Beyond Reliability To Profitability
EP Editorial Staff | April 2, 1997
In the modern industrial environment, equipment reliability and reliability improvement must offer solid financial justification. Profit-centered maintenance shows how to meet the challenge.
Financial considerations, namely profitability, drive most aspects of modern process and manufacturing operations. The premise of profitability is the basis for profit-centered maintenance (PCM), a continuous process of reliability and administrative improvement and optimization. It requires a culture change to make decisions based on value, to re-engineer the administration of maintenance, and to enable the people performing and administering maintenance to make the most of available maintenance information technology.
The key steps in the process are optimizing the physical function of maintenance and resolving recurring maintenance problems to reduce the need for maintenance. PCM is more than just an attitude–it is a path to profitability.
In the past, maintenance program improvements have been limited to the realm of the maintenance practitioner. Maintenance improvements have not been major business issues. Most executive and financial managers are unaware of the added value and profitability inherent in an optimized maintenance program. This attitude will change as companies increase efforts to enhance their competitive advantage.
Reliability and profitability
Most managers view plant machinery reliability as the capability to operate in its prescribed manner. This capability is the end product of design, manufacture, operation, and maintenance. Reliability is not automatic nor is it cheap. In consideration of individual equipment, its residual capability to operate beyond its nominal capability can be compared to money in a shoe box–once spent it is gone. Plantwide, reliability is frequently manifested by expensive equipment redundancy that all too often proves ineffective.
To compound the assault on competitiveness, current plant maintenance people strive to meet goals based on generalized, outdated maintenance benchmarks. To meet competitive pressures in the future, maintenance must become good at improving plant availability and asset utilization.
Certain discretionary actions, usually considered necessary to force short-term availability or to maintain a service level or production run, can lessen equipment reliability. For example, consider the continued operation of a critical machine with a known high bearing vibration level. It is understood that replacing a bearing is less costly than repairing a seized shaft. When machinery is operated to a point that wear rates increase, reliability is correspondingly degraded. Whether or not this action causes permanent degradation and required derating, repair, or replacement, repeating this action will eventually lead to a shorter life and premature capital expenditures. Furthermore, when equipment is operated extensively beyond its limits, the result may be failure.
The driving force behind occasional abnormal operations is the need to continue the revenue stream or to obtain profits, certainly not to wear out equipment faster. Profit needs must be faced square on, and managers must find opportunities for increasing profitability through reliability investments and decisions based on value. It becomes necessary to apply business methods to smaller investment decisions.
A firm basis focused on return on investment for reliability costs allows profitability decisions to fall into place. Investments for added reliability such as purchasing more robust equipment, requiring better installation, and insisting on enlightened maintenance practices become justifiable with a solid financial basis. Pressures to revert to reactive or breakdown maintenance can be countered with a return-on-investment analysis that gathers support from senior executives and financial management. Maintenance decisions and approach are thus centered on contributions to profitability, or on profit-centered maintenance.
PCM begins with the premise that financial considerations, namely profitability, drive most aspects of modern process and manufacturing operations. In the modern industrial environment, equipment reliability and reliability improvement must have a solid financial justification. If not, an equipment manufacturer offering only significantly improved reliability at a premium price will find few buyers because business decisions may not support a high price for reliability only.
PCM is a continuum of optimizing the physical function of maintenance, improving asset reliability, and improving maintenance administration. The major activity required for its implementation is optimization of the maintenance function. Once that is done, the continuous improvement loop may perform only the fine tuning of specific maintenance tasks.
The principal components of PCM are
- Insistence on maximum value over least costs
- Optimization of the physical function of maintenance to achieve the blend of condition-based, time-based, and run-to-failure maintenance that returns maximum value
- Reduction of the need for maintenance to permanently reduce maintenance cost
- Re-engineering of maintenance administration, eliminating non-value-adding activities and waste
- Enabling the maintenance workforce to extract maximum value from maintenance information management systems.
Maximum value over least cost
Insisting on maximum value over least costs is a long-term commitment that belongs in the culture change category. It is simple to say and superficially easy to understand. Establishing the concept as the normal way of doing business is the hard part.
Return on investment and net present value are two conventional ways to calculate the relative value of projects or decisions to objectively determine maximum value. The harder issue is to frame operational issues and schedule-impacting maintenance decisions in value terms. The typical maintenance organization, trained to think of minimizing costs, may find the concept of maximum value equivalent to the more familiar least costs method. It is not the same, and the best way to appreciate the difference is to recognize that maximum value achieves its payback over a longer period of time than usually considered.
