Archive | 2000

310

5:33 pm
March 1, 2000
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Profit Driven Reliability

A six-step work process to increase profitability with reliability improvements.

A Fortune 500 specialty chemical company has doubled its profitability over the past five years, improving it from 7 percent to 14 percent as measured by return on net assets (RONA), after-tax operating profit divided by total net assets. To put this in perspective, a 7 percent RONA is typical for many large companies that consider themselves successful. Reliability’s contribution to cycle time improvements was a key enabler of this profitability improvement. Specifically, reliability improvements increased capacity and facilitated reduction of both inventory and order lead time policy.

Two distinct technical abilities are required to ensure that reliability improvements will result in profitability gains. First is the ability to identify high-impact reliability improvements. This requires identifying which financial variables produce the largest profitability improvement. Second is the ability to connect these financial terms to reliability. Connecting reliability to profitability typically requires computer simulation tools to link specific reliability improvements to competitive advantages that can deliver profitability gains.

Profit Driven Reliability*
Profit Driven Reliability (PDR) is a six-step work process using reliability modeling tools that harnesses reliability’s competitive advantage.

The first step in PDR is identifying the financial variables (such as sales, costs, expenses, or assets) that have the largest impact on profitability. These high-impact variables are known as PDR candidates. If PDR candidates have not already been identified by financial analysts, they can be identified using information from a financial statement. The easiest approach is to calculate the change in each financial variable needed to produce a specified gain in profitability. Since the proposed reliability initiative will seek to improve the PDR candidate, each PDR candidate should be screened for alignment with business strategy and feasibility. Completion of the first step is crucial to selecting a reliability improvement that will maximize profitability impact.

The second step is to enroll management by requesting their support in identifying a specific reliability improvement opportunity that will provide competitive advantages to improve the PDR candidate. A PDR candidate defines the business deliverable that the reliability initiative should provide. It does not define a specific reliability improvement, nor does it enroll management in the support of a reliability initiative directed at improving that variable. A specific reliability opportunity can be defined without approaching management; but a valuable opportunity to develop management support will be missed. Requesting management support will begin to enroll management in using reliability initiatives to increase profitability.

The third step is to define the specific reliability improvement that will deliver the desired competitive advantage (such as increased available capacity). Typically, reliability improvements provide competitive advantages that must be converted into profitability. Successful completion of the third step is an essential ingredient to ensuring that the reliability initiative will deliver the promised business benefit. This step requires an understanding of how reliability delivers competitive advantages and may require computer simulation tools.

The fourth step is to link reliability’s competitive advantages to profitability by formalizing the metrics and identifying the mechanisms to accomplish this. Reliability improvements may offer competitive advantages with high profitability potential but deliver little profitability gain if others fail to act on these competitive advantages. Converting reliability’s competitive advantages into profitability requires effectively communicating the improvement to individuals who are capable of acting on this knowledge by:

  • Communicating the reliability improvement in meaningful terms by developing both reliability and profitability metrics. Rather than reporting an elimination of downtime, more effective metrics might include the associated increases in sold and unsold capacity.
  • Verifying that everyone understands and is prepared to perform his role in harnessing the reliability improvement. Increasing profitability by improving reliability frequently requires the cooperation of others outside the reliability community. Unless these outsiders act on a reliability improvement, the improvement may fall short of its profitability potential.

The outcome of steps three and four is a PDR project. A PDR project is the reliability improvement project plus any actions required to convert the reliability improvement into increased profitability.

The fifth step is integrating the desired reliability improvement. For completeness, PDR includes a step to achieve the reliability improvement; however, PDR offers no tools or techniques to accomplish this. It is assumed that the necessary skills and tools to accomplish a reliability improvement are available.

The sixth step is feeding back results of the PDR project to the organization. This step is crucial in sustaining a culture of improving profitability with reliability. The sixth step is simply a brief report that contrasts final results with the initial state using metrics developed in step four. Any deviations from promised outcomes are briefly explained. The feedback occurs upon project completion as well as each time management support is requested for other initiatives.

300profitfig1

Fig. 1. The Errosion Of Profitability: Despite declining profitability, capital spending continued to climb. (Because the financials of a business are not public knowledge, corporate information available in the annual report was used. This information is representative of this business’ financials.)

