Looking at the big picture, if you ‘re not measuring it, you ‘re not really managing it.
As manufacturing and production equipment often represent a company’s single largest capital investment, maintenance of these assets can significantly impact the bottom line. Many organizations face problems when they have not established a consistent method to measure the value of maintenance activities, which results in their underestimating the impact maintenance has on financial performance.
Developing a methodology for measuring your processes provides guidance for needed maintenance activities and shows a continual impact on ROI. After you establish metrics for maintenance activities, you also can justify the value of current activities and support the case for new initiatives. This is especially true when initiating major changes in strategy, such as moving from a reactive operation to a proactive one. Without tangible evidence in the form of objective performance data, obtaining full buy-in support from management is more difficult to achieve.
Determining what to measure
The cornerstone for any successful Strategic Maintenance plan begins with clearly defining goals. Without adequately defining the desired performance—along with the reasons for it—companies often may generate a long list of metrics, yet overlook many that are vital to making critical performance-enhancing decisions.
While most companies collect performance data, the challenge is to select information that has meaning to the bottom line. These types of powerful metrics directly measure the impact of maintenance efforts on the company ‘s Key Performance Indicators (KPI’s).
Today, companies are turning to a variety of financial metrics, such as Return On Net Assets (RONA), which is commonly used by plant management. RONA calculates how well a company converts assets to sales, and, therefore, profits. Maintenance specifically impacts three main variables of the equation: Plant Revenue minus Costs divided by Net Assets.
Other metrics used today are associated with plant productivity, such as Overall Equipment Effectiveness (OEE). Many times OEE is used in conjunction with RONA, as it is an extension of Plant Revenue. OEE is a statistical metric to determine how efficiently a machine is running. It is calculated by multiplying a machine ‘s Production Rate, Quality and Availability. The combination is the value a machine contributes to the production process.
All companies have data and information, but many do not collect and analyze it to make informed decisions. Results from metrics can help companies lower inventory costs, reduce spares and boost availability and uptime. Maintenance impacts all of these features, but it is commonly used with downtime.
Case in point
A leading semiconductor manufacturer ‘s decision to migrate toward a more predictive maintenance strategy was directly tied to its business goals. In an industry where a few hours of downtime can result in millions of dollars in losses, success is measured by uptime.
In semiconductor manufacturing, every part of the facility plays a critical role in the process. If any part of the facility fails, such as the power supply, HVAC or water-treatment system, production could come to a rapid—and costly—standstill. Using advanced condition-monitoring technology, the company designed and implemented a comprehensive predictive maintenance program that allows it to effectively monitor, analyze and track equipment performanceÐobserving operating conditions locally, as well as remotely, across multiple production sites.
The reality is that replacing a fan or pump motor is a fraction of the cost of having a fabrication line down for any amount of time. If production is down for even one or two hours, the lost revenue would far exceed the cost of a replacement motor, or any other ancillary component.
Since implementing its predictive maintenance program, the company has found countless minor vibration issues and identified several hundred major vibration problems, helping it avoid prolonged production shutdowns. More specifically, it has realized a five-to-one return on investment, and the program helped the company avoid estimated lost-production costs of more than $1.4 million in a single year.
The big picture
A complete review of maintenance operations and the physical asset management process can help identify equipment and operator performance issues and outline recommended corrective actions that can be implemented through maintenance initiatives. For example, in critical applications, companies may want to have a redundant or back-up piece of equipment in place to avoid production interruptions in the event the primary equipment needs to be shut down or replaced.
This type of in-depth evaluation is important because it gives you a baseline as to your starting point for making improvements and for validating results. It also can help determine which activities will have the most impact on the company’s core business objectives and assist in identifying key areas of improvement, including what types of predictive strategies might be most effective.
Once you’ve identified the most critical elements impacting your performance, you can begin to make a physical linkage between the maintenance activity and the improvement in results.
Tapping the value of data
In some cases, depending on the size of the plant, the type and volume of data needed to formulate the necessary metrics is not always available. In these instances, implementing the data collection or measurement technology can be an investment in itself.
For example, you may need a software package to collect information to measure production rates, equipment availability or the amount of scrap coming off the line. You then can begin building your metrics off that data.