Hypothetically, the high-level vibration condition discussed previously could be repaired right away with obvious maintenance costs and production loss. This action would be much less expensive than letting the bearing run to failure, increasing the damage and the corrective maintenance cost.
However, in this example the bearing failure could have been caused by imperfect alignment resulting from errors made by the alignment technician conducting a reverse dial indicator alignment procedure. Had the technician been better trained, the alignment might have been performed with minimal error, reducing the failure-causing forces on the bearing.
Optimizing physical maintenance
Maintenance personnel recognize that maximum value in maintenance has generally been obtained from a condition-based program. PCM also includes a complementary condition-directed element, a time-based element, and in rare situations when best served by it, a run-to-failure element. The optimizing or blending of maintenance is driven by the quality and quantity of existing maintenance programs. It uses maintenance effectiveness assessments, reliability-centered maintenance (failure modes and effects analyses), and root cause analyses as tools. The main product from optimization is a maintenance program based on maximum value.
A method for optimizing maintenance processes is outlined in the flow chart, “Profit-Centered Maintenance Task Selection.” Most existing plant applications take the path to the left, through the maintenance effectiveness assessment block, the blending review of existing preventive maintenance items, and the option for root cause analysis, and then through the sorting process resulting in the task that provides the maximum value. This process results in an optimized program that includes condition-based and time-based tasks that are applicable and effective in preventing or mitigating known failure modes.
The repair part of maintenance is not included in optimization. However, repair efforts benefit from greater investigative capabilities developed within the maintenance organization, and often show in advance the scope of damage. In time, if optimized tasks work as prescribed, repairs should be infrequent and of minimal significance.
Reducing the need for maintenance
The only way to permanently reduce maintenance costs is to reduce the need for maintenance. Reducing the need for maintenance comes from diligent efforts to improve materials, designs, maintainability, and operations. Here are some examples:
- Change materials where possible to reduce the strength of a galvanic cell in the seal gland, reducing corrosion and the need for maintenance
- Install permanently mounted vibration sensors to monitor the gearboxes on the cooling tower fans without endangering personnel or missing the opportunity to monitor gearbox degradation
- Provide bearing-specific lubrication oil sampling points to make possible bearing-specific physical, chemical, and wear particle analyses for the turbine lubrication oil system.
- Often, the opportunity to reduce the need for maintenance arises from root cause analysis. This analysis does not have to conform to a particular format. A curious inquiry by a knowledgeable person can often suffice.
Re-engineering maintenance administration
Most business processes within the enterprises of competitive leaders have been re-engineered to improve cost effectiveness, but the administration of maintenance probably has not. Re-engineering is defined as the fundamental rethinking and radical redesign of business processes to achieve dramatic improvements in critical, contemporary measures of performance. In other words, start over, reinvent the administration of maintenance, throw out the old, and bring in the new. The need for regulatory compliance requires care and extra communications to ensure legal responsibilities are met.
Once a company is engaged in a re-engineering effort, strong candidate characteristics for elimination include compartmentalization, excessive hand-offs, and redundant approvals. Attributes to be streamlined include coordination, communications, and supervisory functions. Attributes to be retained include the qualities of ownership, responsibility, and accountability.
To enable maintenance personnel, hardware and software and training are required. The maintenance information system must be modernized to provide information, not just disconnected data, to maintenance technicians and support people where and when they need it. This directive means not only sufficient computer resources, but also reworking of the manner in which computers process maintenance data and present it as information.
Over the years, the electric power industry has generally accepted the fact that moving from breakdown to predictive maintenance saves money. A 1986 study by the Electric Power Research Institute showing plant maintenance cost per total horsepower per year has become so widespread an indicator that it has achieved status as a standard. It is used in many industries to demonstrate the relative improvement of shifting maintenance from breakdown mode to predictive. The chart, “Cost of Maintenance,” shows the study’s original results with a projection for anticipated savings accruing from implementation of PCM.