A success story
Starting in the late 1980s, profit margins for the largest business unit of a Fortune 500 company began to shrink. Capital investment continued despite shrinking margins. The net effect was a rapid decline in business profitability over the next five years, as shown in Fig. 1. This decline began to strangle the company since this business supplied the bulk of the cash flow for other corporate investments.

Financial analysis of the 1993 financial statement by the Profit Driven Reliability financial analysis tool is shown in Table 1. Improving asset productivity through reliability looked very promising. The highest leveraged approach to improving profitability was to increase asset productivity (saleable capacity) of the existing assets. This approach was consistent with the long-term business plan for sales and capital expansion.

The business leaders were introduced to the concept of acquiring incremental capacity by increasing productive capacity of existing assets. Based on the potential profitability gain associated with improving reliability, the business leaders commissioned a pilot project. The pilot object was to quantify the incremental capacity resulting from reliability improvements within the plant gates, not to develop a specific reliability strategy.

Quick analysis of existing operations showed substantial lost production, apparently resulting from variation in product-specific batch cycle times. These variations were the consequence of process or mechanical failures. To quantify the incremental capacity associated with failure elimination, a reliability model was developed. The reliability model used existing batch card data (cycle time data for every batch and every processing step). The batch card data did not explicitly capture lost production time or attribute specific lost production time to a symptom. For example, batch card data for the first batch of product A might show that the second processing step took 13 hours. The reliability model predicted lost capacity given data defining current and optimum batch cycle times. Validation by comparing actual production to simulation output showed that the model matched reality.

The next step in the pilot was to use the model to quantify the capacity gains associated with improving reliability to the level achieved by other sites. The predicted capacity gains were sufficient to defer capital investment. The business elected to hold the plant accountable for bringing its facility performance up to the level of its more reliable sister plants, rather than purchase incremental capacity with capital dollars.

In response to the request of the business leaders, site management was persuaded to develop a reliability strategy that could deliver the needed improvement. The reliability strategy was developed and implemented. The predicted capacity increase was achieved. Analysis of the pilot project established that reliability improvements were a cost-effective source of incremental capacity. For this business, incremental capacity purchased by reliability projects costs approximately 10 percent of capacity purchased by capital projects. A work process was developed to guarantee that the business would use capital dollars only as the last resort to purchase incremental capacity. To sustain commitment to the reliability purchased capacity, widely published metrics were instituted. Two key metrics were asset productivity and incremental capacity cost.

300profitfig2

Fig. 2. Profitability After Reliability Strategy Implementation: Profitability increased while capital intensity decreased after implementation of a reliability strategy in 1993.

A simple work process was developed to ensure that reliability would be the preferred mechanism for increasing capacity. The work process consisted of one rule: there was no approval for capital expenditures more than $100,000 if reliability could deliver the incremental capacity. To support the new capital deployment process, a reliability model tool kit was developed and rolled out to every site. The reliability model tool kit allowed site personnel to develop a reliability model to simulate their site operations. All capital requests required justification provided by the reliability model.

Today the business reaps the rewards of its commitment to acquiring incremental capacity from the most cost-effective source. Fig. 2 shows the increase in profitability and the simultaneous decline in capital spending.

Suggestions for implementation
Harnessing reliability’s competitive advantages requires a tight alliance with the business throughout the reliability improvement process. A work process and tools similar to those provided in PDR are needed to form and sustain this alliance. To implement a similar process, it should contain these key elements:

Start with a business need. Without this up-front connection to the business, outstanding reliability improvements may have minimal impact on profitability. Connecting to the business can be accomplished by defining the profitability leverage of key financial variables and mapping these terms to business strategy.

Develop management support for the concept before the specific project. Generally, it is a mistake to introduce a specific reliability initiative first. Introducing a specific initiative at this point can imply that there is an idea searching for justification. A more effective approach is to establish how reliability can satisfy business needs prior to the introduction of any reliability initiative.

Select reliability improvements based on their ability to deliver quantifiable business benefits. Quantifying business benefits may require computer models. Ironically, more value was discovered in less complex, high-level models than in more complex, detailed models. This is not a reflection on the relative value of the two types of models; rather, it is the result of the resources and culture. Today, the resources to support widespread use of detailed models are not available. In addition, high-level models were quickly used early in a project when decisions had profound consequences on project profitability. Early in a project, there is usually insufficient data to support the use of more complex models. Finally, the high-level models were user-friendly with a short learning curve, so their use became wide spread.

