What is the actual added value of maintenance?
by Mark Haarman and Remco
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That is a frequently heard question in boardrooms the world
over. Even though maintenance is often critically important, few
maintenance managers are able to answer the question
convincingly. Especially when they are asked to express the
benefits in terms of economic value added or shareholder value -
the language being spoken in boardrooms.
For this reason Mainnovation developed the Value Driven
Maintenance® (VDM) methodology, which is implemented in leading
maintenance organizations like DSM, Smurfit Kappa, Sara Lee,
GlaxoSmithKline, Akzo Nobel and Volvo Cars.
VDM builds a bridge between traditional maintenance philosophies
and managing by shareholder value. Not only does VDM simplify
the boardroom discussion, it also shows that far from being a
cost center, maintenance is actually a major economic value
within the overall business performance.
What is Value?
Before you can manage by shareholder value, you have to
understand what exactly value is. Reference to financial
literature reveals that value is defined as the sum of all
future free cash flows, discounted to today.
This sounds impressive, but what does it really mean? Let’s
start by looking at the first part of the definition. A cash
flow is the difference between income and expenditure. This is
not the same as the difference between revenues and costs,
because that’s an item that can be greatly influenced by
Some companies use highly creative lease, depreciation and
reservation techniques to keep their book profits artificially
high (or low). Newspapers have been crammed with articles on
this subject in the recent past. As we have seen from many of
these stories, questionable accounting techniques do not always
contribute to shareholder value - and are rarely good for the
long-term health of a company. The second part of the
definition stems from the knowledge that the value of a cash
flow is related to time.
One dollar is worth more today than one dollar next year. This
is because you can deposit a dollar at the bank today and use it
to generate income over a period of one year. Therefore, you
have to adjust future cash flows.
Value of Maintenance
A maintenance manager is likely to say: “This theoretical
approach is all very well and good, but what good is it to me in
practice? The value of maintenance comes from delivering maximum
availability at minimum cost!”
While this is true in theory, it’s little help in the day to day
operation. This is because you have to prioritize: do you want
to reduce costs or increase uptime? Is a 1% increase of uptime
just as valuable as a 1% reduction of costs? And how do you
determine the value of safety?
VDM provides answers by identifying the value potential of four
value drivers in maintenance and enabling you to manage by those
shows what maintenance is all about. Today’s maintenance
managers are constantly balancing between higher machine
availability (asset utilization) and lower maintenance costs
(cost control). In doing so, they must take into account the
growing body of laws and regulations covering safety, health and
environment. To make everything work, they need to use the right
technicians, spare parts, knowledge and contractors (resource
four value drivers, maintenance can and does help to increase a
company’s economic value. In a market where there is more demand
than supply, greater machine availability results in more
products, more income and thus higher value.
other hand, lower maintenance costs produce higher value by
avoiding expenditure. The same applies to resource allocation.
One example is a technical storeroom. Smarter inventory
management of spare parts can enormously increase value for a
the safety, health and environment (SHE) factor affects value.
SHE accidents tend to necessitate substantial expenditure, which
results in large negative cash flows. Damage caused to
personnel, environment and image, for example, will increase
expenditure. An even greater danger is loss of the license to
operate because of an inability to comply with SHE legislation.
No license to operate means no production and no income.
Maintenance managers must show where there is potential for
value within their maintenance organization. VDM provides
calculation models and tools for this purpose (see next page).
One of those tools is the VDM Control Centre; an online platform
that allows maintenance managers to measure and benchmark their
maintenance performance against anonymous companies in the same
industry. The VDM Control Centre also provides a transparent
picture of the contribution a maintenance organization is making
to creating value for a company. Note that the result of the
calculation of value will differ markedly depending upon the
industry involved. In the bulk chemical industry, for example,
there is currently less demand than supply and worldwide prices
are under considerable pressure. The value potential here lies
mainly in controlling costs and the smarter deployment of people
pharmaceutical industry, the situation is the other way around.
Demand for medicines continues to grow but the technical
availability of the production process is relatively low. This
matter is obviously receiving attention. The SHE factor here is
becoming more and more important with the growing role of the
regulating authority FDA (Food & Drug Administration).
Value and Time
example shows that value depends not only on the industry
concerned, but also on time. In the aviation industry,
traditionally the focus was on increasing fleet availability and
meeting the regulations of the Aviation Authorities. As a
result of the attacks on September 11th, 2001, there has been a
(perhaps temporary) reduction of the demand for air travel. This
reduces the importance of fleet availability. At present, many
airlines are concentrating on controlling costs. This requires
an enormous turnaround, one in which the VDM methodology can
guide the way.
