Archive | 2001

270

7:15 pm
October 1, 2001
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Make Maintenance a Strategic function in Your Organization

Why is maintenance often viewed as being at the bottom of the totem pole in an organization, when in fact it is the most critical function as pertains to product output, quality, safety, and environmental integrity?

Is it because many maintenance managers, supervisors, and technical staff fail to recognize the important role they play in the strategic goals of the organization?

Having been involved with hundreds of maintenance organizations and their respective employees over the years, I have come to recognize a fundamental difference among them.

There are Leaders, Fast Followers, Slow Followers, and Laggards.

The Leaders are very open minded and willing to take risks. They are entrepreneurial in making things happen. They recognize that their role as a maintenance manager or supervisor is to constantly challenge the status quo and look for ways to improve their contributions to the balanced strategic objectives of their company.

The Fast Followers are the ones that do not want to take a lot of risk on their own, but look to those they regard as Leaders and follow them. This reduces their risk because they can learn from the mistakes the Leaders made, but there is still risk involved because they often do this before all the results are in.

The Slow Followers will wait until the Leaders and Fast Followers have adopted something and proven that following suit will give them a competitive advantage. They are risk adverse and want to have lots of information about how to accomplish a project successfully and the results they can expect. Often, by the time they are ready to adopt it there are many companies able to help them, unlike the Leaders who probably had to figure it out on their own.

The Laggards are the ones that do not accept change very well and, even if they do finally decide to follow suit, are bound to not be highly successful in implementing it. This is because they often follow suit reluctantly and therefore do not give the project the resources required to make it a success.

I have found that 5 percent of maintenance organizations are Leaders, 20 percent are Fast Followers, 50 percent are Slow Followers, and 25 percent are Laggards.

It is time to change this; it is time for maintenance to stand up and get bold on how it is very important to the strategic objectives of the organization.

Start by identifying an area of improvement. It could be a new technology that will allow you to enhance your current computerized maintenance management system (CMMS) without replacing it. Management may find it more palatable to add a new system that will provide additional value rather than replacing an existing system with a similar system that does basically the same thing.

Perhaps implementing a new advanced maintenance methodology such as RCM will help insure your company meets objectives. Maybe you can identify a recent, high-profile issue in the organization. For instance, maybe you have experienced poor quality during production recently so your yield rate has dropped. Determine how maintenance may be able to impact this problem.

Once you have identified the project you want to implement you need to create a clear business case and a maintenance strategy to achieve it. This requires research. Talk to your peers. See who else had a similar problem and find out what they did to resolve it. Talk to suppliers who may have products or services that can help you because they can put you in contact with customers who have solved this problem and give you an idea of the effort required and the results you can expect.

Remember, this is a business case that is going to require approval potentially from several levels above you. You need to speak their language. You need to show them that by doing this they will gain something that they want (such as increased revenue, more production output, or higher quality) or they will avoid something that they don’t want (such as safety problems or environmental issues). You also need to show them that you have a clear strategy to ensure the success of the project.

It is time for maintenance management to recognize that we are business people, too. We need to take an active role in helping shape our organization and improving it. We need to show by example how we can make a difference. Senior management will never take maintenance seriously until we ourselves do. MT

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380

3:53 pm
October 1, 2001
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Possible, Probable, Preferred

bob_baldwin

Robert C. Baldwin, CMRP, Editor

There are three futures—the possible future, the probable future, and the preferred future. That’s what Glen Hiemstra says. He is the futurist I quoted here last month. He dismisses the possible and probable views as interesting, and focuses on the preferred view as very important because your view of the future drives current actions.

Early this month I was able to hear all three futures discussed at a workshop on Tether-free Technologies for e-Manufacturing, e-Maintenance, and e-Service at the University of Wisconsin–Milwaukee. The event was produced by the Center for Intelligent Maintenance Systems, a National Science Foundation Industry/University Collaborative Research Center.

The attendees covered the spectrum: academia, government, industrial maintenance, research, equipment manufacturing, maintenance services, and software developers.

Three agendas were represented: people interested in learning what may be possible in the future, people looking to gauge the consensus of attendees on how things are likely to turn out, and people interested in boosting their preferred view of the future. Most attendees were working all three.

Workshop presentations covered the benefits of tether-free or wireless technologies in various industries, emerging technologies, and standards.

I was fascinated by various viewpoints represented in the breakout session on Emerging Technologies: Needs in e-Maintenance. All revolved around using technology to increase maintenance effectiveness while reducing its cost, with each constituency plotting a way to add the savings to its own bottom line, possibly at the expense of the others.

But all agreed that the formula for success is based on knowledge—knowledge of business processes, manufacturing processes, and reliability and maintenance processes. The trick, they said, is educating enough people in the enterprise about plant asset management so they see the benefits of investing in the technology needed to make it work.

In other words, technology by itself is not worth very much. Its value is derived from its ability to drive the enterprise business model toward an agreed upon preferred future.

I came away from the meeting vowing to remember that although people may agree that certain technologies are beneficial, their reasons for investing it may be vastly different. This suggests that you have to get to know the people you deal with and learn their interests before you can expect to appeal to them to support investment in the processes and technologies that are important to you. MT

rcb

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156

8:36 pm
September 1, 2001
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Managing Compressed Air Energy Part I: Demand Side Issues

Data from more than 250 plants show how compressed air energy may be distributed among key usage categories. Use this information to help decide where energy management solutions should be applied first.Although compressed air systems generally are the third highest energy user in an industrial plant, they represent the number one opportunity for both energy and operating cost reductions.

Compressed air systems convert electrical work energy to pneumatic work energy at the point of use. All elements of this process need to be managed efficiently. The optimum process would produce one unit of work energy in the form of expanded mass at the point of use for every 8.5 units of compressor input energy. In industrial plant air systems, which represent more than 7.5 percent of the energy used in U. S. industry, there seems to be little understanding or effort made to achieve any level of efficiency other than the occasional attempt to buy the promise of efficiency with new equipment.

The manner in which compressed air is consumed offers a major opportunity for reduced energy and operating costs. Typically, less than 60 percent of the total compressed air consumed contributes directly to the goods and services for which production was intended. Of this 60 percent, more than a third of it is poorly applied.

The net result is that less than 40 percent of the total consumption of compressed air in industrial plants is essential to process results. The balance negatively influences the cost and quality of goods and services produced. The combination of process efficiency and usage of compressed air makes plant compressed air systems one of the most significant economic opportunities in the industrial sector. Despite this reality, compressed air energy has been increasing while the use of all other forms of energy in industry is diminishing.

