The benefits of strategic asset management

The benefits of strategic asset
management
Stanton M cG roarty, SAM I Corporation
Tags: maintenance and reliability
After decades of lean m anufacturing, JIT, outsourcing, Total Q u a lity M anagem ent and Six Sigm a,
w here does a m anufacturing executiv e tu rn fo r th e n e x t b ig com petitive improvement?
The answ er has been hidden in overhead accounts and factory corners since the beginnin g o f
mass production. The tools to m anage it e ffe c tively have been em erging steadily in recent years,
and today the scie n c e o f a s s e t m a n a g e m e n t is accessible to a n y o rg a n ization w illing to
undertake fundam ental c h a n g e in the w ay they m anage productio n a s s e ts . T h e re w a rd s c a n b e
astounding.
In m ost m anufacturing or distribution operations, m aintenance departm ent costs are 5 to 15
p e rce n t o f o p e ra ting costs. M ost accountin g s y s te m s re q u ire th a t se v e ra l a c c o u n ts b e c o m b ined
to identify th e to ta l c o s t o f m a intenance operatio n s , b u t th e inform ation is there, and it is just
the beginnin g o f th e a s s e t m a n a g e m e n t s to ry .
T h e financial im p a c t o f a s s e t m a n a g e m e n t, g o o d o r b a d , to u c h e s a ll p a rts o f th e o rg a n ization:
• Lean m anufacturing cannot function w ith less than 99 percent overall e q u ipm ent reliability .
In a JIT s y s te m o f fiv e ste p s , th e re liability o f e a c h s ta tio n m u s t e x c e e d 9 9 .8 p e rc e n t fo r
the system to deliver 99 percent uptime. In this environm ent, running equipm ent until it
breaks dow n is simply not an option.
•In today’s era of paper-thin m anufacturing m argins and ever-shrinking custom er lead
times, it is unrealistic to e v e n th ink of carryin g finish ed in v e n to ry to co v e r u n re liable
equipm ent.
• F o r th e s a m e re a s o n , n o b o d y c a n a ffo rd to c a rry d u p licate production assets to cover
unreliability .
•The tim e a n d c o s t to re p a ir a n e q u ipm ent breakdow n are three to five times what it ta k e s
to m ake a planned repair of the sam e equipm ent, prio r to fa ilure.
• Safety and quality costs associated w ith e q u ip m e n t fa ilure add up to a very convincing
c a s e fo r 9 9 .8 p e rc e n t e q u ipm ent reliability as a corporate asset healthcare strategy.
“A ll rig h t,” y o u s a y , “th a t’s a great set of generalizatio n s , b u t h o w d o I d e te rm in e th e financial
potential of asset management in m y operation?”
Fair q u e stion. The com plete answ er requires a thorough assessm ent of your business, but som e
important clues are readily available fro m a s h o rt s e lf-assessm ent. These clues point only to the
actual cost of m aintenance, but that is an important beginning:
Total Cost of Maintenance (TCM): The accounting departm ent should be able to put this
to g e th e r p re tty fa s t. It is a departm ental c o s t, n o t th e “c o s t o f u n re liability ” (C O U R ) index that
w e use else w h e re . T h e to ta l is a surprise to m ost executiv e s . T C M inclu d e s th e fo llow ing:
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• Total labor, benefits a n d o v e rtim e c o s t o f m a intenance technicians and support personnel.
• Total labor, benefits a n d o v e rtim e c o s t o f p ro d u c tion and other personnel that help
maintenance during repair o p e ra tions.
• Total c o s t o f m a intenance m aterials, including express freight, short lead time premium s,
etc.
• Total c o s t o f m a intenance supplies and the m aintenance portion of production supplies.
TCM does not include general o v e rh e a d th a t is applied to m aintenance today, unless trimming
th e m a intenance departm ent w ould reduce this cost as w ell. (U s u a lly it w o n ’t.)
Benchm arking this cost depends on industry, com pany size and several o th e r fa c to rs, b u t th e
figure its e lf is usually an eye-opener.