In an industry where margins are low and parts are needed on a 24/7 basis, the correlation between equipment uptime and profitability is abundantly clear for the previously referenced semiconductor supplier. To maximize equipment reliability, the company established a comprehensive parts management program that has helped it improve parts availability, increase manufacturing efficiency, reduce downtime and minimize its inventory investment.
In turn, the parts program has been instrumental in helping the company meet its aggressive production goals while minimizing costly downtime. Since putting the program in place, the company has reduced inventory by 25%, helping save approximately $250,000 in inventory expenses. Moreover, it credits the parts program for helping the facility boost its capacity by 250%—which helps the company significantly increase its return on net assets.
Defining performance levels
Any established metrics should focus on the level of improvement required to move from the current level of performance to the desired level. Defining this difference lets companies more effectively determine the specific actions, strategies and initiatives they need to undertake. To establish a successful measurement system, managers need to know:
- The desired level of performance in quantifiable terms;
- How the current performance levels are to be determined;
- Specific actions that can be taken to close the gap between the current level and desired level.
Performance measures should reflect how the maintenance department is providing value. For instance, in the power generation industry, downtime expense is calculated in cost-avoidance terms based on the profit from generating a megawatt-hour of electricity. Depending on the plant, the profit for a megawatt-hour varies drasticallyÐ ranging from $5 to $25 per hour. At one 560-MWpower plant in California, the cost-avoidance is calculated at $21 per megawatt hour. Therefore, downtime at this plant could cost upwards of $11,000 per hour (or $265,000 per day).
By measuring the production value of the downtime for a department or unit, you can quickly grasp, with clear evidence, where to place your maintenance efforts. This allows you to more accurately focus the planning process by seeing what is costing the most money and knowing where to target your efforts. You then can record the cost of failures while directing efforts directly to those causes.
Leveraging technology, improving techniques
The emergence of advanced automation and control technology has made the effective use of maintenance metrics considerably easier. It can assist in nearly every area of maintenance. For example, maintenance software systems can track spare parts, compile time and costs, track metrics, schedule work and analyze equipment conditions.
Wherever possible, build your collection of measures into the design of the automation system itself, so the metrics become an automatically generated product of normal usage. This can help reduce the burden of implementing and managing metrics.
However, not all metrics are amendable to automated collection. So, in practice, you will need a mix of both “hard” and “soft” measures.
Also, remember that automation systems and software can ‘t guarantee good maintenance performance or compensate for a lack of fundamental knowledge of what to measure and why.
In some cases, companies can boost manufacturing efficiencies through improvements in operational processes, such as inventory tracking and equipment repair management. An effective inventory tracking system can help companies track overall repair rates and identify ways to build efficiencies into the process. For instance, if a pattern of repairs occurs on a particular machine over a period of time, storeroom managers can work with maintenance engineers to find and repair the root source of the equipment failure.
As previously mentioned, developing a methodology for measuring your processes provides guidance for needed maintenance activities and can justify the value of current activities and support the case for new initiatives. Justifying maintenance iniatives requires a significant investment in time and energy to not only establish accurate measurement parameters, but also to effectively communicate the value of maintenance and its relationship to the company ‘s underlying business goals. It involves shifting management ‘s attitude from one that sees maintenance as a necessary expense, to one that views it as a profit center.
When using metrics to guide your project plans, it is important to stay objective, stick to the facts and understand the business trends that drive the need for improvements. For example, how does your parts management program help improve equipment uptime and reduce expenses related to lost production and scrap? More specifically, how does this impact on-time delivery—a key management goal?
If management does not fully understand the impact that maintenance activities can have on the organization, it is less likely they will support new initiatives or additional expenses.
As for a management discipline, companies are still striving to realize the full potential and benefits of using performance metrics as a proactive tool to implement strategy throughout their organizations. When approached with a clear understanding of issues and goals, metrics can be a powerful way of setting targets, measuring success and identifying problems as they surface.
Mike Laszkiewicz is the vice president, Customer Support and Maintenance business at Rockwell Automation. In his current role—and previously as vice president, Asset Management—he has been instrumental in developing Rockwell ‘s strategy for addressing the maintenance repair and operations (MRO) needs of manufacturers around the world. Laszkiewicz holds a Bachelor’s degree in Industrial Operations Management from the University of Wisconsin-Milwaukee. Telephone: (414) 382-3736; e-mail: email@example.com