El portal latinoamericano
de mantenimiento.

For those of us in the maintenance field, we are approaching the glory days. Just look at the trends that have occurred over the past 50 years. We have moved from a simplistic, labor-oriented and operations-dominated world to a more complex, capital-intensive environment—one that places greater dependence on a sophisticated maintenance team to maximumize the value of the enterprise's asset base.

Maintenance plays a key role in providing a competitive advantage by ensuring maximum uptime, performance and employee safety. A complex mix of skills are required by today's maintenance workers, including electrical and mechanical.

But before we enter the golden age of maintenance (or should I say asset management), we need to show top management the money. Old paradigms abound when you speak to senior management—from indifference to ignorance —as to just how critical maintenance is in this asset-intensive world. Any good senior manager will want to know, from a strategic perspective, what spending money on maintenance improvements will do to improve the bottom line.

Strategy
Before you can persuade top management, you first have to sell your solutions to other stakeholder departments, such as operations and marketing, at both the plant and corporate level. For example, if operations can be involved in developing a maintenance strategy that in part benefits them, you have gained an important ally. The maintenance strategy must provide a long-term game plan, complete with measurable goals and objectives, that's aligned with overall business strategies.

Once a strategy is formulated, prepare a budget showing costs and savings from implementing the improvements. Use your CMMS to help determine where to spend more money (e.g., replace aging equipment), where to cut the budget (e.g., reduce spare parts inventory) and the consequences of reducing budgets too deeply (e.g, the correlation between predictive maintenance spending and equipment availability).

In preparing cost justifications, you should remember to promise only what you can deliver. Also, consider ease of implementation, cash requirements, use of existing resources and probability of success. Top management will expect these criteria to be addressed in an implementation plan. It should also include resource requirements, training needs and a timeline showing short- to long-range milestones and when the proposed improvements will take place.

Described next are a few examples of where and how to build your case for maintenance improvements. Of course, the details will depend on what improvements you're recommending. For multi-plant environments, savings will be significantly higher and therefore more attractive to top management. High savings stem from the synergy among facilities and the corporate level (e.g., shared database, common systems, centralized services such as procurement, internal benchmarking of best practices and "friendly competition" among plants).

Improving labor efficiency
Increased tradesperson utilization. Suppose it's been determined that the average utilization of your 50 maintenance workers is 50 percent. (The average in most maintenance organizations is 35 to 50 percent.) If utilization can be increased 10 percent, five years of labor would be freed for work on special projects, preventive/predictive maintenance—or, if necessary, five workers could be laid-off. (Assuming each one costs $50,000 to employ, $250,000 would be saved annually.) The 10-percent improvement can come from better planning and scheduling, greater emphasis on planned maintenance or a better match of staffing to workflow.

Reducing overtime. One difficult problem to overcome is chronic overtime. With better planning and scheduling and improved matching of work backlog to labor requirements, a 10-percent reduction in overtime is achievable. If overtime costs $750,000, the expected annual savings would be $75,000.

Inventory savings
Reduce inventory levels and material purchases. For example, suppose the maintenance department holds an average inventory of $10 million and purchases $2 million in materials each year. As a result of better control systems and more effective troubleshooting and repair procedures, a 10-percent reduction in inventory is achieved. This reduction can be invested elsewhere. A 10-percent reduction in material purchases would produce additional savings of $200,000.

Capital savings
Reduced downtime. If the investment in production equipment is $20 million, then an average 1 percent reduction in downtime means that $200,000 worth of equipment is "made available." The additional machine capacity can be used for increased production or for training purposes. If an entire machine is freed, it can be sold or disassembled for spare parts. While you cannot sell a fraction of a machine, you can replace a larger machine with a smaller, less expensive one. Savings can stem from better planning, tighter control systems, closer attention to equipment history trends, and quicker response to breakdowns. These measures will decrease the severity of breakdowns and increase the time between failures.

Increased reliability. Equipment may last longer as a result of your improvement program. Consequently, capital expenditures for new equipment can be delayed. For example, if a $20 million purchase of new equipment can be delayed for three months, the cost savings would be $0.5 million (assuming the money is invested for that period at a 10 percent annual interest rate). However, to extend equipment life, additional maintenance expenses would be incurred. This cost should be estimated and netted against the $0.5 million.

Improved equipment performance. Through similar actions, equipment can be run closer to factory-rated performance. Suppose a machine is designed to run with an output of 100 widgets per hour. However, actual performance has historically been 80 widgets per hour (ignoring downtime). Therefore, a 5 percent increase in performance raises output to 84 widgets per hour—this translates into a 5 percent decrease in downtime.

Operational savings
Reduced cost of goods sold. Implementing superior preventive maintenance programs, making better equipment replacement decisions and increasing response time may enable production equipment to operate at peak performance. This translates into more consistent quality product at greater yields—e.g., less scrap, rework, returns and waste. For example, suppose the cost of goods sold (COGS) for a given company is $80 million. A 1 percent reduction in COGS would yield a staggering $800,000.

Increased operational capacity. Suppose improvements result in more efficient and effective maintenance of equipment, which increases equipment speed and uptime and allows more units to be produced. Consider a company that sells 10 million units at $10 each, with a gross margin contribution of $3 per unit. Assume the improvement program increases product volume 1 percent. Therefore, the total gross margin contribution will increase by $300,000 (100,000 units x $3).

Taken together, these cost savings can help you build a solid case for your maintenance improvements.

David Berger is Managing Director of Grant Thorton Management Consulting in Toronto, Ontario. He is a certified Management Consultant and a registered Professional Engineer. He is Founding President of the Plant Engineering & Maintenance Association of Canada, past President of the Toronto Chapter of the Canadian Society for Industrial Engineering, and a past Vice President of the Institute of Industrial Engineers. He can be reached at dberger@GrantThorton.ca