Breakdown Maintenance Percentage (BM%): As we said a b o v e , th e c o s t o f re p a iring an
equipm ent breakdow n is th re e to five tim e s th e c o s t o f th e s a m e re p a ir d o n e in a planned
m a n n e r, p rio r to fa ilu re . A w o rld-class asset m anagem ent program typically hol
ds breakdow n
main te n a n c e u n d e r 5 p e rc e n t o f a ll m a intenance m an hours. O n ce asset m anagem ent is in
place, TCM is often reduced to half w h a t it w a s u n d e r a m o s tly breakdow n approach. The
com putation is straightforw ard. For a perio d o f s ix m onths to tw o years, determ ine the follow ing:
• T h e n u m b e r o f m a intenance and support m an hours that w ere spent on breakdow n w ork.
• T h e n u m b e r o f m a in te n a n c e a n d s u p p o rt m a n h o u rs s p e n t o n s c h e d u led planned
maintenance (PM ) w ork.
BM % is Breakdow n H ours / (Breakdow n H ours + PM H ours).
World class is under 5 percent. Anything over 25 percent indicates a serious com petitive liability .
Cost Savings for World-Class Asset Management: The Total Cost of M aintenance (TCM ) is
your baselin e co st to d a y . W e ca n a p p ro x im a te th e c o s t o f a w o rld-class asset m anagem ent
system as follow s:
•Determine the total c o s t p e r m a intenance hour (including m aterial) b y d ividing total
maintenance cost by total m a intenance m an hours.
•Determine the num ber of m aintenance m an hours for a w orld-class system by dividing
your breakdow n w ork hours (above) by four and adding the result to th e n u m b e r o f P M
hours (above).
• Then, m ultiply this num ber of hours by you r current cost per m aintenance hour to develop
an approximati
o n o f th e c o s t o f a w o rld-class system .
•The difference betw een this cost and you r current TC M is a first a p p ro x imatio n o f th e
maintenance departm ental c o s t s a v ings available fro m installatio n o f a n u p -to -d a te a s s e t
management system.
M ost executiv e s a re a m a z e d b y th e re s u lts o f th is self-assessm ent. The w ay m ost accounting
system s disguise overhead cost prevents this analysis bein g d o n e fro m n o rm a l m o n th ly or
annual co st re p o rts. B u t, th is isn’t th e last insig h t fro m s e lf-a s s e s s m e n t.
As w e noted above, TCM is only a p a rt o f th e s to ry . E q u ipm ent unreliability is a key cause of lost
production capacity . T h e v a lu e o f th is m issed opportunity v a ries w idely w ith th e s p e c ifics of each
business, but it ty p ically ra n g e s fro m th re e to 1 0 0 times the maintenance departm ental savings
fro m w o rld-class asset m anagem ent.
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In to d a y ’s lean m anufacturing w orld, m any organizations can sell e v e ry th ing they can m ake. In
these cases, uptime improvement may automatically c o n v e rt to a d d itional b u s iness, or to a
re d u ction in outsourcin g . It c a n a lso postpone the need for m assive in v e stm e n ts in production
capacity . A n y o n e o f th e s e c a n d w a rf th e c o s t o f a n a s s e t m a n a g e m e n t p ro g ra m . In d e e d , s o m e
m anufacturing com panies can double their p ro fits b y g e tting control o f a s s e t m a n a g e m e n t.
A fte r a m o re co m p lete assessm ent of current operations, com panies such as SAM I can provide
the specific im pact of these factors on your busin ess’ b o tto m line.
Follow in g th e a s s e s s m e n t, S A M I u s e s a p ro v e n , fiv e -s ta g e p ro ce ss to h e lp your organization
install asset m anagem ent. Each stage brings w ith it a w ave of cost and revenue improvements
th a t m o re th a n fu n d s th e p ro ce s s. M o s t clients experience exciting financial re s u lts fro m S ta g e 1 .
Asset Management in Five Steps
1. Planned m ain te n a n c e – G e tting control o f m a intenance operations
2. Proactive m ain te n a n ce – G e tting control o f e q u ipm ent
3. O rganizational excellence – Integrating M aintenance and Production
4. Engi
neered Reliability – D e s igning equipm ent and system s for reliability
5. O perational excellence – Building upon asset m anagem ent to create a decisive com petitive
advantage
To le a rn m o re a b o u t th is process, visit www.sam icorp.com .
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