Audit results
In the past five years, Plant Air Technology has thoroughly audited plant and process compressed air systems at 551 plants and cumulatively analyzed the audit results of 250 systems. The percentage of total energy used for compressed air in these plants ranged from 6-29 percent, with an average of 9.5 percent. This article will report the findings. It is particularly interesting to note that while most plant managers were aware of potential inefficiencies, the questions of how the system was specifically set up and adjusted and why it was operated the way it was went unasked and unanswered.

Most of the operating personnel in these plants did not know how much compressed air volume they used or needed. They did not know the costs of operating the compressed air system. Only two of these plants monitored both input power and compressed air consumed. There were no standards or operating procedures for the use or supply of compressed air other than maintaining a minimum acceptable result. Generally, success in system operation was determined by the lack of complaints.

The majority of operating personnel acknowledged that their education regarding compressed air systems and their operation was lacking. Most of the audited facilities did not know how their equipment was specifically adjusted and admitted that outside sources maintained the equipment and established equipment operating parameters. In all cases, neither the owner nor the service agency had any records of how or why the equipment was adjusted. The utility costs ranged from a blended rate including demand charges of 0.035 cent-0.117 cent/kW of electricity consumed.

Low load or no load tests were performed at all audit locations in advance of the final audit. All operating conditions were investigated. All parts of the system including supply, storage, distribution, and demand were measured. Problems in the system were evaluated and quantified. Operating costs of the audited systems were determined including all ancillary equipment, maintenance, water, operator costs, and depreciation. Proposed solutions were detailed and costed. Operating cost of the proposed system was determined to establish a return on investment.

Demand side energy
The basics of demand side energy will be covered here. Future articles will discuss usage factors that affect demand and supply side energy issues.

Most systems are evaluated based on perceived supply requirements. If the pressure anywhere in the system is below what is believed to be the minimum, the diagnosis is insufficient supply. Little more is done to determine what is going on in the system. In existing systems, demand is determined by adding up the rated capacity of the compressors that are on regardless of power. An “on” compressor is only an indication of cost, not an indication of need.

Without demand, there is no requirement for supply. Figuring out a reasonable needs profile begins by analyzing demand. All of these systems used air at the pressure it was compressed to with little or no storage and an uncontrolled approach toward expanding the air to the pressure needed. Less than half of the air consumed was regulated. Fifty percent of the regulators were adjusted wide open.

Total unregulated demand is typically 80 percent of the total demand. This creates a unique dynamic not seen in other utilities. As real demand increases, the supply pressure drops and 80 percent of the total use volume diminishes proportional to the reduced density of the supply air. Please keep this in mind as we move forward.

Demand categories for compressed air include:

Appropriate production use—compressed air that is well applied and controlled at the pressure of its intended use. This can include coincidental demand, critical pressure, high rate of flow, and high volume users, which provoke the operating philosophy in the manner that they affect the system and its pressure. A portion of the users necessary to production will be regulated, while the balance will be unregulated.

Inappropriate production use—applications that should use electricity, hydraulics, or mechanical power instead of compressed air. Examples include using plant air for aspiration, agitation, or aeration; using air ejectors in place of a simple vacuum; or using air instead of electric vibrators. These compressed air applications are usually developed with no understanding of cost or the consequences of purchasing alternative equipment to perform the same function.

Open blowing—using plant air for moving product, drying, wiping, cooling, or part and scrap ejection instead of using pressure blowers, knock outs, or specialty nozzles which would have to be purchased and applied.

Drainage—using plant air in conjunction with open valves, notched ball valves, or motorized or solenoid-operated drain valves to dispose of compressed air effluent such as water or lubricant instead of automatic drain traps which do not use compressed air.

Leaks—waste, which is internal to production equipment as well as in the general piping system from the internals of a compressor to the point of use.

Artificial demand—the excess volume of air that is created for unregulated users as a result of supplying higher line pressure than necessary for the application. This includes all previously unregulated consumption including appropriate and inappropriate production use, open blowing, and leaks. As the pressure supplying all uses fluctuates, artificial demand increases and decreases from a minimum to a maximum waste level. As real production demand decreases and the pressure rises, artificial demand increases. As leaks in the system are fixed, the pressure rises and all unregulated demand increases proportionate to the pressure rise including the balance of the leaks. The use of a demand expander can correct this problem when adjusted to the minimum required pressure. It will allow storage to be maintained in the supply system to handle variations in demand.

Attrition—additional air consumption for applications as a result of unmanaged wear. Examples include blast nozzles, textile machinery nozzles, etc. Unattended attrition can increase this consumption by 50 percent volumetrically and frequently provokes the increase in pressure at both the point of use and at the supply. A ½-in. nozzle with 1/16 in. wear that has been elevated from 80 to 90 psig will increase the volume by 50 percent.

Purge air from desiccant dryers—air consumed in the process of stripping air dryers of moisture. This process can range from 3-18.5 percent of the total air system capacity from one dryer type to another. There are specialty categories of air such as CDA 100 that is used in the microelectronics industry where purge can approach 25 percent of total capacity for the system.

Centrifugal compressor blow off—when the demand for air in the system is below the minimum stable mass flow for centrifugal compressors. These compressors will blow off the difference between the minimum stable flow and the actual demand requirement. It is common that all centrifugals installed in an application can be blowing off simultaneously. Depending on the design of the compressor, the current limit low adjustment, and the inlet conditions, the minimum stable flow can range from 60-87 percent of the full load capacity. This is real demand that requires energy whether it is productive or not. The objective in operating a centrifugal compressor should be to keep it fully loaded in base load and operating on its natural curve.

Bleed air or control bypass—a point-of-use consumption where air is bled off the system or bypasses an application to improve the accuracy of pressure and/or flow control. Where pressure accuracy is important and there is considerably more power and/or higher than needed pressure, the pressure will fluctuate erratically or perturbate. This is usually the result of compensating for a controls or storage problem. The most common use of bleed air or bypass is in simulation testing such as in the aerospace industry.

In general, these 10 items represent the constituents of demand that were encountered in the audited systems. The last four categories were represented in only 23 percent of all systems while the others were typical constituents.

Audit conclusions
Demand is the most misunderstood part of the compressed air system. Compressed air mass does the work. Only a few plants used mass to determine the work energy and related supply needed to accomplish their desired results. The majority used volume and pressure in a separate context. There are no standard guidelines for the use of compressed air. Without information or education, none of this is perceived to be a problem because it cannot be defined or quantified.

The audit showed an average cost of $1.66/100 cfm/hr of operation based on an average use pressure of 96 psig that was the same as supply. On a three-shift, five-day-a-week basis, the application of a ¼ in. open blowing device at 90 psig costs $9834/year to operate.

In all of the plants audited, anyone could make this application decision with no discussion or knowledge of the consequences. If this application requires the addition or loading of another compressor, the cost could increase by 10 times.

Most of the audited plants currently have an air committee and have developed standards for the use of compressed air. They also have applied standards for allowable differentials at all applicable points from one end of the system to the other. They view the addition of compressed air users to the system as a business decision (as it should be).