Define strategy, work process, and metrics that will ensure profitability impact of reliability initiative. The profitability impact of a reliability project can be dramatically increased when it is leveraged through the business by changing fundamental business processes. In the case study, the dramatic results were possible because reliability contributions were considered in the capacity planning and capital deployment processes. Integration of reliability into other processes requires the development of common metrics for inter-process communication.

Sustain momentum by widely publishing metrics. Management commitment is sustained by its belief that an approach is more effective than its alternatives. This belief must be nurtured by publication of the business and reliability outcomes of a project.

Reliability is a powerful tool for providing competitive advantages that can increase profitability. Harnessing this tool requires the assistance of others outside of the reliability community. Ultimately, it is the support of the business leaders that will harness reliability’s competitive advantages, moving reliability from the plant floor to the boardroom.

An article next month will define the foundation concepts and tools needed to link a high-impact financial term to a reliability opportunity. Application of these tools and concepts will allow a user to predict the business benefits associated with specific reliability improvements. MT


This article is based on a paper presented at Process Plant Reliability 99, October 1999, Houston, TX.

*Profit Driven Reliability is a service mark of RonaMax, LLC, Yardley, PA.

Carol Vesier, Ph.D., is principal at RonaMax, LLC, Yardley, PA 19067; telephone (215) 736-2315; e-mail cvesier@ronamax.com; Internet www.ronamax.com

Table 1. Business PDR profitability analysis (1993 Financials)

PDR candidates

Change needed to increase RONA from 4.6 percent to 5.6 percent

Fixed assets¹ Zero capital investment for one year²
Receivables

Eliminate 69 percent of receivables²

Inventory

Eliminate 87 percent of inventory²

Cost of goods sold

Cut cost of goods sold by 2 percent

Maintenance cost Cut maintenance cost by 20 percent
Asset productivity³

Increase facility uptime by 6 days if capital
spending unchanged; OR

Increase facility uptime by 2.5 days with
no capital budget for 1 year

1 Fixed assets are primarily the manufacturing equipment.

2 Any money released by reducing total assets (fixed assets, inventory, and receivables) must be either returned to the stockholders or re-invested at a higher rate of return.

3 Asset productivity is the percent of maximum production that a facility is capable of delivering. To impact profitability, any gains in asset productivity must be sold or used to reduce the asset base.

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452

2:28 pm
March 1, 2000
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Fluorescent Leak Detection Cuts Refrigerant Costs

Refrigerant leaks in air conditioning and process control systems cost industry hundreds of millions of dollars every year. Companies that allow refrigerants to escape unchecked into the atmosphere risk fines from the Environmental Protection Agency of $25,000 per day for each violation. So it’s imperative that all leaks be detected and repaired as quickly as possible. However, repairing the leaks is not the biggest problem; finding them is.

300-leaks

Dye deposited from leaks glows bright yellow when scanned by a high-intensity ultraviolet or UV/blue light lamp.

Finding leaks
Ron Baldridge, air conditioning and refrigeration technician at Boeing Corp. in Palmdale, CA, originally had tried electronic detectors to find a troublesome refrigerant leak. He and his staff searched unsuccessfully for the elusive leak (or leaks) for more than 3 months.

Unfortunately, electronic detectors cannot be counted on to find multiple leaks. When there are several leaks in an area, a large leak often will hide or mask smaller ones.

After the first leak is found and repaired, the unit is recharged with a new supply of refrigerant, which again escapes into the atmosphere because of the remaining leaks that were not found.

Not until the system fails a second time do most service personnel consider looking for multiple leaks. It is not uncommon for large systems, especially older ones, to have 5, 10, or more leaks at the same time.

Baldridge next tried a simple and inexpensive method to find the leak: fluorescent leak detection. “We immediately pinpointed multiple leaks in a single inspection.

“In our 23 years of doing this kind of work, this system is definitely the easiest, quickest, and most accurate method of leak detection,” Baldridge said. “Another benefit is that you don’t have to be concerned with wind or convection currents when looking for leaks. With some leak detection methods, you have to spray a solution over the entire system. This gets quite messy, especially on evaporators and condenser coils.”

How fluorescent leak detection works
The user adds a small amount of OEM-approved fluorescent dye into the air conditioning system, then allows the dye to circulate throughout the system. Wherever the refrigerant escapes, so does the dye.