Maintenance is changing from a concept focused on how well a process or an individual machine works to a more complex concern with safety, quality, commercial availability, and unit cost efficiency. Computerized maintenance management systems are changing from programs constructed to control the worker to integrated maintenance information systems that support self-managing maintenance technicians. For senior managers and maintenance personnel alike to accept these changes requires better communications than presently exist. It is important for both sectors to communicate in terms the other understands. The maintenance practitioner must learn to prepare reports in relevant business terms. Nontechnical senior management must learn enough technical terms to ask relevant questions and to understand the answers.
Embracing PCM is tantamount to committing to culture change. No successful culture change will occur without thorough involvement by senior management. You cannot change the culture without top-down leadership. Although it is said that business is constantly changing, the culture of an individual workplace seldom accepts radical change. Game theory in business applications shows that a reluctance to change leads to loss of market share. Successful organizations are willing to both change and manage the process of change.
Senior managers will best appreciate quality and costs. The concept of “trade-ons” where higher quality and lower costs both occur fits nicely with PCM’s benefits and results.
At this point, industry executives may feel that they have a maintenance program that is not realizing its potential, or they may have dismissed this whole approach, or most likely, they may realize that they do not really know if or how their maintenance function contributes to company profitability. Managers in the unsure category must conduct an orderly examination of maintenance and determine its cost effectiveness.
The assessment will involve examining records, conducting interviews, and observing maintenance operations. The record of the assessment and the recommendations emanating from it must be based on objective determinations and factual conclusions. When done well, this assessment can form the basis for budgetary input, a business plan for the maintenance department, or justification of company investment in a sophisticated maintenance program.
Some smart industry executives may decide that PCM does not apply to them because they cannot establish maintenance as a profit center in their accounting system. Maintenance as a profit center is more an attitude than an accounting change. How the accounting department treats money spent in the management of assets is best left to management. It is hoped that the accounting department will recognize increases in profitability when they occur.
In the initial logic diagram describing the selection of PCM tasks, the path through the existing program will usually be the choice. For new plants, plants with new systems, or plants with old systems without any substantive program, the reliability-centered maintenance option may provide better results.
When working through the task selection flow chart, most users will need to conduct the maintenance effectiveness assessment to determine the status of existing programs. The key step is to evaluate the effectiveness of existing preventive maintenance tasks in the task optimization step. Those tasks that should be changed will be subjected to the test to see which condition-monitoring, condition-directed, or time-directed task is dictated. Should no condition or time-based tasks prove both applicable and effective, a cost-benefits analysis is then conducted to document the rationale for a breakdown task.
During the implementation phase, an unresolved recurring maintenance problem may be recognized. This problem will need root cause analysis to determine permanent corrective action or redesign. Root cause analyses of various complexities are frequently conducted. It is important for analysis to identify a confident solution. Good documentation of what took place, the results, and the rationale are all important for resolution of future issues.
Other than conducting the full maintenance effectiveness assessment, management can take a quick test to determine if the maintenance program is profit centered. It involves satisfying the following criteria:
- Maintenance decisions stress maximum value, not least costs.
- Maintenance tasks include a blend of condition-based, time-based, and breakdown tasks. Machinery does not fail without its condition being recognized.
- Root causes of recurring maintenance tasks are determined and effective action is taken to preclude recurrence.
- Administration of maintenance is a lean and trim operation without excessive non-value-adding activities or waste.
- Maintenance personnel get full measure from maintenance information systems and keep technologically current.
- Plant and company enjoy increased profitability that stems from changes in maintenance practices.
It is not enough to stress just reliability. There is a continuing need for profitability. Increased pressures from competition mean that every effort to enhance profitability must be carefully examined. Maintenance offers that opportunity, and the solution is PCM.
Full benefits come from complete implementation, which will optimize the physical function of maintenance, re-engineer maintenance administration, resolve recurring maintenance problems to reduce the need for maintenance, and enable maintenance personnel to extract full measure from the developing integrated machinery information systems. In a nutshell, it is to obtain maximum value in asset management instead of accepting least costs in maintenance. MT
Tom Bond provides consulting services in management and predictive maintenance through Thomas Bond Consultants, 4259 Niagara Ave., San Diego, CA 92107-2909; (619) 226-2244; e-mail firstname.lastname@example.org.
John Mitchell is a consultant at 31882 Paseo Alto Plano, San Juan Capistrano, CA 92675; (714) 496-0873; e-mail email@example.com. Both authors are part of the Machinery Information Management Open Systems Alliance (MIMOSA), http://www.hsb.com/pcm/mimosa/mimosa.html.