The average demand reduction in these plants was 43 percent although this is an on-going process. The average demand pressure requirement has been reduced by 12 psig and many feel they can reduce this further. The average savings per year including all costs of compressed air has been more than $400,000.* The average return on investment—adjusted for tax treatment, cost of capital, and adding depreciation for capital—was 16 months.

The tough question to ask in these plants is how much production revenue must be generated annually in order to do nothing. Because this is bottom-line expense and directly impacts on operating income, the answer is the potential savings times the production revenue divided by the pretax profit. The average plant making 5 percent pretax profit would need $8 million/yr to ignore the $400,000/yr operating cost reduction. This certainly does not make production at any cost a sound reason for having a poorly operated and configured plant air system. MT


*Plant Air Technology has audited more than 860 medium to large industrial compressed air systems. The average system of the 250 discussed in this article has 1485 bhp of on-line power. The size of the system and the burdened cost of energy, water, and maintenance will influence the potential savings.

R. Scot Foss is president of Plant Air Technology, P.O. Box 470467, Charlotte, NC 28247; telephone (704) 844-6666. He is the author of “The Compressed Air Systems Solution Series,” 1994, Bantra Publishing; telephone (704) 372-3400.

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242

3:49 pm
September 1, 2001
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The New World of Six Sigma: Don't get left behind

“Six Sigma for asset dependability reduces the variation in design, procurement, installation, operation, reliability, and maintainability of equipment assets in order to provide predictable performance at optimal cost of ownership.”

The intent of these words has long been familiar to the reliability and maintenance community. What has been added are the words “Six Sigma.”

Originated by Motorola, Six Sigma took hold in a big way in the early 1990s. The focus was reducing variation in manufacturing processes. This was key for the semiconductor industry in its race to stay ahead of the Japanese. Companies such as Compaq, Intel, and Texas Instruments made great strides in manufacturing productivity. Along came the conglomerate giants such as ABB, AlliedSignal, and GE. Six Sigma is demonstrated to be an effective productivity and cash generator for aerospace, automotive, electrical, chemicals, plastics, and others.

As we began the 2000s, Six Sigma found new “processes” to fix: transactional, design, marketing, and new partnerships in Lean and supply chain. Now we are seeing Black Belts birthed in nonmanufacturing business segments; transportation and financial are among the industries using Six Sigma to enhance productivity.

But wait a minute—is Six Sigma in manufacturing fully matured? Are these Black Belts and Green Belts becoming more a “minimum expectation” in manufacturing? I think the answer is “yes” with one exception. Manufacturing will NOT achieve Five Sigma, let alone Six Sigma, for its internal operations unless it realizes the value of Six Sigma in asset dependability. It’s been my experience that the petroleum and chemicals sectors have recognized the value of predictable, stable operations in which asset dependability has played an important role. But have they truly achieved Six Sigma performance in the reliability and maintenance processes? I’m referring to the work processes: dependability in capital design, stores, planning and scheduling, hazardous work permitting, outside support services, reliability methods, work execution, etc.

With perhaps the exception of the aforementioned semiconductor manufacturing sector, my experience with discrete manufacturing has revealed very little regard for the value of asset dependability. The environment is predominantly reactive. Operations has little patience for preventive maintenance. There is hardly a whisper of predictive or proactive maintenance, and reliability engineering is virtually unheard of. Work processes hardly exist. Operations operates and when it fails, maintenance repairs.

Interestingly, these companies are spending tremendous dollars and resources in people, training, and improving the sigma level of their suppliers. Why do these companies all but ignore their assets’ variation in reliability, and the work processes to ensure on-going performance predictability? How can manufacturers espouse to becoming Lean when their continuous flow is interrupted by unplanned equipment downtime?

After seeing the data and talking to some of the leaders, I am convinced the answer is “they don’t get it.” There is a tremendous paradigm that assets are there at the whim of operations, and maintenance is “staffed to react.” Data reveals their overall equipment effectiveness (OEE) capability to be less than 60 percent on average. Best-in-class petroleum and chemical operations have OEE in the 90 percent plus range. Benchmark for discrete operations, I am told but I haven’t seen it yet, is 85 percent. Discrete operations have a greater degree of labor cost intensity than continuous processes.

If OEEs were driven to 85 percent, discrete operations could eliminate overtime and even eliminate a second or third shift of operation per week. If business is great, the company can achieve more capacity out of its existing equipment. This seems so obvious, but the folks leading the discrete operations typically don’t have a clue concerning their OEE capability.

If your company is truly committed to the Six Sigma philosophy, it needs to get on board with asset dependability as a key component. Even if your company is not going down the Six Sigma path, you should consider carefully that these skills are becoming more the rule to the profession than in the past where the “chosen few” were tapped to become Black Belts. My company offers Six Sigma specialization in asset dependability, as may others in the future. My promise is that you will look at your job and the world of productivity through a new set of lenses if you elect to certify as a Six Sigma Green Belt or Black Belt. MT

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244

3:47 pm
September 1, 2001
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Back To the Future or Forward Into the Past?

 

bob_baldwin

Robert C. Baldwin, CMRP, Editor

When does the future begin? That is what futurist Glen Hiemstra asked the audience as he began his keynote address at Wonderware’s big user conference and trade show in Las Vegas this summer.

 

Your answer probably mirrors one of those offered by the audience. But the perception Hiemstra drove home to us is that we live in the eternal present (which consists of constant change) and that the future is just behind us breathing down the backs of our necks.

His talk drew attention to patterns in our behavior and provided a fresh perspective on where we might be headed. He spoke of revolutions: how they progress (like popcorn in the microwave—starting slow and building to a crescendo), the electro-mechanical revolution just past, and the techno-social-economic revolution that we are in the midst of.

The three technologies of the current revolution, which he sees exploding over the next 20 years, are digital, biotechnical, and nanotechnical. The digital aspects of this revolution were congruent with Wonderware‘s view of the future, which includes extensive use of automation and control technologies, data and information technologies, and condition monitoring and plant asset management technologies.

Speaking of the digital explosion, Hiemstra alluded to inventor Ray Kurzweil‘s writings suggesting that the $1000 that buys the computing power of an insect brain today, may buy the computing power of a mouse brain by 2010, and perhaps the computing power of a human brain by 2020.

Impossible? Hiemstra reminds us that many things that are impossible today will be possible tomorrow, just as many things that are possible today, were formerly impossible.

I was still pumped up about the future weeks after hearing Hiemstra. Then I had an opportunity to talk with a friend, the former head of an award-winning maintenance organization that delivered 94 percent uptime with 65 percent planned maintenance, who left the organization a number of years ago to pursue other opportunities. He mentioned current performance at his old plant: it was on its second CMMS since he left, had slipped back into reactive maintenance, and is cannibalizing its equipment for spare parts.