Although the refrigerant evaporates, the dye remains at the sites of all leaks. When the system is scanned with a high-intensity ultraviolet or UV/blue light lamp, the dye glows bright yellow to pinpoint the precise location of every leak.

“We use the Spectroline method to detect leaks in our comfort air for offices, as well as for temperature-controlled laboratories where we test electronics on chilled tables,” Baldridge continued. “We make equipment for the Space Station and motors for Delta rockets and the Space Shuttle.

“No matter where we check for leaks, this method cuts refrigerant expenses because we spot leaks while they are still small. And since we find the leaks so quickly, our labor costs have been reduced considerably.” The fluorescent leak detection method has been shown to reduce inspection time by 75 percent or more.

Fluorescent leak detection was invented in 1955 by Spectronics Corp., Westbury, NY. This leak detection method is so accurate that it locates the smallest, most elusive leaks in tubing, soldered joints, fittings, coils, valves, compressors, and more.

Ideal for preventive maintenance programs
Fluorescent leak detection allows a service technician to see leaks from up to 20 ft away. This eliminates the need for ladders and lift platforms, which also helps cut inspection time.

With other leak detection methods (electronic detectors, bubble solutions, and halide torches), a technician must be very close to the leak, within about 1/4-3 in. in order to locate it.

Also, with these methods, technicians can only spot check a system. Fluorescent leak detection allows them to check an entire system in minutes, find all the leaks, repair them, and check to make certain the leaks were repaired correctly.

Spectronics’ AR-GLO fluorescent dye is the only OEM-approved, solvent-free dye. It remains safely in the air conditioning system until the lubricant is changed.

To check for leaks, scan the system with a lamp. If there are any leaks, they will glow brightly. Future leaks will be found instantly with the lamp whenever the system is reinspected.

Another advantage of fluorescent leak detection is that it allows easy confirmation of repairs. After a leak has been fixed, clean off the remaining dye from the site with a nontoxic spray cleaner or with a water-based dye remover.

Then, after the equipment has operated long enough for the refrigerant to circulate fully, recheck the site with the lamp. If there is no glow, the leak has been repaired properly. MT


Information supplied by Mike Fleming, Spectronics Corp., 956 Brush Hollow Rd., Westbury, NY 11590;telephone (516) 333-4840; Internet www.spectroline.com

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374

1:49 am
February 2, 2000
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CMMS: What To Look For

Determining your specific needs is the logical starting place when selecting a CMMS package.

In today’s maintenance and reliability community, two types of facility managers exist: those who already use computerized maintenance management software (CMMS) to run their day-to-day operations, and those who will in the near future. CMMS has proven to be an indispensable tool in the management of manufacturing, institutional, and commercial facilities.

CMMS allows scheduling of maintenance tasks, tracking work orders, and managing parts inventory. The resulting benefits include reduced downtime, increased equipment life, and lower overall maintenance costs.

The real problem associated with CMMS is selecting the right package. With literally hundreds of packages available, how does a CMMS novice find the right one? First, understand how CMMS operates. Next, ask what you want CMMS to do for you. Finally, evaluate the features offered by different CMMS packages and compare them to your needs.

How CMMS works
Most CMMS packages contain four components: entry screens, reporting screens, administrative tools, and a database.

In entry screens, you record equipment information, including identification number and maintenance schedule. You also input the maintenance tasks associated with equipment, including labor (in-house or contract), parts and tools (consumable vs. nonconsumable), and procedures.

Once that information is entered, reporting screens display it in a logical, user-friendly format. For example, work order due reports give detailed lists of maintenance due on specific days. Preformatted financial reports and graphs also help you analyze and manage your operation.

Administrative tools allow you to configure the software to meet your specific needs. With most packages, you can assign user passwords and rights. Also, you can set up most packages to skip weekends and holidays when calculating maintenance due dates, moving due dates to the previous or next day.

The database stores the records you enter. Popular database formats include Access, FoxPro, dBase, and Paradox. Some organizations might use client/server databases, such as Oracle or MS SQL Server, to handle multiple users and large volumes of data more efficiently.

Your needs
All maintenance managers share the same goal: minimizing maintenance costs while maximizing equipment uptime. However, different managers use different approaches to accomplish this goal. Therefore, determining your specific needs is the logical starting place when selecting a CMMS package. Answer the following questions.

