Efficient Plant October 2017 - 48

dept | on the floor

ment does these calculations all the time.
You only need to ask for the numbers, and,
at a minimum, be able to translate value into
financial terms that leadership understands.
Let's assume that all of your process equipment and building(s) are worth $10 million
and generate $1 million in profit annually.
During a year's time, the working capital
(current financial assets minus liabilities) is
$1.5 million.
Return on Net Assets (RONA) =
(1,000,000 / (10,000,000 + 1,500,000)) x 100 =
8.7%
At this point, if you don't yet have one,
build a simple activity-based life-cycle-cost
(LCC) model that reflects the total cost of
ownership (acquisition, operation, maintenance support, spare parts). But make it
detailed enough to answer your R&M decision-making needs. This model would track
recurring costs due to poor R&M. By getting
a little more detailed on net income, you
can use price minus costs (material, labor)
times throughput to evaluate the incremental
benefit of more production, versus cutting
maintenance costs. Have financial help for
support and further credibility. Many companies already have some form of make-buy
decision process that does some or all of this.
You may just need to simplify and tweak it for
easy use.
If you're not ready to go into that much
detail, perform a simple gap analysis of your
current practices versus top-quartile performance. Calculate what 1% of throughput
is worth in revenue and profit. Understand
the quartile in which you operate relative
to reactive maintenance. Chances are that
you aren't in the top quartile (9% reactive

48 | EFFICIENTPLANTMAG.COM

maintenance). The data from my 2016 study
of 140 companies, representing more than
3,000 facilities, showed facilities that are top
quartile in reactive maintenance were also
better in maintenance cost/sales and overall
equipment effectiveness (OEE) than those in
lower quartiles. Use the Improvement Chart
on p. 47 to determine your percent-improvement potential.
Let's go through a simple example. Say
your site's reactive maintenance is 60%,
maintenance cost as a percent of sales is 10%,
OEE is 71%, and management wants to cut
maintenance costs.
Start by explaining that you can't cost-save
your way to higher availability, reliability, and
throughput.
Rather than cut maintenance cost, it
would make more economical and strategic
sense to improve your reactive maintenance
to top-quartile levels, reduce maintenance
cost/sales (10% x 0.41 = 4.1%) to 5.9%, and
increase OEE (71% x 0.11 = 7.8) to 78.8%. Calculate what those benefits are worth to your
organization. This doesn't even get into other
related benefits, i.e., helping reduce downtime,
minimizing variation of production output,
and improving safety.
The first thing is to calculate what a 1%
improvement in OEE, maintenance cost/sales,
maintenance cost/replacement asset value,
and other factors is worth in dollars. Consider
Novelis: As their reliability process matured,
unscheduled average company downtime
improved over 2 % (every 1% improvement is
about four days of additional run-time-for
every machine across the entire corporation,
that is). The takeaway? Know your numbers.
Remember: Everything in your operations
is related. For example, if less than 23% of
your resources are allocated to finding issues

with predictive technologies, you're not a
top-quartile performer. At least another 30%
should be targeted for addressing issues that
infrared, ultrasound, vibration-analysis, and
other predictive tools find. This is what drives
continuous improvement.
Be advised that two things frequently
come up when discussing reliability-program
justification with management: not enough
trades/technicians and funding for predictive
technologies. Turning to information from a
new or recently performed PM Optimization
handy (assuring all tasks are value-added) can
be an especially helpful first step in dealing
with these issues (reallocating people and
resources).
Taking a close look at your
MRO-parts-management process is next.
Every facility I have reviewed has been able to
reduce 10% to 40% in inventory. If yours is a
medium- to large-sized enterprise, improving
inventory turns to more than three from,
typically, less than one, or improving inactive
inventory from, typically, more than 30%
to less than 10%, are each worth more than
$1million. Try targeting savings and obtain
agreement to keep a percentage to fund your
PdM-tool purchases.
Bottom line: Understand the maturity of
your R&M/life cycle asset management process, calculate the savings potential, and start
with justifying the basics. EP

Based in Knoxville, Klaus
M. Blache is director of the
Reliability & Maintainability
Center at the Univ. of Tennessee,
and a research professor in the
College of Engineering. Contact
him at kblache@utk.edu.

OCTOBER 2017
http://www.EFFICIENTPLANTMAG.COM
Table of Contents for the Digital Edition of Efficient Plant October 2017