What a reality check. But it is in keeping with Hiemstra’s closing remarks that “the future is something you do.” In some cases it is back to the future, strengthening the fundamentals of reliability, and in some cases it is forward into the past, sliding back toward reactive maintenance, which reminds me of Hiemstra’s key point: Your image of the future drives current action. MT

rcb

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397

2:22 pm
August 1, 2001
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Managing Compressed Air Energy Part I: Demand Side Issues

Data from more than 250 plants show how compressed air energy may be distributed among key usage categories. Use this information to help decide where energy management solutions should be applied first.Although compressed air systems generally are the third highest energy user in an industrial plant, they represent the number one opportunity for both energy and operating cost reductions.

05-00safig1

Fig. 1. Offset misalignment

Compressed air systems convert electrical work energy to pneumatic work energy at the point of use. All elements of this process need to be managed efficiently. The optimum process would produce one unit of work energy in the form of expanded mass at the point of use for every 8.5 units of compressor input energy. In industrial plant air systems, which represent more than 7.5 percent of the energy used in U. S. industry, there seems to be little understanding or effort made to achieve any level of efficiency other than the occasional attempt to buy the promise of efficiency with new equipment.

The manner in which compressed air is consumed offers a major opportunity for reduced energy and operating costs. Typically, less than 60 percent of the total compressed air consumed contributes directly to the goods and services for which production was intended. Of this 60 percent, more than a third of it is poorly applied.

The net result is that less than 40 percent of the total consumption of compressed air in industrial plants is essential to process results. The balance negatively influences the cost and quality of goods and services produced. The combination of process efficiency and usage of compressed air makes plant compressed air systems one of the most significant economic opportunities in the industrial sector. Despite this reality, compressed air energy has been increasing while the use of all other forms of energy in industry is diminishing.

05-00safig2

Fig. 2. Example of an acceptable misalignment for an 1800 rpm machine.

Audit results
In the past five years, Plant Air Technology has thoroughly audited plant and process compressed air systems at 551 plants and cumulatively analyzed the audit results of 250 systems. The percentage of total energy used for compressed air in these plants ranged from 6-29 percent, with an average of 9.5 percent. This article will report the findings. It is particularly interesting to note that while most plant managers were aware of potential inefficiencies, the questions of how the system was specifically set up and adjusted and why it was operated the way it was went unasked and unanswered.

Most of the operating personnel in these plants did not know how much compressed air volume they used or needed. They did not know the costs of operating the compressed air system. Only two of these plants monitored both input power and compressed air consumed. There were no standards or operating procedures for the use or supply of compressed air other than maintaining a minimum acceptable result. Generally, success in system operation was determined by the lack of complaints.

The majority of operating personnel acknowledged that their education regarding compressed air systems and their operation was lacking. Most of the audited facilities did not know how their equipment was specifically adjusted and admitted that outside sources maintained the equipment and established equipment operating parameters. In all cases, neither the owner nor the service agency had any records of how or why the equipment was adjusted. The utility costs ranged from a blended rate including demand charges of 0.035 cent-0.117 cent/kW of electricity consumed.

Low load or no load tests were performed at all audit locations in advance of the final audit. All operating conditions were investigated. All parts of the system including supply, storage, distribution, and demand were measured. Problems in the system were evaluated and quantified. Operating costs of the audited systems were determined including all ancillary equipment, maintenance, water, operator costs, and depreciation. Proposed solutions were detailed and costed. Operating cost of the proposed system was determined to establish a return on investment.

05-00safig3

Fig. 3. Angular misalignment

Demand side energy
The basics of demand side energy will be covered here. Future articles will discuss usage factors that affect demand and supply side energy issues.

Most systems are evaluated based on perceived supply requirements. If the pressure anywhere in the system is below what is believed to be the minimum, the diagnosis is insufficient supply. Little more is done to determine what is going on in the system. In existing systems, demand is determined by adding up the rated capacity of the compressors that are on regardless of power. An “on” compressor is only an indication of cost, not an indication of need.

Without demand, there is no requirement for supply. Figuring out a reasonable needs profile begins by analyzing demand. All of these systems used air at the pressure it was compressed to with little or no storage and an uncontrolled approach toward expanding the air to the pressure needed. Less than half of the air consumed was regulated. Fifty percent of the regulators were adjusted wide open.

Total unregulated demand is typically 80 percent of the total demand. This creates a unique dynamic not seen in other utilities. As real demand increases, the supply pressure drops and 80 percent of the total use volume diminishes proportional to the reduced density of the supply air. Please keep this in mind as we move forward.

Demand categories for compressed air include:

05-00safig4

Fig. 4. Measuring bearing misalignment with a dial indicator

Appropriate production use—compressed air that is well applied and controlled at the pressure of its intended use. This can include coincidental demand, critical pressure, high rate of flow, and high volume users, which provoke the operating philosophy in the manner that they affect the system and its pressure. A portion of the users necessary to production will be regulated, while the balance will be unregulated.

Inappropriate production use—applications that should use electricity, hydraulics, or mechanical power instead of compressed air. Examples include using plant air for aspiration, agitation, or aeration; using air ejectors in place of a simple vacuum; or using air instead of electric vibrators. These compressed air applications are usually developed with no understanding of cost or the consequences of purchasing alternative equipment to perform the same function.

Open blowing—using plant air for moving product, drying, wiping, cooling, or part and scrap ejection instead of using pressure blowers, knock outs, or specialty nozzles which would have to be purchased and applied.

Drainage—using plant air in conjunction with open valves, notched ball valves, or motorized or solenoid-operated drain valves to dispose of compressed air effluent such as water or lubricant instead of automatic drain traps which do not use compressed air.

Leaks—waste, which is internal to production equipment as well as in the general piping system from the internals of a compressor to the point of use.

Artificial demand—the excess volume of air that is created for unregulated users as a result of supplying higher line pressure than necessary for the application. This includes all previously unregulated consumption including appropriate and inappropriate production use, open blowing, and leaks. As the pressure supplying all uses fluctuates, artificial demand increases and decreases from a minimum to a maximum waste level. As real production demand decreases and the pressure rises, artificial demand increases. As leaks in the system are fixed, the pressure rises and all unregulated demand increases proportionate to the pressure rise including the balance of the leaks. The use of a demand expander can correct this problem when adjusted to the minimum required pressure. It will allow storage to be maintained in the supply system to handle variations in demand.

Attrition—additional air consumption for applications as a result of unmanaged wear. Examples include blast nozzles, textile machinery nozzles, etc. Unattended attrition can increase this consumption by 50 percent volumetrically and frequently provokes the increase in pressure at both the point of use and at the supply. A ½-in. nozzle with 1/16 in. wear that has been elevated from 80 to 90 psig will increase the volume by 50 percent.