  • Who will use the system?
  • What rights should each user have?
  • How computer proficient are the users?
  • Should the system run on a network or on a stand-alone PC?
  • What are your procedures for paperwork flow? Will the software improve this flow or make it worse?
  • Do you assign work orders verbally or with hard copies?
  • Do you track spare and consumable parts inventory
  • Do you need an audit trail?

By clearly defining your needs, you will be better able to evaluate the features found in CMMS packages.

CMMS features
Most CMMS packages offer the following standard features:

Database. As discussed earlier, CMMS packages store information in a database, which should be in an industry-standard format, like those mentioned earlier. If you want to use the software in a PC environment, choose a package compatible with your current setup. If you are purchasing the client/server system, choose a mainstream database program such as Oracle, MS SQL Server, IBM DB2, Informix, or Sybase.

User interface. Many CMMS packages use a graphical interface that operates under Windows 95, 98, or NT (few Macintosh or character-mode applications are available). The interface should conform to industry design standards so users can learn the program quickly and efficiently. It should look and function like your word processing and spreadsheet programs; it also should use peripheral devices without needing application-specific configurations.

Record types. CMMS packages should include, at minimum, master equipment records, including detailed maintenance history, along with equipment tracking and maintenance procedure records. Many packages also include records for parts, tools, and suppliers, along with employee and purchase order records.

Functions. The software should be able to automatically calculate maintenance due dates based on maintenance schedules. It also should easily sort and filter records by ID, location, description, and due date. To save record entry time and ensure accuracy, the software should allow you to copy records and use list boxes, which let you select entries from lists of specific items.

Reporting. Good CMMS packages offer a variety of sorting and filtering options for reports and let you preview reports before printing them. Advanced packages let you e-mail reports, export them to word processing or spreadsheet programs, and publish them as HTML pages on your web site.

Standard reports should include equipment records, maintenance due notices, and maintenance history. Work orders and label printing are also useful. If a package does not support custom reports, you might be able to use an external report-writing utility, such as Access, Excel, or Seagate’s Crystal Reports, to design the reports you need. Remember, though, this program must be compatible with the CMMS database.

Security. Database security is an important CMMS issue. Look for a package that uses multilevel security (users have different access levels). You should be able to control each user’s right to view, add, change, and delete records. Some packages let you vary these rights by program area, so that, for example, a user can create new equipment records but not new purchase orders. Advanced security systems can even maintain an audit trail log—a running history of user names and actions, including date performed.

Options. Helpful options to enhance the system are available with many packages:

  • Label kits. An efficient alternative to handwritten labels, these usually include a special printer and software with which you can print labels for equipment, parts, and tools. In evaluating a label kit, consider how you will use labels with your tracking system and the environment where you use your equipment. Next, determine the type of label you will need. Should labels be paper, laminate, or polyester? Should they be laminated or coated in some way to protect them from chemicals, water, and grease?
  • Personal Digital Assistants (PDA). A lot of maintenance occurs in different locations throughout a facility. Therefore, consider using a laptop computer or PDA to record information during actual maintenance. You can then import the information into your main CMMS program. Check with the CMMS supplier to see if this option is available and how easy it is to use (if you have to spend a lot of time setting up software and cables, it might be easier to manually record information). The PDA is actually a handheld Palm Pilot or Windows CE computer that can fit into a shirt pocket or be belt-holstered. Since it is more affordable, compact, and lightweight than a laptop, maintenance technicians can easily document work order results. At the end of the day, they simply place the PDA back on its cradle to electronically transfer the records into the CMMS database.
  • Service request modules. To save time and reduce paperwork, many suppliers offer software accessory programs that other departments use to request maintenance via the computer network. After reviewing these requests, you decide whether to approve them. You also can create work orders directly from these requests.
  • Validation kits. Companies regulated by the Federal Drug Administration must validate any software program that affects their processes and products. To help you validate CMMS, most suppliers offer a validation kit, containing test method documents and/or a separate validation database. Check to see if this option is available—it can save you a lot of time and hassle.

As you look at various CMMS packages, ask yourself how each one meets your specific needs. Maintaining this focused approach is the best way to select a package that is right for your facility. By taking the time now to thoroughly research and evaluate your options, you avoid regretting hasty decisions later. MT


Information supplied by Richard Baron, industrial engineer and sales manager for CyberMetrics Corp., Scottsdale, AZ; (800) 774-7020

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