Value and Competencies
value potential has been identified, the maintenance function
must be organized accordingly.
competencies are, and are not, important? There will be little
point in giving priority to reducing the stock of spare parts if
the value potential lies in more uptime. Unfortunately, all too
often, we see that these decisions are not made by the
maintenance department. VDM, however, does so and it creates a
link between value drivers and core competencies (see Figure
example of bulk chemicals. The market situation means that most
value is currently achievable by controlling costs. So the
right-hand value circle must be configured from maintenance
budgeting to cost analysis.
opposite applies to the pharmaceutical industry. There, the
left-hand value circle must be organized from equipment
performance planning to loss analysis. Interestingly, both value
circles include the competencies of reliability engineering,
planning & preparation and maintenance execution.
competencies are the link between the four value drivers and
thus form the heart of VDM.
we know the important competencies, the next step is to organize
and control them in the right way. For this purpose VDM puts
forward best practices from leading maintenance organizations.
Total Productive Maintenance (TPM) thus enjoys a reputation
mainly as the best practice for registering, analyzing and
improving production losses (asset utilization) in discrete
production. In contrast, Asset Based Costing (ABC) is a proven
best practice for properly controlling maintenance costs.
these best practices, a technical department can quickly become
a professional maintenance organization that adds value to the
overall business performance. In VDM terminology, this is called
the Most Valuable Maintenance Organization (MVMO). To ensure
that the new way of working is embedded in the day-to-day
business, the processes and best practices are described in the
VDM process map. This is a complete and interactive description
of the processes involved and roles and responsibilities
resulting from it. Naturally the people should be trained
accordingly. The different steps in the process map are also
linked to the different steps in the EAM-system.
via the EAM System
processes and practices are supported well by the EAM-system,
that is definitely a solid basis for continuous improvement.
However that is only the beginning. To enable the organization
to focus on value adequately, it is necessary to visualize the
management information properly. That is recognized by the
leading EAM-vendors. Therefore, VDM Control Panels are developed
in Maximo, Datastream 7i and SAP EAM (Figure 3).
This is a
graphical overview with drill down functionality, showing the
performance of the maintenance organization at a glance. It also
allows for the detection of deviations, defects and their causes
in just a matter of a few mouse clicks. It shows answers to
questions like “Why didn’t we perform according the Service
Level Agreements we made with Production?” or “Why do the actual
costs deviate from the originally budgeted costs?” etc.
valuable? We and a growing number of multinationals on all
continents think it is. Or, as Bengt Svensson (maintenance
manager of Volvo Cars Manufacturing) explains: “If you want to
improve your maintenance process, you need an operating control
system. VDM is such a system, while it shows us where and how to
by value is not just a must; it is the only way to discover the
true significance of maintenance. VDM makes maintenance more
than a cost center because it contributes in various ways to a
company’s economic prosperity. In fact, VDM confirms what we
in the maintenance and reliability world already thought, but
now we have the proof!
Haarman MSc MBA is Managing Partner in Mainnovation, the company
he founded in 2000. Today the company is one of the leading
maintenance consultancies in Europe and the inventor of Value
Driven Maintenance®. In the course of his career, Mr. Haarman
has become a maintenance expert with a wide array of expertise,
helping customers develop “World Class” maintenance and
reliability policies and practices. He is a former chairman of
the Dutch Maintenance Association (NVDO) and the author of the
book entitled “Value Driven Maintenance, New Faith in
Jonker MSc is Partner in Mainnovation. Mr. Jonker is an
international expert in maintenance management and he has
assisted many organizations in Europe and Asia to improve their
maintenance effectiveness He contributes actively to the
development of his field of specialization through published
articles, seminars and training courses. In addition he is co
writer of the VDM book.
Haarman and Guy Delahay, “Value Driven Maintenance – New Faith
in Maintenance”, Mainnovation, Dordrecht, the Netherlands, 2004.
Volvo Cars produces more than 460,000 cars per year.
Their production site in Gent, Belgium alone builds
260,000 cars. 5000 people are in service and 300 of them
are active in the maintenance organization. About 725
industrial robots are commissioned at the 10-mile long
2004 management received the challenging task to
streamline the maintenance processes. This was mainly
instigated by macro economic trends - increasing costs
of raw materials, a weak dollar against the euro and
little growth in the major markets - that led to
considerable pressure of the profit margins.
standardize maintenance processes the site managers in
Belgium and Sweden decided to set up uniform and
transparent work processes in line with Value Driven
Maintenance. The processes are based on internal best
practices across the sites and enriched with external
best practices. They are all translated into a
standardized common Maximo system. Of course this whole
exercise affected the jobs of many people. “As a
consequence the cultural change is probably our greatest
challenge in order to deliver results at the end of the
day”, says Marc Begijn, Maintenance Manager at Volvo
Cars Gent. “We decided to use the VDM Business
Simulation to familiarize the key players in the
maintenance organizations with the new or adjusted roles
and the new way of working. The main objective is to get
the right mind set - so people understand the reasons
why change is necessary and how it affects the way they
work. The first results are very promising. We are even
considering playing the simulation at board level”.