Purge air from desiccant dryers—air consumed in the process of stripping air dryers of moisture. This process can range from 3-18.5 percent of the total air system capacity from one dryer type to another. There are specialty categories of air such as CDA 100 that is used in the microelectronics industry where purge can approach 25 percent of total capacity for the system.

Centrifugal compressor blow off—when the demand for air in the system is below the minimum stable mass flow for centrifugal compressors. These compressors will blow off the difference between the minimum stable flow and the actual demand requirement. It is common that all centrifugals installed in an application can be blowing off simultaneously. Depending on the design of the compressor, the current limit low adjustment, and the inlet conditions, the minimum stable flow can range from 60-87 percent of the full load capacity. This is real demand that requires energy whether it is productive or not. The objective in operating a centrifugal compressor should be to keep it fully loaded in base load and operating on its natural curve.

Bleed air or control bypass—a point-of-use consumption where air is bled off the system or bypasses an application to improve the accuracy of pressure and/or flow control. Where pressure accuracy is important and there is considerably more power and/or higher than needed pressure, the pressure will fluctuate erratically or perturbate. This is usually the result of compensating for a controls or storage problem. The most common use of bleed air or bypass is in simulation testing such as in the aerospace industry.

In general, these 10 items represent the constituents of demand that were encountered in the audited systems. The last four categories were represented in only 23 percent of all systems while the others were typical constituents.

Audit conclusions
Demand is the most misunderstood part of the compressed air system. Compressed air mass does the work. Only a few plants used mass to determine the work energy and related supply needed to accomplish their desired results. The majority used volume and pressure in a separate context. There are no standard guidelines for the use of compressed air. Without information or education, none of this is perceived to be a problem because it cannot be defined or quantified.

The audit showed an average cost of $1.66/100 cfm/hr of operation based on an average use pressure of 96 psig that was the same as supply. On a three-shift, five-day-a-week basis, the application of a ¼ in. open blowing device at 90 psig costs $9834/year to operate.

In all of the plants audited, anyone could make this application decision with no discussion or knowledge of the consequences. If this application requires the addition or loading of another compressor, the cost could increase by 10 times.

Most of the audited plants currently have an air committee and have developed standards for the use of compressed air. They also have applied standards for allowable differentials at all applicable points from one end of the system to the other. They view the addition of compressed air users to the system as a business decision (as it should be).

The average demand reduction in these plants was 43 percent although this is an on-going process. The average demand pressure requirement has been reduced by 12 psig and many feel they can reduce this further. The average savings per year including all costs of compressed air has been more than $400,000.* The average return on investment-adjusted for tax treatment, cost of capital, and adding depreciation for capital-was 16 months.

The tough question to ask in these plants is how much production revenue must be generated annually in order to do nothing. Because this is bottom-line expense and directly impacts on operating income, the answer is the potential savings times the production revenue divided by the pretax profit. The average plant making 5 percent pretax profit would need $8 million/yr to ignore the $400,000/yr operating cost reduction. This certainly does not make production at any cost a sound reason for having a poorly operated and configured plant air system. MT


*Plant Air Technology has audited more than 860 medium to large industrial compressed air systems. The average system of the 250 discussed in this article has 1485 bhp of on-line power. The size of the system and the burdened cost of energy, water, and maintenance will influence the potential savings.

R. Scot Foss is president of Plant Air Technology, P.O. Box 470467, Charlotte, NC 28247; telephone (704) 844-6666. He is the author of “The Compressed Air Systems Solution Series,” 1994, Bantra Publishing; telephone (704) 372-3400.

Vertical Horizontal PCW pump
No. 6
1800 rpm

Offset
mils

Angularity
mils/in.

Offset
mils

Angularity
mils/in.

Initial
misalign.

2.0

1.5

7.5

4.5

Final
misalign.

2.8
motor low

0.7

2.5

0.5

The motor was left slightly low to accommodate thermal growth of 0.002 inch. The final alignment condition is within specification.

The coupling bolts were tightened securely, and the holddown bolts torqued to the proper values. he pump was operated and observed for 30 minutes. The vibration and bearing temperatures were normal.

Respectfully submitted,

Signature

Appendix D

MAXIMUM RECOMMENDED TORQUE FOR LOW CARBON STEEL BOLTS AND SCREWS

Fastener size

Torque, in.-lb

1/4–20
1/4–28
65
90
5/16–18
5/16–24
129
139
3/8–16
3/8–24
212
232
7/16–14
7/16–20
338
361

1/2–13
1/2–20

465
487

9/16–12
9/16–18

613
668
5/8–11
5/8–18
1000
1140
3/4–10
3/4–16
1259
1230
7/8–9
7/8–14
1919
1911
1–8
1–14
2832
2562

Notes:

1. Stainless steel fasteners can be safely torqued 10 percent above the values in the table.

2. These torques will result in bolt tensions somewhat less than the yield point.

3. The threaded assemblies are assumed to be dry and clean with a resulting torque coefficient of 0.2.

TABLE 1. MAXIMUM ALLOWABLE OFFSET

At center, mils

Speed, rpm

5.0
600
4.0
900
3.0
1200
2.0
1800
1.0
3600
0.5
>4000

TABLE 2. MAXIMUM ALLOWABLE ANGULARITY

Mils/in. or milliradians

Speed, rpm

2.5
600
2.0
900
1.5
1200
1.0
1800
0.0
3600
0.25
>4000

TABLE 3. ACCEPTABLE RACE RUNOUT, MILS/IN. (REFERENCED TO ROTATING CENTER)

Bearings

mils/in.

Ball bearings
2.0
Cylindrical roller bearings
1.0
Plain bearings
1.0
Plain thrust bearings
0.5

 

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438

2:19 pm
August 1, 2001
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Successful CMMS Implementation: Getting Your House In Order

To select a CMMS that is the best fit for functional and business needs, define the business process and IT requirements; then choose a reputable, stable vendor.

More CMMS implementations fail than succeed. According to a 1998 study by The Standish Group, West Yarmouth, MA, 74 percent of all information technology (IT) projects fail. Why?

While there are many contributing factors, the most common is a poor selection process—or no process at all. However, a selection process does not guarantee success. Failures still occur when the selection criteria miss the organization’s requirements. This article explains the components of a formal, proven selection process that can reduce risk in system selection. The main purpose is to provide a solid foundation to align computerized maintenance management system (CMMS) functionality with the organization’s maintenance practices and needs.

Virtually all CMMS provide the same basic tools. However, these capabilities can be applied in a number of ways affecting the ease of use and the type of organization best served. The goal of a selection process is to find the system that best matches how an organization operates.

