ABSTRACT: “It’s OK to
get Excited about Maintenance” is the
introduction we use for every presentation we give
related to maintenance, reliability, and asset
management. The reason for this is the overwhelming
business case associated with doing maintenance and
reliability right. Asset Management initiatives have
been documented to have Returns on Investment (ROI)
ranging from 4:1 to 50:1. In fact, many organizations
have found that a Total Equipment Asset Management
(TEAM) initiative has proven to be the best investment
that they have ever made in their facility. In this
paper we will discuss and explore the “Business Case
for Reliability” from several different angles:
- 1. What is ROI?
2. What are the elements of a successful TEAM
initiative?
3. What are the typical costs associated with
each element?
4. Where are these costs offset with savings?
5. What areas can expect to see the most
significant savings?
6. What types of saving are likely in each area?
7. What is the “typical” Rate of Return (ROR)
8. What elements control ROR?
9. Where do you start?
Readers will gain a fundamental
understanding of why a Reliability initiative makes
financial sense for their business, what elements are
essential for their success, what they can control,
and how to start. If a plant already has a reliability
initiative in place, but the results are not meeting
expectations, calculating the business case may
provide insight into why results are not being
achieved.
INTRODUCTION: The definition
of insanity has been defined as
“continuing to do the same things and expecting
different results”. As we travel North America viewing
objectively the practices being employed at automotive
plants, paper mills, steel mills, food processing
plants, chemical processing plants, utility generation
facilities, etc., We cannot help but wonder if
insanity isn’t exactly what we’re seeing play it’s
way through many manufacturing and maintenance
organizations.
In 1988, a benchmark study showed
that no less than 55% of maintenance being performed
in our plants on average is reactive in nature, 30 %
preventive, 10% predictive and 5% proactive. In 1992
CSI published a study that showed across all
industries approximately 50% of work was reactive, 25
% preventive, 15% predictive, and 10% proactive. A
1997 benchmark study showed once again that reactive
was in excess of 50%, preventive between 25-30%, and
predictive and proactive represented less than 25%
combined. In it’s most recent winter newsletter, an
SMRP (Society of Maintenance & Reliability
Professionals) survey showed 55% reactive, 31%
preventive, 12% predictive and 2% as other. Along with
each of these surveys, ideal percentages have been
disclosed that represent best practice or top quartile
plants. These ideal percentages breakdown to less than
10% reactive, 25-35% preventive, 45-55% predictive and
the balance proactive.
Approximately $5.3 billion has been
invested into reliability initiatives over the past 12
years in North America alone, but plants are doing
almost exactly the same type of work that they’ve
always done. Not surprisingly, they’re getting the
same results. You will read later in this paper that
the mixture of work has a very direct impact on total
cost of ownership of assets (PdM is less expensive and
more effective than PM, PM is less expensive than Run
To Failure (RTF), etc.). Have these plants seen a ROI
for their reliability initiatives? Have they achieved
spot savings that keep the program going? Has the
mixture of work changed? Are maintenance costs down?
If the reliability initiative has not resulted in
bottom line savings or additional product out the
door, for lower cost, are we any better off than we
were before we invested in reliability?
There is no question that a TEAM
initiative can have a tremendous return if implemented
properly, but what if it isn’t implemented properly?
Is it possible for a TEAM initiative to have a
negative ROI, even though it has generated several
finds? In order to answer these questions, we must
first discuss: What is ROI?
WHAT IS ROI?
ROI stands for Return on Investment. Simply put, ROI
is the ratio of what savings or additional revenue
streams were realized because of the initiative,
divided by the investment in that initiative over the
same period. If calculated correctly, a reasonable
“best case” and a reasonable “worst case” ROI can be
constructed to help justify the initiative. The ROI
calculation will also factor in inflation and be
calculated over the anticipated life of the initiative
(7 years is typical based a Net Present Value (NPV)
calculation from our days in Engineering Economics
101). The purpose of doing a best and a worst case is
that the worst case begins to explain that the
initiative is at least a viable investment and the
best case shows the initiative potential if all the
benefits are reaped.
Is it possible
for a plant to show a negative ROI? The answer is
absolutely YES. We will hold the explanation for after
the discussions of the successful elements, costs and
benefits.
In a 1997 benchmark survey, Top
Quartile Paper Mills claimed an average ROI of 19:1,
while Chemical Processing came in at 16:1, and Steel
at 18:1 for their maintenance and reliability
initiatives. Other industry findings were very
similar. Interestingly, in poor performing
plants there is a wide disparity in metrics from one
industry to another, but in top performing
plants the differences in performance metrics from
industry to industry are very narrow! This is further
validation that there is fundamentally a “right way”
to do maintenance and have reliable equipment.
