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Excess Capacity / Underutilized Assets

With the current economic recession, most companies are not running their assets at full capacity.  This is highlighted by the US government report on industrial utilization.  It says: ‘In July (2009), the capacity utilization rate for total industry was at 68.5 percent, a level 12.4 percentage points below its 1972-2008 average. Federal Reserve Statistical Release - Industrial Production and Capacity Utilization report.’

This means that there are assets that are being operated based on a reduced capacity marketplace, thus being partially utilized.  Depending on the design parameters for an asset, being partially utilized can be damaging to an asset. For example, there are large industrial assets, such as turbines, paper machines, basic oxygen furnaces, coke plants, petro-chem processes that can not be turned on or off on a moments notice.  Yet there are still executives in companies that are not aware of the impact this type of operating strategy will have on the assets.  Without this understanding, senior executives are ordering the assets to be switched on and off or operated at partial capacity (based on business conditions).  This type of policy may seem prudent from a financial perspective, but will result in long term damage to the assets, devaluing them more rapidly, and shortening their overall life cycles.

The solution to the problem is for the senior executives to consult with the maintenance and reliability professionals in their organization before making any decisions relating to a change in operating strategies for any assets.  Based on a financial estimate of the damage to the assets, combined with the perceived financial benefits of changing the operating strategy, the senior executives will be able to make a sound decision that will provide the greatest return on investment for their shareholders.

This will require the maintenance and reliability professionals to present the projected impact of changed operating strategies in financial terms to the senior executives.  This requires a change in thinking for most maintenance and reliability professionals.  Instead of phrases like “We can increase MTBF and lower MTTR”, they will need to show the financial impact with ‘This change will raise our RONA by 5%”  or “This change will cause the bearing to fail in 6 months, resulting in repair costs of an additional $10Kand will result in $100K of lost production’.

Tip by Terry Wireman, C.P.M.M., Senior Vice President, Vesta Partners, LLC, Author The Maintenance Strategy Series

 

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