It is important to understand the differences between types of CMMSs to ensure selection of the right software for a specific business environment. The two basic CMMS design philosophies are:

  • Asset specific systems. These systems direct their design and terminology to specific groups of assets, such as infrastructure (i.e., pipes, pipe/line segments, manholes, etc.). The systems are aimed at selected business market segments, such as water and wastewater collection and distribution maintenance, facility-based maintenance, transportation-based maintenance, etc. They work well in their intended environment, but fall short in environments that are outside the niche.
  • Generic asset management systems. These systems do not direct their design and terminology to any specific group of assets. Instead their terminology is more generic and uses terms such as asset or object. The philosophy behind these systems is an asset is an asset whether it is a pipe, pump, motor, building, or vehicle. These systems typically have greater functionality and flexibility.
  • Another important aspect of software selection is to understand the differences between a fully integrated system and a best of breed system that needs to be integrated.
  • Fully integrated systems contain modules or subsystems that are designed to work together. Individual modules may be directed at maintenance, work management, materials management, purchasing, or other areas. This type of system excels in its ease of use, seamless navigation, and data exchange between components or modules. For example, changing the status of a work order in the work management module causes an automatic parts reservation in the materials management module for parts needed on the work order. A weak point of this modular approach is that one or more of the modules may not possess the same level of functionality or sophistication as the others. A system may have a strong work management module but lack capability in the materials or purchasing modules.
  • The best of breed approach selects the best systems from various vendors: asset management, work management, materials management, purchasing, etc. This approach requires the various systems to be linked in order to integrate processes. The strong point of this approach is that it provides the best match between functionality and requirements. The weak point is that it requires substantial integration effort to make the systems talk to each other. The more systems that are involved, the larger the effort required to integrate them. Far too often, these systems never achieve the desired level of inter-related communication.

Outline of a proven selection process
Before the project starts, stakeholders, decision makers, and the executive sponsor must commit to a selection process that is driven by business needs. They must consider the value a new system will add to overall business effectiveness and profitability. Defining the expected return on investment (ROI) for the new system provides this focus.

Selection team and communication
Before starting the CMMS selection process, the organization should identify a selection team as the main working group. This team should represent each area the new system will affect: maintenance, operations, warehouse, purchasing, engineering, accounting, IT, etc.

Throughout the project, the champion and selection team must ensure that the requirements of the organization are considered and clearly defined. They also should participate in the entire system selection process, including demonstrations, vendor selection, implementation planning, implementation, and training. Furthermore, the champion and selection team should provide ongoing leadership to keep the new system alive and well after implementation is complete.

Many organizations look to professional assistance from consultants to guide and facilitate the project. While this may add an outside perspective and a proven process to define requirements, the consultant should not select the system. Doing so removes ownership and responsibility from the selection team.

Once the project is approved and ready to go, a kick-off meeting will ensure that it gets off to a good start. Use this meeting to communicate the project plan (especially the selection phase) and objectives, and to define its scope and team member roles to ensure everyone is in sync.

Change management plan
Selecting a CMMS is like buying a hammer. A house cannot be built without it but the hammer will not build the house by itself. A CMMS is a tool to manage maintenance information. The system will not do maintenance or input information by itself. To manage the flow of information in the way the new system requires, the maintenance organization must change. Many organizations overlook the fact that they must adapt to the new system to make the implementation work.

However, changes cannot be prescribed or installed like a pump or pipe. Because every organization operates differently, this article cannot say exactly what will change. However, in any organization some practices and procedures must change. Managing those changes effectively is important because they affect the employees who make the work happen. Understanding how people react to change and guiding them through the change will help smooth the transition to the new system.

In any change situation, a person goes through five phases: denial, resistance, understanding, exploration, and commitment. People move through these phases at different rates depending on their personalities, the severity of the change, and the degree to which the change affects them. Most people resist change initially but ultimately gravitate toward good ideas or positive changes.

Mentoring people through the phases will accelerate the process of full system utilization. Ignoring or punishing people for their natural tendency to resist will slow the rate of change. In some cases, managing change poorly will cause an implementation to fail.

A clear change management plan should include:

  • Education on changing attitudes by the leader of the implementation.
  • Open discussion about change and the change plan during the kick-off meeting.
  • Follow up to determine what phases people are in as changes begin.
  • Mentoring each person from phase to phase to eliminate roadblocks and ensure progression.

Identifying real requirements
Real CMMS requirements fall into three major categories:

  • Vendor requirements
  • Technical requirements
  • Functional requirements

When evaluating vendor qualifications, consider their longevity, financial soundness, and commitment and knowledge of the appropriate market. Look for vendors with at least five years of business experience. Vendors with a strong financial position will be around to provide technical support and upgrades in the future. Vendors who work with organizations similar to yours in size, business requirements, and market are likely to know your core business needs. This will reduce the learning curve. There will be an added benefit from their understanding of practices that are unique to your industry. The full nature of these requirements should be identified and leveraged throughout the selection process.

It is extremely important to fully define and document the technical environment, requirements, and standards of the organization that will affect the new system. The IT department needs to identify the “as is” and “to be” environment including hardware, operating system(s), network, database, and software standards. These requirements help ensure that the selected system will not require a technical component that is outside the organization’s environment or standards. It is pointless to review systems that are outside the supportable environment.

However, be aware of the pitfall of overemphasizing technical requirements at the expense of other considerations. A system may match all the technical specifications but fall short of the functional needs. The priority is a tool that helps manage business information while fitting the technical environment, not a system that matches the technical environment and might provide the information management tools needed.

Functional requirements are a major component of defining total system requirements. Functional requirements should state how the tool is expected to meet business and process needs. To effectively identify an organization’s true requirements, the selection team must understand the details of how maintenance, inventory, purchasing, and other relevant organizations really work. The team also must understand how various departments work together and what they need from each other. The selection team must understand and document all business processes and their respective workflows. This provides a snapshot of the starting point and serves as the baseline for gap analysis. The gap indicates where an organization is relative to where it wants or needs to be.

Since a CMMS helps manage maintenance and materials information, the functional requirements need to identify what an organization expects the new system to provide. Does the organization have or intend to have planners or schedulers? If so, requirements should include robust planning and scheduling capabilities. Is the maintenance organization reactive, responding to emergencies as they occur? Does the organization desire or need to become more proactive? How are parts and materials obtained? Does the organization have warehouses or storerooms dedicated to maintenance parts? Who controls and manages the inventory and on-hand balances? Are parts and materials unavailable when needed? Define who, what, why, when, where, and how for each department and process. Finally, determine how the new system should facilitate each of these requirements. The functional requirements should address these questions and more.

After defining an exhaustive list of potential requirements, it is a good practice to categorize and prioritize them. One of the best methods is to identify a short list of showstoppers—requirements that satisfy essential business needs. This is one of the best means to compare system capabilities relative to needs.