ELEMENTS OF TEAM: There are
many required elements in a comprehensive TEAM (Total
Equipment Asset Management) initiative. Every one of
these elements must be deployed and functioning well
at the facility to reap a significant ROI. Each of
these elements can be grouped into what we call the
Matrix Methodology Approach to Reliability TM.
The 4 blades of the Matrix are:
- 1. Work Control Tools (efficiency) such
as CMMS, Parts Lists, and Planning and Scheduling
2. Work Performance Tools (effectiveness)
such as PM, PdM, Precision Skills and RCFA.
3. Integration Tools – such as
integration of islands, cost optimization and
standardizing on best practices.
4. Sustainability Tools – such as
knowledge transfer, communications, and metrics.
Work Control Tools consist
of all the administrative tools that are designed to
control maintenance work and enhance worker
productivity. Elements under Work Control Tools
include:
- • ERP/EAMS/CMMS
•
Planning and Scheduling
• Workflow Analysis
• Information Systems
• Resources
• Data
The benefits of a well designed and
deployed set of Work Control Tools are optimized
worker productivity and a reduction in “lost-time”
activities, which frees up craftsmen for more
value-added technical activities on equipment. In
other words, increased wrench-time frees up resources
to work on Work Performance Initiatives.
Case in Point from Doc Palmer’s
book, Maintenance Planning and Scheduling:
• Average
Wrenchtime without Planning = 35%
• Average
Wrenchtime with Planning = 55%
• 55%/35% = 1.57
(57% Wrenchtime Improvement)
• Three Craftsmen
without Planning =>
3 X 35% = 105%
Wrenchtime
• Two Craftsmen
with “Planning” => 1 X 0% + 2 X 55% = 110%
Wrenchtime
• Break Even for
the planner is 2 Craftsmen!
• One planner can
plan for 20 to 30 Craftsmen
• 30 Craftsmen X
1.57 = 47 Craftsmen (One Planner effectively creates
17 extra Craftsmen)
• Presume $25/hour
• 17 person X
$25/hr X 2080 hr/yr => $884,000/yr.
Properly implemented Planning and
Scheduling increases worker productivity, which frees
them up to work on other, more value-added activities.
Another example of how developing
and deploying Work Control Tools can lead to real
bottom line savings can be seen in the area of
MRO/Stores optimization.
- • An average storeroom will have approximately
5,000 SKU’s valued at approximately $1,000,000.
• It will cost approximately $3-5 per SKU to
reclassify their stores records, so that they can be
easily identified and found, and so that redundancy
and spoilage can be removed from the system.
• The reclassification work can be done at a
cost of $15,000 - $25,000. This work will result in
average Inventory reduction of 20-30% or a one-time
savings of $200,000-$300,000.
• Further, since inventory has an annual
carrying cost of 25-35%, if maintained, this one
time reduction will result in recurring annual
carrying cost reductions of $50,000 - $105,000.
Another area of savings in this
inventory equation is that a properly described /
managed inventory can result in a minimum 1 hour per
day increase in craft productivity (reduce wasted time
searching for materials). Clearly simply
re-engineering the parts descriptions doesn’t solve
the whole problem. You also have to invest additional
funds in developing parts lists or bills of materials
(BOMs), as well as training on how to effectively
search for parts in your materials management system.
- • On average 5,000 SKU’s in inventory can
support approximately 2,650 Assets, based on an
estimated duplication factor, BOMs can be developed
for approximately $85,000-$90,000.
• Assuming that this $1,000,000 worth of
inventory is supporting 25 crafts, 1 hour a day at
$34 per hour = $195,500 annually or could free up
2.76 people to do other work!
With improved worker productivity
resulting from improved Work Control Tools, skilled
people will be more available to perform value-added,
technical activities that directly impact equipment
reliability and health. These value-added activities
are termed Work Performance Tools.
Work Performance
Tools
focus on the utilization of preventive and predictive
technologies as well as reliability analysis tools and
methodologies. Each technology and/or process has its
own merit and value, including optimizing up-time,
cost effectiveness, and detailed understanding of the
particular asset. Performance Tools include:
- • PM / PdM
• Reliability Engineering Analysis
• Precision Repair Skills
• Repair Standards
Let’s focus on
PM and PdM. Vibration – depending on the type
of vibration program that you have in your facility
(simple PdM route based vs. vibration control and
elimination) the cost of your program should average
between $3.50 and $7.00 per bearing. Best practice
plants across a wide variety of industries have 60-80%
of their bearings on vibration routes.
