Table of Contents
How to Reduce Maintenance Cost The Right Way
Benchmarking maintenance cost in a vacuum
Is Maintenance cost / Estimated Replacement Value (ERV) the right benchmark to use?
Is Maintenance Cost Useless to Benchmark?
What Should be the Main Goal for a Maintenance Management if it’s not Reducing Maintenance Cost?
The story of when Maintenance Cost is cut – what happens
The Acceptance of Hidden Maintenance Cost
The Amazingly Good News About Maintenance Cost
The delay factor in maintenance cost
The Nothing happened effect and maintenance cost
How to Reduce Maintenance Cost the Right Way
Many organizations often have the goal of reducing maintenance costs. While the maintenance cost is an important long-term outcome of maintenance management, it should not be the main goal. If the reduction of maintenance cost is the main goal for maintenance, the organization is on the wrong track and will eventually fail.
What is Maintenance Cost?
There is no universal definition of maintenance cost. Maintenance cost is a subset of the total production cost. The slice that is defined as “maintenance cost” can therefore quite liberally be described however a company wants to describe it as long as it follows local tax rules and regulations. Below are some examples.
For example:
Lubricants: Some companies include it in the maintenance cost while others label it as an operational expense.
Consumables: Frequently changed maintenance consumables such as cutting tools are often classified as an operational expense, whereas consumables that are changed less frequently are often in the maintenance budget. Common examples of this include air filters, oil filters for hydraulic units, refiner plates and chipper knives.
Company, local state/province and international tax laws differ and change over time, which adds another level of variability to the definition of maintenance cost. Additionally, the constantly changing international currency exchange rate adds another layer of variability if maintenance costs are compared across international borders.
Financial performance often impacts how maintenance cost is defined — for example, classifying a cost as “capital” investment costs versus “expense” changes if a company is making a profit or a loss any given year. This is not talked about a lot because most companies have very clear rules about what to capitalize and what to expense.
In reality, it is very common that, for example, a $50,000 investment is changed into two $25,000 investments in order to classify it as an expense.
A few final factors that change the maintenance cost between plants:
2. Difference in plant assets and production flow & products produced
3. Equipment selection & engineering before start-up
If a plant has been poorly maintained in the past and much maintenance has been deferred, there is a lot of maintenance to do in the future. Conversely, if the plant is well maintained, there is less maintenance to do in the future.
There may be two identical plants, side by side, one well-maintained and one poorly maintained. The future annual maintenance cost will be higher in the poorly maintained plant since the equipment has more maintenance to be done than the well-maintained plant. The age of the plant plays into the maintenance debt since an older plant often has more future maintenance than a newer plant (however, it is not always true, some things were very well built in the past).
An obvious but sometimes disregarded factor in looking at the maintenance cost is the difference in the plant’s assets and what they produce. Two plants that are producing the same products are seldom alike. Age and type of equipment are different, as well as the production flow. If one plant selected equipment with good maintainability, inspectability and reliability, it will have a lower maintenance cost than a plant that has not spent that investment upfront. If plants are completely different, it would be absurd to try to compare the maintenance costs. A coal mine will have very different maintenance costs compared to an electronics factory.
The article “Defining Your Plant’s Maintenance Costs” by IDCON Inc. provides some helpful guidelines around the classification of maintenance costs.
Benchmarking Maintenance Costs in a Vacuum
It is very common that a company or a plant tries to benchmark the maintenance cost. The maintenance cost/ton or maintenance cost/unit is typically the benchmark of most interest.
But the effort to benchmark the maintenance cost/unit produced is quite futile if it is the sole focus. Why? First, because the maintenance cost is extremely hard to compare between plants due to the variability of the following (as explained in the section above):
- Company definition of maintenance cost
- Local tax laws
- Currency Exchange rate variations (If comparing internationally)
- Company practices (and ethics)
- The maintenance debt
- Difference in production flow
- Difference in equipment selection and engineering before plant start-up
- The age of the equipment
Second, the maintenance cost by itself is not very interesting or even very relevant. Perhaps it can be compared with baseball pitches or ice hockey slap shots, which are roughly the same speed. A good pitch or slap shot is a tad over 100 mph. Many are obsessed with measuring the speed of a pitch or slap shot, but is it relevant? A little bit, but neither baseball nor hockey is about fast pitches and hard shots; they’re about winning the game. Similarly, the name of the game for any company in the world is one thing: profit! That is why companies exist.
