The benefits of strategic asset management Page 1 of 3 The benefits of strategic asset management Stanton M cG roarty, SAM I C orporation Tags: m aintenance and reliability After decades of lean m anufacturing, JIT, outsourcing, TotalQ uality M anagem ent and Six Sigm a, w here does a m anufacturing executive turn for the next big com petitive im provem ent? The answ er has been hidden in overhead accounts and factory corners since the beginning of m ass production. The tools to m anage it effectively have been em erging steadily in recent years, and today the science of asset m anagem ent is accessible to any organization w illing to undertake fundam entalchange in the w ay they m anage production assets. The rew ards can be astounding. In m ost m anufacturing or distribution operations, m aintenance departm ent costs are 5 to 15 percent of operating costs. M ost accounting system s require that severalaccounts be com bined to identify the totalcost of m aintenance operations, but the inform ation is there, and it is just the beginning of the asset m anagem ent story. The financialim pact of asset m anagem ent, good or bad, touches allparts of the organization: • Lean m anufacturing cannot function w ith less than 99 percent overallequipm ent reliability. In a JIT system of five steps, the reliability of each station m ust exceed 99.8 percent for the system to deliver 99 percent uptim e. In this environm ent, running equipm ent untilit breaks dow n is sim ply not an option. • In today’s era of paper-thin m anufacturing m argins and ever-shrinking custom er lead tim es, it is unrealistic to even think of carrying finished inventory to cover unreliable equipm ent. • For the sam e reason, nobody can afford to carry duplicate production assets to cover unreliability. • The tim e and cost to repair an equipm ent breakdow n are three to five tim es w hat it takes to m ake a planned repair of the sam e equipm ent, prior to failure. • Safety and quality costs associated w ith equipm ent failure add up to a very convincing case for 99.8 percent equipm ent reliability as a corporate asset healthcare strategy. “Allright,” you say, “that’s a great set of generalizations, but how do I determ ine the financial potentialof asset m anagem ent in m y operation?” Fair question. The com plete answ er requires a thorough assessm ent of your business, but som e im portant clues are readily available from a short self-assessm ent. These clues point only to the actualcost of m aintenance, but that is an im portant beginning: Total Cost of Maintenance (TCM): The accounting departm ent should be able to put this together pretty fast. It is a departm entalcost, not the “cost of unreliability” (C O U R) index that w e use elsew here. The totalis a surprise to m ost executives. TCM includes the follow ing: http://www.reliableplant.com/Articles/Print/9402 11/02/2016 The benefits of strategic asset management Page 2 of 3 • Totallabor, benefits and overtim e cost of m aintenance technicians and support personnel. • Totallabor, benefits and overtim e cost of production and other personnelthat help m aintenance during repair operations. • Totalcost of m aintenance m aterials, including express freight, short lead tim e prem ium s, etc. • Totalcost of m aintenance supplies and the m aintenance portion of production supplies. TCM does not include generaloverhead that is applied to m aintenance today, unless trim m ing the m aintenance departm ent w ould reduce this cost as w ell. (U sually it w on’t.) Benchm arking this cost depends on industry, com pany size and severalother factors, but the figure itself is usually an eye-opener. Breakdown Maintenance Percentage (BM%): As w e said above, the cost of repairing an equipm ent breakdow n is three to five tim es the cost of the sam e repair done in a planned m anner, prior to failure. A w orld-class asset m anagem ent program typically holds breakdow n m aintenance under 5 percent of allm aintenance m an hours. O nce asset m anagem ent is in place, TCM is often reduced to half w hat it w as under a m ostly breakdow n approach. The com putation is straightforw ard. For a period of six m onths to tw o years, determ ine the follow ing: • The num ber of m aintenance and support m an hours that w ere spent on breakdow n w ork. • The num ber of m aintenance and support m an hours spent on scheduled planned m aintenance (PM ) w ork. BM % is Breakdow n H ours / (Breakdow n H ours + PM H ours). W orld class is under 5 percent. Anything over 25 percent indicates a serious com petitive liability. Cost Savings for World-Class Asset Management: The TotalCost of M aintenance (TCM ) is your baseline cost today. W e can approxim ate the cost of a w orld-class asset m anagem ent system as follow s: • D eterm ine the totalcost per m aintenance hour (including m aterial) by dividing total m aintenance cost by totalm aintenance m an hours. • D eterm ine 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 the num ber of PM hours (above). • Then, m ultiply this num ber of hours by your current cost per m aintenance hour to develop an approxim ation of the cost of a w orld-class system . • The difference betw een this cost and your current TC M is a first approxim ation of the m aintenance departm entalcost savings available from installation of an up-to-date asset m anagem ent system . M ost executives are am azed by the results of this self-assessm ent. The w ay m ost accounting system s disguise overhead cost prevents this analysis being done from norm alm onthly or annualcost reports. But, this isn’t the last insight from self-assessm ent. As w e noted above, TC M is only a part of the story. Equipm ent unreliability is a key cause of lost production capacity. The value of this m issed opportunity varies w idely w ith the specifics of each business, but it typically ranges from three to 100 tim es the m aintenance departm entalsavings from w orld-class asset m anagem ent. http://www.reliableplant.com/Articles/Print/9402 11/02/2016 The benefits of strategic asset management Page 3 of 3 In today’s lean m anufacturing w orld, m any organizations can selleverything they can m ake. In these cases, uptim e im provem ent m ay autom atically convert to additionalbusiness, or to a reduction in outsourcing. It can also postpone the need for m assive investm ents in production capacity. Any one of these can dw arf the cost of an asset m anagem ent program . Indeed, som e m anufacturing com panies can double their profits by getting controlof asset m anagem ent. After a m ore com plete assessm ent of current operations, com panies such as SAM I can provide the specific im pact of these factors on your business’bottom line. Follow ing the assessm ent, SAM I uses a proven, five-stage process to help your organization installasset m anagem ent. Each stage brings w ith it a w ave of cost and revenue im provem ents that m ore than funds the process. M ost clients experience exciting financialresults from Stage 1. Asset Management in Five Steps 1. Planned m aintenance – G etting controlof m aintenance operations 2. Proactive m aintenance – G etting controlof equipm ent 3. O rganizationalexcellence – Integrating M aintenance and Production 4. Engineered Reliability – D esigning equipm ent and system s for reliability 5. O perationalexcellence – Building upon asset m anagem ent to create a decisive com petitive advantage To learn m ore about this process, visit w w w .sam icorp.com . http://www.reliableplant.com/Articles/Print/9402 11/02/2016
