Eliminate Maintenance Debt
EP Editorial Staff | April 10, 2023
Ignore short-term thinking and invest in PM practices to realize sustainable financial gains.
By Torbjörn Idhammar, IDCON
Does it feel as if your organization’s reliability initiative is slowly suffocating due to the demands of the stock market? Does it feel like the expectation of short-term financial results leaves you with few, to no, options to improve reliability in your plant?
Recently, I performed quality assessments for two clients. They began their reliability and maintenance improvement projects around the same time. From the beginning, both asked many questions about how long it would take to realize financial gain from the maintenance improvements. We estimated that it would take three years in one project and five in the other, based on the large maintenance debts (the costs to repair all assets) at both plants.
Was waiting three to five years for results the answer they wanted? Of course not, but there was no other news to deliver. Financial results, or at least sustainable financial results, usually don’t reveal themselves until after several years, or at least many months. Upgrades in equipment and existing-asset repairs are necessary. Only when those are addressed will reliability be improved and costs go down.
It usually takes one to three years for better work processes to really take hold in an organization. You also must factor in the unavoidable six-to-twelve-month “technical” delay for the results from improved reliability to materialize. For example, an improperly installed bearing may only last six months, versus ten years if it’s done correctly. Hence, the difference between good and bad maintenance won’t be discovered until six months after the installation, at the earliest.
An interesting detail about these two client projects, which are located on different continents and have been running for about two years, is that both have experienced similar success and similar problems.
The factory in the Middle East has a maintenance department of 450 employees and the factory in Illinois has about 120. The projects are going well and, as of today, both have implemented about 50% of the detailed preventive maintenance (PM) plans for instruments, mechanical, and electrical equipment. They have hired planners (neither had those roles before) and introduced base-level planning and scheduling of jobs, as well as delivering spare parts to planned jobs. In other words, they’ve implemented the basic maintenance work processes that were missing.
The factory managers are happy, reporting that they get about 20% to 30% more jobs done and are discovering faults much sooner thanks to the PM inspections. Sounds great, right?
Enter the stock market
Now to the dilemma. Executive leadership is driven by the stock market and is under pressure to deliver better financial results each quarter. This financial pressure typically results in tightening the screws on the plant managers. The plants have a workorder backlog with well-defined repairs to be done, but it costs money to repair equipment. So, what to do when the stock market demands results now and the reality is that it can take several quarters, sometimes years, and significant investment, to eliminate the maintenance debt? Two options are available:
Option one: Put off the repairs and hope for a decent financial quarter. With this option, the improvement project will slowly disintegrate since the executives have just demonstrated that they aren’t ready to push for reliability at the plant.
Option two: The factory managers implement a long-term effort, daring to go against the short-term financial pressures, and immediately begin asset repairs, investing extra resources, money, and time. Assets are upgraded and will become more reliable within six to nine months, i.e., over a period of two or three fiscal quarters. Remember, for this to work, better work processes need to be implemented before the actual repair work happens, otherwise we won’t be able to effectively manage the repaired equipment.
No matter how the issue is approached, option two is the only one that will deliver long-term, sustainable results. The only time a short-term focus may be necessary is if you have financial results that will force the plant to close unless something is done to generate revenue in the current quarter. The only losers in the long-term approach are the short-term investors.
Maintenance people understand that repairs can never be avoided. They know that it’s more cost efficient to repair “now” rather than risk a breakdown. This crystal-clear logic, however, is often ignored since large corporations are driven by quarterly reports (hence stock prices) and rarely willing to deal with their maintenance debt. Instead, they leave the plants no choice but to hobble along, quarter after quarter, paying the high price of unplanned downtime and high maintenance costs. Some factories, especially those with low profit margins, are doomed. It’s painful to watch how short-term thinking suffocates long-term financial performance of plants.
The final answer
In most projects, there is a lot of pressure from executive boards and stockholders. Every month it’s the same question, “When will the results be visible in our books?” Our response is the same every time, “When a majority of your maintenance debt is eliminated.”
Believe it or not, there is hope. In the factory in the Middle East, they decided to budget $20 million to combat their maintenance debt. Sounds like a lot of money until you see the plant! In Illinois they struggle along. The questions from the executives keep coming, but there is a good amount of praise for the plant team as well. They had, for example, a packaging line that was so poor they had to outsource a portion of the production. After implementation of PM rounds and basic planning/scheduling, it’s all back behind their own walls again due to improved reliability.
The financial results that upper management desires will be realized shortly in both projects and I hope the executives are able to see beyond the short-term costs and time necessary for the repairs. If they make it across the finish line, the results will be jaw dropping. EP
Torbjörn Idhammar is CEO and President of IDCON Inc., Raleigh, NC (idcon.com), a Reliability and Maintenance management consulting company serving the manufacturing and process industry worldwide since 1972. His responsibilities include training IDCON consultants, developing international partnerships, product development, sales, and marketing.