A Paper mill in Canada had one of the highest maintenance costs ($ Mtce cost/ton) in the industry, but they were the most profitable ($ profit/ton). The mill spent money on maintenance:
- Precision repairs
- The correct materials
- The right maintenance tools for everyone
- Trained their people
- Organized the technical data such as bill of materials, equipment registers, added work order history, etc.
All these items cost money, mostly temporarily, and increased the maintenance cost. What was their return on investment? They achieved exceptional equipment reliability and could sell more product. Therefore, the revenues increased a lot more than the total cost even though their maintenance cost was relatively high.
The point is that the maintenance cost by itself is not very interesting to benchmark, and in some cases, completely misleading for any relevant business decision. Sub-optimizing by performing a maintenance cost analysis by itself is a mistake that can lead to poor decisions by top management.
But, as mentioned in the intro, many maintenance organizations are completely focused on reducing maintenance costs and/or keeping within the maintenance budget. But it is important to understand that as long as the product manufactured can be sold with a profit margin, meaning that sales price/unit is larger than the cost/unit to produce it, reduced downtime (therefore increased production time) will be more important than cutting the maintenance cost. If reducing maintenance cost isn’t the main goal for a maintena
nce department, then what is?
It should be mentioned that there are other factors in an organization's operation that are important besides profit and cost. Those factors are not explored in this article since the focus is on maintenance costs. Some examples of other important factors are:
- Quality of the product; there are few things more expensive than poor quality
- Safety
- Environmental compliance and awareness
- Follow all regulations including over and above safety and environment
- Leadership ability
- Skills
- Ethics
- Culture (perhaps just an outcome of all above)
Is Maintenance Cost / Estimated Replacement Value (ERV) the Right Benchmark to Use?
A popular benchmark is the Maintenance cost / Estimated Replacement Value (MC/ ERV). Many consultants have promoted this as a great number to compare between plants. Some have even claimed that 2% is considered to be “best practice” or “world-class.” The 2% is often used regardless of what industry is being benchmarked. Referring to the variance in the numerator (if a/b=c, then a is the numerator, i.e., the maintenance cost) that we have extensively covered above, we know that the maintenance cost varies greatly. Therefore, trying to benchmark the MC/ERV between industries is preposterous and incompetent.
Take a simple example of a conveyor belt that transports iron ore outside in a hot, humid environment to a similar belt that transports wood chips indoors in a northern paper mill. The wear of the belt that carries rock in the sun will be more than the one that carries wood chips indoors; therefore, the maintenance cost will be higher. Likewise, a pump that pumps room temperature water wears differently than one that pumps bitumen in the oil sands.
Adding to the uncertainty of Maintenance Cost/ Estimated Replacement Value is the ERV itself. Few plants have a correct number for the estimated replacement value since the actual depreciation of the assets hasn’t been kept up correctly.
Read more about Maintenance Cost Compared to Estimated Replacement Value.
Is Maintenance Cost Useless to Benchmark?
No, it is not useless to benchmark maintenance cost. Maintenance cost is an important indicator of a plant’s performance. But the maintenance cost has to be put in perspective with all factors described above. The age, past maintenance performed, the initial investment quality (Life Cycle Costing) and all other factors have to be analyzed. It would be more or less impossible to make an analysis that encompasses all the important factors that include maintenance cost. Therefore, the number itself shouldn’t be analyzed.
What should, and can, be analyzed is the maintenance cost performance over time in a specific plant without comparing it to other plants. The cost should be analyzed together with a set of “balancing,” additional KPIs such as Overall Production Efficiency (OPE), total cost, revenue, etc.
What Should be the Main Goal for Maintenance Management if it’s Not Reducing Maintenance Cost?
Let’s look at the maintenance cost from one more angle. If reducing maintenance cost would be the key goal for a maintenance department, it is a very easy goal to achieve. Simply stop doing any maintenance, and your cost will be zero: goal achieved! Some may say that the idea above is silly; no mine, plant or mill would do that. Of course not, but why wouldn’t they?
If you stop doing maintenance work, the equipment and the plant stops running, and your revenue will go to nil.
Many plants should define what the outcome of the maintenance department should be. It is a critical discussion to have because it changes the whole approach to maintenance in an organization. The product of maintenance work should not be service, repair or cost; the outcome of maintenance work is equipment reliability.
If the goal for maintenance is to deliver equipment reliability instead of reducing maintenance costs, everything changes. Let’s look at what typically happens if the focus is cost-cutting versus equipment reliability.