IR
Thermography – the average cost of a qualified,
multi-disciplined IR program is based on the cost of
the thermographer’s time, which ranges from $800 -
$1,200 per day. IR should not be limited to an annual
high voltage inspection. Best practice plants tend to
do a twice per year high voltage survey, an annual low
voltage/local disconnect survey, quarterly
supplemental mechanical inspections, quarterly
refractory studies, and annual building roof/building
envelope inspections. These programs also emphasize
the importance of “post maintenance acceptance testing
and new project acceptance testing”.
Tribology and
Lubricant Management – a best practice Tribology /
Lubricant Management program goes well beyond oil
analysis and the oil analysis needs to go well beyond
what standard “free” oil analysis provides. We need to
use this technology to understand machine
condition, not just lubricant condition. A best
practice program will include:
- • Lube Specification
• Receipt Verification
• Storage and disbursement
• Proper Greasing Techniques
• Sampling
• Oil Analysis – Profiling ($29-$75 per sample)
• Implementation & Follow-up
• Lube Disposal
• Housekeeping.Housekeeping.Housekeeping!
PM Development – the cost to
develop a PM depends greatly on what methodology is
used to generate it. A basic PM program that relies
predominantly on the OEM’s recommendations and a
cursory review of performance history costs
approximately $300 per Job Plan. A fully engineered PM
that gets its roots from a form of FMEA (Failure Modes
& Effects Analysis), will cost approximately $1,500
per Job Plan. An important note is that many of the
PMs developed using the “basic” methodology may later
be found to be inappropriate and/or non value-added.
After all is said and done, a best
practice plant can expect to spend approximately 3-5%
of their total maintenance hours on PdM inspections
(which will generate 40-50% of the site’s corrective
work) and approximately 12-15% on PM inspections
(which will generate 8-20% of the corrective work).
The 1997 Benchmark study that
showed the various ROIs for Paper, Chemical
Processing, and Steel, also showed in Top Quartile
Plants:
- • PdM and work resulting from PdM (PdMG)
generated 48-60% of the total workflow.
• PM & work resulting from PM (PMG) generated
approximately 30% of the total workflow.
• Maintenance cost to insured replacement asset
value (Maint $$/RAV) ranged from 3.1% to 3.6%.
If we compare this to the plants
with a much higher average of 5.5% to 7.2% Maint$$/RAV
for those same industries at the time, where PdM &
PdMG work generated less than 20% of the workflow, and
PM/PMG work generated much less than the Top Quartile
30%, we can come to the conclusion that we need to
significantly increase the percentage of our workflow
generated by PdM and PM if we expect to perform in the
top quartile and be better than the competition. Yet
surprisingly, average workflow percentages for plants
outside of the top quartile remain virtually unchanged
since 1988! We have to ask…Are our practices insane?
Why are we doing the same work and expecting better
results?
Integration focuses on the
balanced application of reliability initiatives. It
also provides the opportunity to perform maintenance
tasks based on better understanding of asset
operational characteristics and performance
requirements. The objective is to have reliability
improvement become a comprehensive initiative, which
takes into consideration the interdependencies
associated with the Work Control and Performance Tools
facets. Integration provides the path leading towards
breakthrough improvements in reliability. Elements of
this facet include:
- • Consolidation of Islands
• Effectiveness Improvement
• Streamlining Processes
• Cost Optimization
• Best Practices
Over 50%
of Reliability Initiatives are not reaping the
anticipated ROI. This is mainly because of a lack of
Integration. Organizations often view Reliability and
Asset Health as strictly a “maintenance” initiative.
They view the implementation of a CMMS system as a IT
initiative or a purchasing initiative. The Production
organization typically has a leasing mentality when it
comes to the ownership of their equipment; Operations
typically does not give Maintenance access to critical
manufacturing information or historical process data.
If this describes your plant, history would tell us to
take the worst case ROI and put a negative sign in
front of it, and take the best case ROI and divide it
by 4!
Sustainability zero’s in on
the key elements of what it takes to actually gain
true long-term profitability. Sustainability
provides the opportunity to reap the long-term
financial gains by having the reliability improvement
initiative become ingrained into the organization’s
culture. Reliability needs to be as much of the
culture of the plant as the safety program is. Safety
programs consistently get better and stronger over
time, because they are part of the culture. If the
reliability improvement initiative is viewed as a
project that is now complete and has allowed the
organization to reach steady-state, failure is
certain. In order for changes to be effective,
particular attention needs to be given to the elements
that increase the probability of permanence. Elements
of this Sustainability facet include:
- • Total Organizational Involvement
• Knowledge Transfer
• Leadership
• Metrics ID and Measurement
• Documentation & Publicizing Progress
Many companies invest in
maintenance and reliability improvement initiatives
only to find six months later that the same conditions
which originally motivated the improvement initiative,
have returned. It is imperative to deploy a set of
tools that measure compliance with new business
practices and procedures. The old adage “What Gets
measured, Gets Done” is never more apropos than in the
area of changing the habits of an organization,
particularly an organization responsible for operating
and maintaining millions of dollars of capital assets
needed to profitably produce a company’s product.