Any requirements that are unique and specific to the organization also must be considered and identified. These stand a strong chance of either not being provided or, if provided, may not function in the manner necessary for the organization. It is best to find out up front rather than during implementation. Both rating methods provide insight into what each system actually provides.

It is also important to weight requirements to determine the relative importance of each. Weighting factors should be used during the evaluation process to rank how the various systems meet the needs of the organization. There is a nearly infinite number of possible metrics that are unique to each organization.

Develop best practices, streamline the process
After conducting an exhaustive search to identify technical and functional requirements, the next step is to rework maintenance and other processes to eliminate duplicate or nonproductive steps. This provides a preliminary roadmap that defines how the CMMS is expected to operate. If this step is not taken, the CMMS may simply automate existing problems, making existing mistakes and problems occur faster.

To ensure progress, identify how to measure success. Key performance indicators provide a starting point and baseline. They identify business areas with the most significant problems and the areas for significant improvement. These indicators need to continuously track progress as well as identify barriers and areas that may threaten the project’s success.

Vendor search and prequalification
After the requirements have been identified, categorized, weighted, and prioritized, the next step is to determine an initial group of potential candidates that match the technical environment and provide the best match to functional needs. Limit this initial list to 30 vendors that are predominant in your business area. Resources for finding vendors include:

  • CMMS ratings and advertisements in maintenance publications (such as Maintenance Technology)
  • Web-based maintenance services
  • Web-based searches
  • Software rating and analysis services (such as the Gartner Group)
  • CMMS consultants

Effective advance research should help refine this group to about 10 vendors. This can be accomplished by preparing and distributing a detailed Request For Information (RFI) or through a telephone screen. Smaller organizations with minimal requirements and complexity may choose a phone screening process to reduce costs.

Regardless of how this screening is conducted, carefully prepare questions that represent key requirements from all three categories. Using Yes/No questions allows objective measurement and tabulation of responses. Additionally, be sure to allow for narrative responses to fully explain how a particular feature addresses your requirements.

After collecting vendor responses or the RFIs, conduct a detailed evaluation of responding vendors and rank them based on their responses. System purchase and implementation costs should not be a consideration at this point. Conducting a thorough screening will result in the best mix of vendors/systems that move to the next step: a formal Request for Quotation/Request for Proposal (RFQ/RFP).

RFQ/RFP development, distribution, and evaluation
After refining the number of vendors to a prequalified list, prepare and distribute an RFQ/RFP. The RFQ/RFP should contain the original set of requirements, combined with the weighting method and a significant narrative area for each requirement.

The vendor needs to describe how its system meets each requirement. Essential or unique requirements require narrative. It is highly recommended to get as much narrative as possible as this provides insight into how the vendor understands the requirements. Sales literature can be included with the RFQ/RFP, but should not be allowable as a requirement response.

Once the proposals are received, use an evaluation worksheet to rate and compare vendors’ responses based on the RFQ/RFP requirements. Cost can be included with the RFQ/RFP responses but should not play a role in the evaluation process. Evaluating the vendor responses should result in a short list of two or three vendors. This sets the stage for the next and final evaluation step.

Vendor demonstrations and evaluation
The final step in the evaluation process is to see a detailed demonstration of each system on the short list. A common flaw of many selection processes is to limit the time for demonstrations. At minimum, plan on three days for a comprehensive demonstration. Anything less can result in schedule conflicts, not being able to see all the capabilities of a system, or the selection team not being able to ask probing questions.

Vendors should be provided with an agenda, script, and sample data. The script should depict scenarios for the organization’s work processes and use by functional position. Each vendor should be required to address the scenarios and use the sample data. Not using the scenarios and sample data provided should be considered grounds for disqualification. Most vendors will jump at the opportunity to showcase their system’s strengths in a personalized setting.

Provide the preliminary information vendors ask for. This helps them present the absolute best they have to offer.

The demonstration is the most crucial selection step. The entire selection team should attend each demonstration and be familiar with the requirements they expect to see. It is helpful to use a simple form for notes, to check key components, and document strengths and weaknesses. Keep the form simple so selection team members spend their time paying attention to the demonstration rather than working with the form. Prepare the form in advance and solicit input on the content to ensure that it captures all the key criteria.

To avoid blur, have the selection team meet immediately after each demonstration and before starting the next. Use this meeting to discuss observations and document the consensus of how well the system meets requirements. Identify and document follow-up questions that need to be resolved before final selection.

At the conclusion of the meeting, prepare an official evaluation containing the original weight assigned to each requirement. Also rate or rank how well each requirement is met. Be sure to allot enough time for this process. A single, half-day to wrap up three days of demonstrations is grossly inadequate.

Final selection, approval, and contract negotiation
After the demonstrations and evaluations are complete, the selection team needs to conduct a final selection meeting to:

  • Compare the demonstration evaluations and decide how each system met requirements.
  • Analyze the cost of each system and relative value based on how well each requirement was met.

The meeting should result in objective reasons for the team’s selection of a specific CMMS.

Finally, the selection should be presented to the organization’s executive management for approval. The presentation should include the documentation supporting the selection, the ROI specific to the selected system, any new benefits identified during the selection process specific to the selected system, and any other information pertinent to the organization.

After executive management approval, contract negotiations can begin. Consider the following issues during negotiation:

  • Software licensing and any hardware to be provided by the vendor
  • Annual support
  • Overall vendor responsibilities and schedule
  • Overall organization responsibilities and schedule
  • Implementation plan, schedule, and responsibilities including training, interface/integration development, data conversion, testing and system acceptance criteria, “go live,” and support
  • All costs
  • Legal review

The selection process is not easy. It demands consideration and management of numerous details. However, this process has been proven effective, as it has been refined from more than 30 major system selections. It helps avoid the pitfalls and problems of selection that cause failure. By following this process, an organization will feel confident that it is ensuring the best system selection possible and increasing the potential for a successful implementation.

Previous article in this series: “Avoiding Pitfalls in CMMS Implementation” (MT, 7/01, pg 15). The next article will focus on the implementation process and steps that help bypass the problems and pitfalls that can derail a CMMS project. MT


Derold Davis and Joe Mikes are senior consultants at Westin Engineering; (916) 852-2111. They both have more than 15 years of experience in providing system selection and implementation methodologies, proven maintenance practices, productivity improvement practices, and methods and strategies for increasing operational reliability and reducing maintenance overhead.

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1419

7:04 pm
July 1, 2001
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The Hidden Cost of Downtime: A Strategy for Improving Return on Assets

What are the hidden costs of downtime? This article explains how to calculate them using company financial information and simple rules of thumb.

