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6:04 pm
October 11, 2011
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Maintenance As A Profit Center: It’s The Only Way to See It

1011profit

Despite great strides in maintenance techniques, management too often views the department as a cost center. That can be a very costly mistake.

By Anthony M. “Mac” Smith, AMS Associates

Times and thinking in the industrial world have changed dramatically in the past three decades. In maintenance, technical change and innovation have brought us predictive maintenance (PdM) technology, which has been, and continues to be, one of the foremost positive changes in the way we do business. It has provided the opportunity to measure and trend equipment health and avoid intrusive actions until absolutely necessary. It minimizes the well-documented risk of human error that might require another service call to fix.

A second important innovation is the widespread use of IT that has given us the CMMS and its capability to record, store and retrieve volumes of useful data and information at the touch of a keyboard button. While we have not yet learned how to best use all of this CMMS capability (such as developing useful equipment-history files), it has, nonetheless, advanced the automation of routine maintenance paperwork (work orders) that previously required many man-hours and file cabinets.

A third important innovation, and one that has been paramount for me, is the widespread use of Reliability-Centered Maintenance (RCM) methodology. Introduced by United Airlines in the mid-1960s to address maintenance issues on the new Boeing 747-100 airplane, the RCM process shifted our attention from a mindset of “preserve equipment” to one of “preserve function.” This allowed us to concentrate resources on what really counted—functions—and away from efforts designed to simply keep everything running, regardless of importance.

With all of the achievements industrial maintenance has made, however, it’s odd that we’re still dogged by something that has not changed (or changed little) in this time: the age-old management perception that maintenance is a necessary evil and unfortunate cost center. Maintenance today is still too often simply tolerated rather than appreciated or, worse, effectively used. Simply put, a properly managed and deployed maintenance organization is a BIG money generator! Let’s explore this further.

It’s all about the money
As a consultant, my first task when meeting with a client is to establish that there is only one reason for our meeting and discussion: money. I have discovered that once the initial focus is on money, perception of maintenance improvement can change from simply reducing Preventive Maintenance (PM) costs to increasing Return On Investment (ROI) from maintenance expenditures. The ROI factor is a significant, if not the dominant, element in forming any maintenance strategy. This is because PM costs are relatively small when compared with those that might be incurred through Corrective Maintenance (CM) actions and possible loss of revenue from downtime (DT).

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As illustrated in the accompanying figure, this concept can be used to drive a maintenance optimization strategy. Notice that the model shown recognizes the costs required by the PM and CM portions of the maintenance effort. Unfortunately, most organizations look only at these two elements and conclude that maintenance is strictly a cost center. They determine that the driving force behind maintenance improvement is to minimize maintenance costs in any way possible. The net result is frequently a reduction in PM activity. And if this is measured, the net effect is usually an increase in CM cost and an increase in lost revenue.

Maintenance = profit
These two unwanted results—an increase in CM costs and, especially, lost revenue—are key factors that can help define a maintenance organization’s true role. Specifically, when the emphasis is on spending needed funds to activate a meaningful PM effort, our measurements over 25 years of experience indicate that the multipliers shown in the figure are achieved. While an effective PM program can increase PM costs, each PM dollar spent and effectively focused on the bad-actor systems in place can actually preclude the necessity to spend $10 dollars on Corrective Maintenance. But the multiplier of particular interest is the reduction in output Downtime, where a multiplier of $100 to $10,000 can be achieved. This reduction translates directly to profit!

The figure on this page makes a strong argument in support of our belief that maintenance is, in fact, a profit center for your operations. Although this may be a new notion to some readers, our experience has indicated it to be a key factor in producing dramatic bottom-line impact—and moving a maintenance organization toward what constitutes “World Class.” MT

Mac Smith has more than 50 years of technical and management experience in reliability/availability/maintainability (RAM), component and system design, hardware test and evaluation, data management, product assurance, and safety and plant maintenance optimization via RCM methodology. Widely regarded as a pioneer of RCM and advanced maintenance practices, he is the author of Reliability-Centered Maintenance, the highly regarded 1993 book on RCM, and RCM—Gateway To World Class Maintenance, published in 2004. Over the last 27 years, Smith has directed and contributed to a wide variety of consulting projects in the energy, aerospace and industrial sectors. Email: amsassoc@sbcglobal.net.

 

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