the target OEE, for example achieving only two thirds of the planned gain, and see whether improvement still wins. The chart shows how the comparison changes with the target.

#### Does this include depreciation and tax?

**Answer:** No. It spreads cost evenly over the horizon. For a full decision, run a discounted cash flow with tax, depreciation and residual value using the numbers from this screen.

#### Can I do both?

**Answer:** Yes. A common plan is to improve OEE first, to capture low-cost units and learn the loss structure, then buy capacity only for demand that remains. It also gives the new machine a better chance of performing.

## Search terms

improve oee or buy machine, capacity expansion capex vs improvement, cost per extra unit capacity, oee vs new equipment, machine purchase justification, capacity gap oee, hidden capacity oee, capex avoidance oee

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