History tells us that if we do not
have a complete measurement system in place,
performance will quickly degrade to previous levels.
One such measurement is the Asset
Health Report. The Asset Health Report is the output
of a fully populated Asset Health Matrix. The Asset
Health Matrix is the visual representation of the
plant’s PM and PdM maintenance strategy. The strategy
is based on failure modes and affects analysis that
determines what types of PM / PdM inspections need to
be deployed for each asset class. The Asset Health
Report depicts the health of assets by technology and
is based on establishing strong and valid alarm
criteria. A fully populated Asset Health Report would
look as follows:
ASSET
HEALTH REPORT
Selecting
what technologies to apply to what assets is the easy
part; determining the criteria to relate to the asset
conditions below requires significant research into
best practices and application of statistical process
control.
We have found
that Best Practice Plants will have in excess of 85%
of their equipment in a Green Condition and less than
1% Red. Note that all three of the Assets in the above
Asset Health Report would role up as Red.
How does a plant
get to - and sustain - a facility at 1.5-2.5% Maint$$/RAV?
The answer can be explained with the results of this
survey:
So what
happens if you spend 10% this year to improve an
Asset’s Health from Red to Green, but your facility
does not have the standards and practices in place to
sustain the Asset at a Green level? You get to
spend the money again next year!
Rate of Return (ROR) - The
focus up to this point has been to maximize the ROI.
For many facilities the ROR or payback period is
equally as important. Many managers ask the questions:
- • “When will the bleeding stop?”
• “When will I break even?”
Several factors will impact the answer
to these questions:
- • Current Cost –what is the
current maintenance cost/replacement asset value of
your plant? How much low hanging fruit is there at
your plant? It is easier to reduce this rate from
12% to 10% than it is from 4% to 2%!
• Current Work Flow Percentage -
If you are currently doing a lot of the right
things, such as already owning the inspection
equipment and using it to generate corrective work,
less time and money will be involved in getting Work
Performance Tools in place.
• Current Asset Health – does your
plant have a history of cheap project delivery and
deferred maintenance? If so, more will have to be
invested.
• Culture – does your plant
culture embrace change or fight change?
• Urgency/Active Participation –
positive rewards such as profit sharing or negative
consequences such as threat of bankruptcy or plant
closure have proven to drive some of the most
aggressive implementations.
-
ROR is typically displayed in the
form of a Funds Flow Curve.
Summary – In the last 14
years, North American industry has spent over 5.3
billion dollars trying to implement various elements
of Asset Management. They have done this because of a
well-founded belief in a business case and several
documented success stories. It is well known that
going into the 1990’s maintenance costs were believed
to be the largest, most out-of-control “controllable”
cost in a plant. Maintenance represents 9 to 15% of
every sales dollar and 8 to 12% of every dollar that
goes into the cost of making the product. Yet 12 years
later, less than 10% of the organizations that have
embarked on a reliability improvement initiative have
reached their anticipated returns, and less than 20%
of implementations are considered successful even by
the employees of that facility!
Is there a logical explanation for
this or was the anticipated contribution of
maintenance too large? We think that it is because we
continue to practice insanity. We need to aggressively
change what we do and how we do it.
The numbers have showed us for
years that we need to generate 45-55% of our work flow
from PdM/PdMG, but yet the average is still well below
20%. The numbers and success stories have told us for
years that if this is a “maintenance” initiative…it
will fail. If it is an IT, purchasing, or accounting
initiative, it will fail. As stated earlier, a rule of
thumb that seems to hold true is that if only one
segment of the organization is driving this
initiative, take your worst case business case and
simply put a minus sign in front of it, and take the
best case and divide it by four.
Asset Management initiatives have
typically been implemented in a “flavor of the month”
fashion instead of as an orchestrated and engineered
initiative, deployed in a way that it becomes
ingrained in the plant’s culture. We find that, often,
so much attention is paid to the glitzy new elements,
that the basics of having good work-flow
models, good measurements, good equipment lists, good
parts lists, and good data going into the system are
ignored.
Hopefully, you now have a better
understanding of why the team that is responsible for
designing and deploying this initiative must be fully
cognizant of how each element relates to the ROI and
the ROR. Otherwise it is very possible to implement an
Asset Management initiative that has a negative return
on investment…look around … they are not hard to find!
“It’s
OK to get Excited about Maintenance !”
For additional information please
call MRG at 203-264-0500 or go to the MRG website
www.mrginc.net
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