Part I of this article introduced Collaborative Asset Optimisation (cAO) and discussed ways of defining maintenance management best practices. Part II explains how this approach provides financial benefits that can be eight or more times that realised through maintenance savings alone.
Financial considerations
The financial impact of any asset management strategy is of concern to any financial officer of a company. When considering the cost impact of an asset management strategy, there are three areas to examine: maintenance costs, downtime costs, and equipment efficiencies or cAO benefits.
Maintenance costs
Controlling maintenance costs are important, since maintenance rands not utilised translate directly to profits. This is also an area of concern for companies, because up to one third of all maintenance costs in the United States is wasted. Maintenance costs can be divided into three categories: labour, materials and derived benefits.
Labour costs are the most obvious of the trio. Maintenance productivity in most US companies averages between 25 and 35%. This translates into less than three hours per eight-hour shift of hands-on activities. Most of the lost productivity can be attributed to waiting on parts, information, equipment to be shut down, etc. While 100% of productivity is an unrealistic goal for any maintenance organisation, a more realistic percentage of 60% is achievable. The productivity of maintenance technicians can be improved by concentrating on basic management techniques, such as planning jobs in advance, scheduling jobs and coordinating schedules with operations; arranging for the parts to be ready; coordinating the tools, rental equipment, etc; and reducing the emergency work below the 50% level by PM.
With computer assistance, planning time per job is reduced, resulting in more jobs planned and coordinated. This results in more time for preventative maintenance activities, which in turn helps to reduce the amount of emergency and breakdown activities. This results in fewer schedule changes and helps to increase the productivity by reducing travel and waiting times. Successful companies have indicated an increase in productivity of 28%. When considering a maintenance workforce of 100 employees, this can result in annual savings in the millions of rands.
The material costs are related to the frequency and size of the repairs made to the company's equipment. The sheer number of parts, in addition to the stores policies, purchasing policies, and overall inventory management practices contribute to the overall maintenance materials costs. Because little attention is paid to maintenance materials in some companies, inventories may be higher than necessary by some 20-30%. This increases inventory holding costs and makes materials unnecessarily expensive. Good inventory controls enables companies to lower the value of the inventory and still maintain a service level of at least 95%. This enables the maintenance department to be responsive to the operations group, while increasing its own personal productivity. Successful companies have averaged 19% lower material costs and an overall 18% reduction in total inventory. North American studies indicated that if a company has a maintenance budget of $10 million and the labour and materials budgets are split 50/50, the potential saving from the examples considered could be in the range of $3-$4 million. (The same studies that have shown one third of all maintenance expenditures in North America are wasted.)
Derived cost savings are somewhat more difficult to calculate without certain data being provided. But it can be safely assumed that some sort of cost benefits will be derived through savings achieved through more efficient energy usage, increased quality, and reduced expense to meet regulatory compliance.
Downtime/availability savings
The downtime/availability savings are the true savings for a company determined to improve maintenance policies and practices. Downtime cost for equipment may vary from several hundreds of rands per hour to literally hundreds of thousands of rands per hour. At least one company in the USA has several production lines in its plant, with the downtime on each being worth $1 million for 24 hours. Some computer chip manufacturing plants have downtime costs of up to $100 000 per hour.
In some companies, levels of downtime can run as high as 30% or more. This results in lost sales opportunities, unnecessary expenditures for capital equipment, and overtime expenses. Futuristix believes that by dedicating the company to enforcing best practice maintenance policies and utilising the Avantis asset management solution from Wonderware as a tracking tool, equipment downtime can be reduced significantly. Industry statistics show successful users of maintenance management systems, similar to Avantis, have averaged a 20% reduction in equipment downtime losses.
If a company experienced 10% equipment downtime on a continuous-run operation (0,1 x 8760 hours = 876 hours), the probability of eliminating only 50% of its downtime could be worth R8,76 million (at R10 000 per hour) to upwards of R87,6 million (at R100 000 per hour). These numbers, of course, would also have to reflect market conditions, current pricing, and current asset utilisation. However, it is easy to realise that equipment uptime has a dramatic effect on a company's profitability.
cAO savings
cAO goes beyond simply equipment uptime and focuses on the utilisation of assets. cAO blends a series of strategic techniques to optimise the assets of a company. While most companies focus on reducing downtime, they miss the larger opportunity of eliminating minor equipment losses and inefficiencies. Studies have shown that in manufacturing operations, minor stoppage and efficiency losses far exceed equipment downtime losses.
By following the Wonderware/Invensys model shown in Figure 1, companies can avail themselves of the benefits of cAO. This model can have a dramatic impact on the financial condition of any company. By using realtime asset optimisation, a company can link the supply chain to the plant floor, from sensor to boardroom, which turns plant data into actionable business information. Avantis is a key component of this strategy, accumulating the maintenance and asset repair and cost data and presenting it in a financial format.
The full integration of the Wonderware/Invensys model provides a significant business advantage to companies who fully implement it. Unfortunately, as has been referenced previously in this article, most companies neglect the maintenance management component of the solution. However, in the Wonderware/Invensys solution, Avantis provides the tools to link the assets to the enterprise resource planning systems of a company. This linkage of the realtime plant floor information to the maintenance system provides a true competitive advantage, because, says Futuristix, Avantis is the only tool presently offering this benefit. In addition, the rapid implementation methodology utilised by Avantis provides an accelerated return on investment for Avantis users.
The financial benefits of cAO can be highlighted by considering the example of an offshore compressor, which showed acceptable levels of equipment uptime. However, the efficiency of the compressor was only about 67%. When the compressor was overhauled, the increased production was valued at $5,4 million over the next 12 months. The cost of the overhaul was approximately $450 000. This example showed a tremendous payback for restoring the efficiency of the compressor.
The end result
Understanding the financial benefits of evolving from maintenance management to cAO is critical to the survival of any company in the present competitive world marketplace. Still, many companies focus only on controlling maintenance expenses. Most fail to understand the equipment uptime and the related benefits in achieving the additional throughput. Even fewer ever understand, let alone achieve, the financial benefits that can be realised through cAO.
Referring to Figure 2, if a company focuses only on maintenance costs, its benefits will be small and incremental, usually due to cost reductions. If a company focuses on the equipment availability strategies, it will experience increased uptime and a lower cost of production. The financial impact is usually four times the benefits derived from focusing on maintenance. If a company focuses on cAO strategies and tools, the resulting equipment utilisation will allow it to dominate its respective market space. It can dominate whether it chooses to increase production and take market share from its competitors or lower its cost to produce goods and increase profits in a constrained market. Studies have shown that the financial benefits can be eight times or more than the maintenance savings alone would realise.
That leaves two final questions: Which strategy is your company currently employing? - and which strategy should your company be employing?
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