Industrial assets, from complex manufacturing plants to remote and mobile capital equipment, are subject to an asset availability ceiling. While this ceiling varies by industry, peak system availability is typically 85-95 percent. Unfortunately, the widespread acceptance of these ceilings masks the hidden—and significant—costs associated with unplanned downtime.

For typical heavy process industries, these costs can represent 1-3 percent of revenue and potentially 30-40 percent of profits annually. For large capital equipment, the costs may be 1-3 percent of asset value per year. With millions of dollars in savings at stake, the cost of unplanned downtime warrants further investigation.

Patterns in equipment availability
Industry studies show that large complex assets typically achieve 85-95 percent availability. Of greater interest is that nonavailability is split evenly between planned downtime (scheduled maintenance) and unplanned downtime (breakdowns). Because unplanned downtime is so pervasive and no clear way exists to eliminate the problem, the 2-5 percent of nonavailability is accepted as normal even though it represents a significant cost burden. The cost of downtime can be categorized as follows:

Lost revenue. The greatest impact of unplanned downtime is revenue loss. This is typically the result of demand exceeding supply. The loss of revenue due to downtime is especially egregious, because the cost is not just the loss of the typical 3-10 percent profit margin on the lost revenue. It is actually the value of the total revenue lost, less the direct avoided costs of production (generally materials or energy).

Consider this example: an airline flight is cancelled due to mechanical problems and all passengers fly on competing airlines. The only costs the airline avoids due to the cancelled flight are the fuel burned and possibly crew costs. However, no revenue was collected so this becomes a downtime cost. In this example, fuel and crew costs may be approximately 30 percent of revenue, so the cancellation results in a cost of 70 percent of the potential revenue for the flight—much higher than assuming the cost is the typical 6–7 percent airline net profit times the potential revenue. The same logic also applies to plant downtime.

Carrying excess capacity. A typical strategy to address an asset availability barrier is carrying excess production capacity. This may entail building a plant slightly larger than necessary so product can be inventoried to cover unplanned downtime, or carrying spare units to replace those that fail. Both solutions have costs: capital to purchase that additional capacity and additional maintenance expenses associated with a larger facility.

In this model, it is assumed that excess capacity is equal to the amount of unplanned downtime, with a cost equal to that fraction of asset value. This amount then is annualized based on an expected equipment life and discount rate. To calculate maintenance costs on this excess capacity, a rule of thumb can be used. For most long-lived equipment assets, life-cycle maintenance costs are roughly equal to capital costs. In this model, the maintenance costs of excess capacity are determined by a multiple of capital costs. If maintenance costs are known, the correct multiple can be entered; however, for the following examples, it was assumed capital and maintenance costs were equal.

smartsig1_2Disruption and recovery costs. The recovery cost associated with returning to normal business operations also must be considered. This could include overtime for emergency repairs, airfreight for materials or spare parts, loss of product due to off-quality operations, etc. Since these costs are situation-specific, it is difficult to use a rule-of-thumb or balance-sheet-based calculation to develop an estimate.

So, for the purpose of this simple model, recovery costs are included as a fraction of the maintenance costs of the asset (which are estimated as a multiple of capital costs). For the following examples, it is assumed that recovery costs are 3 percent of the total maintenance costs, although the model does allow for any percentage to be specified. It also is assumed that the recovery costs are constant even if excess capacity is available; if unplanned downtime occurs, the costs to recover should be the same if revenue can be recovered or not.

Simple downtime cost model–plant example
With the three major elements of downtime now identified—loss of revenue, excess capacity, and recovery—a simple model can be used to calculate the hidden cost based on the amount of excess capacity available to recover lost revenue. In this approach the worst case is assumed to be 0 percent excess capacity, meaning no revenue can be recovered, resulting in a cost equal to the lost revenue less direct-avoided cost of production plus recovery costs.

One hundred percent excess capacity means enough exists to allow full recovery of revenue lost to downtime, so the cost becomes excess capacity costs plus recovery costs. Ratios of excess capacity between 0 percent and 100 percent indicate partial revenue loss and partial excess capacity cost; therefore, these costs are linearly interpolated for situations of partial excess capacity. As mentioned previously, recovery costs are assumed to be the same regardless of the degree of excess capacity.

smartsig3_4To develop the costs required for this model, financial statement ratios are used. This approach allows the hidden cost of downtime to be calculated without needing to delve into excessive detail. Fig. 1 shows an example for a heavy process plant. In this case the needed ratios were taken from the financial statements of a large U.S. petrochemical company, for a hypothetical plant valued at $100 million.

The key ratios required to calculate the hidden cost of downtime are return on productive assets, return on sales, and tax rate. The return on productive assets is net profit divided by book value of net physical plant and equipment. Return on sales is net profit divided by total sales. For a given asset, in this example the $100 million plant, the profitability of the plant is calculated by multiplying the return on productive assets by the asset value, and total revenue is calculated by dividing the profit by the return on sales. With total revenue estimates, the asset value, and assumptions on avoided costs of production, recovery costs, maintenance cost multiplier, etc., it is possible to plot the hidden cost of downtime based on a percentage of unplanned downtime vs. excess capacity required to cover that unplanned downtime. (Exact formulas and an interpolation table used for the calculations in this article can be found at www.smartsignal.com/hidden_cost_asp.html.)

As shown in Fig. 2, cost is plotted against total profit from this particular facility, demonstrating that the hidden cost is a large portion of total profit. The percentage of total profit is very high in this case because the business is both low margin and capital intensive. If capacity constrained, cost of lost revenue is high—due to low margins—and if the business is capital intensive, the cost of excess capacity is also very high. Therefore, for this kind of business, the hidden cost of downtime represents a substantial drag on profitability and elimination of downtime can deliver significant cost savings.

Simple downtime cost model–equipment example

This same approach can be applied to individual pieces of capital equipment. If the asset value is known, balance sheet ratios for return on productive assets and return on sales can be used to determine the hidden cost of downtime for an individual piece of equipment. Fig. 3 shows a similar example for an expensive productive asset, such as a locomotive. The ratios used are typical of U.S. freight railroads.

For the case of equipment assets, it is interesting to look at the hidden cost of downtime as a percentage of asset value. In Fig. 4, the cost of downtime is plotted as a function of asset value, showing for this kind of asset in this business that the hidden cost of downtime runs 2-3 percent of asset value per year.

As these examples illustrate, the cost of unplanned downtown can be significant. However, if the availability ceiling can be broken, organizations can achieve significant returns. One solution is to use predictive maintenance software, which can identify emerging problems before they lead to unplanned downtime. Part II of this article, to be published next month, will review a predictive condition maintenance solution and show how it is being used to break the availability ceiling and reduce the hidden cost of unplanned downtime. MT


David R. Bell is vice president of business development for SmartSignal, Inc., 4200 Commerce Court, Suite 102, Lisle, IL 60532; (630) 245-9000.

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