The Story of When Maintenance Cost is Cut – What Happens?
Let’s try to illustrate what may happen in a typical plant when cost-cutting is the focus.
What triggers the maintenance cost to be in the budget reduction crosshair?
It is very interesting to investigate what event or action triggered the decision that the maintenance cost is too high in a plant. Why is it interesting? Well, from what we’ve seen, there is typically little to no data, information, or basis for the decision that maintenance cost is too high.
In most cases, the stock market pressures a company to improve stock prices by making more profit. When that pressure reaches the operational part of the company, a search for cost-cutting “items” starts. Based on the earlier discussion in this article, it can quickly be seen that we are missing parts of the whole equation, right? Low profit immediately transfers into cost-cutting measures, but the other half of the equation is disregarded. An increase in revenue is more powerful most of the time. Revenue – cost = profit; where did revenue go?
Why do companies disregard revenue and focus on cost? It is simple. Costs can be cut today, and results can be shown in the following monthly report to the market. Increasing revenue takes marketing effort, product development, improvements in production, etc. In short, it takes time — time that the stock market has no patience for. So, cost-cutting it is.
Other instigators to maintenance cost reduction initiatives are business consultants that compare a plant’s maintenance cost with similar plants. But, as discussed earlier in this article, the comparison of maintenance cost alone is not just unfair, it is purely poor data if it is used alone without the context of other performance measures.
Fast maintenance cost-cutting begins
Regardless of how or who originated the maintenance cost-cutting effort, the initiative will land in the lap of the plant’s maintenance manager. The maintenance manager is often told that the maintenance cost must be cut by X%, within a time limit; 4-5% within 3-6 months seems to be the norm. Note that in most cases, if not all cases, no one knows what the ideal maintenance cost should be. We know it can’t be zero, but for some reason, we are convinced it can be lower and that it can be lowered right away.
Often the maintenance cost can be lowered and should be lower; however, it seldom works to cut it fast. Often, it is very damaging to the company to cut the cost too fast.
Video Walkthrough: Check out IDCON’s Reducing Maintenance Costs the Right Way
The maintenance manager in the plant has a month or two in order to get the cost-cutting results into the financial results in 3-6 months. What can the manager do? There are basically two options available in order to cut the maintenance cost in a short amount of time:
- Cut the number of maintenance employees
- Cut the amount of maintenance work by deferring it.
If you think about the two options for cutting the maintenance cost quickly, they assume two things: either you have too many people, and/or there is maintenance work that doesn't need to be performed.
An inexperienced person may say that the people are working inefficiently; they may only have a tool time of 30% total work time. Well, here is some news: Cutting the number of people in an inefficient organization will not increase the tool time; often it does the opposite. Maintenance improvement means dealing with people. People don’t change behavior because someone decided to cut the number of employees. In fact, morale at the plant may plummet!
In most situations, the maintenance manager decides to reduce the number of people or defer needed maintenance work. The reduction of work executed will become the consequence of the people's layoffs, even if that isn’t the intention. This maintenance manager is going to be rewarded in the short run, but long term, they will be the scapegoat when maintenance cannot keep production running, and the maintenance cost will go up. The only way to avoid the poor future reputation of the maintenance manager is to get a promotion or leave the company.
Reducing the number of maintenance staff to cut maintenance cost
Many plants are regulated by union agreements and may have to lay off the most recently employed maintenance craftspeople. This means that they have to get rid of their future talent. Skilled maintenance craftspeople are very hard to find these days, especially in the Instrumentation and Electrical area. Since it is hard to find skilled people, it is not uncommon that a Human Resource (HR) department spends both substantial time and investment to find maintenance craftspeople. The recently laid-off people will be needed at some point, and the company has induced a future cost of re-hiring and re-training these people by the sudden lay-off.
Reducing the amount of work to cut maintenance cost
Some maintenance work will have to be cut out or deferred in order to reduce the maintenance cost, but the question is: what work the maintenance manager will cut out?
There is an important unavoidable fact that the stock market doesn’t understand and probably doesn’t care about: A valid maintenance repair job can never be avoided. A valid repair can sometimes be deferred, but it can never be avoided.
A valid repair is a maintenance repair job that has been approved by the professional operations/maintenance team in the plant as necessary. For example, if someone finds a hot motor that must be replaced, the job can be delayed for a while (until it stops), but it can never be avoided. The motor has to be replaced! If the motor is replaced before the breakdown, it may cost 1. But if we wait with the job till after the breakdown, it will cost 1 + downtime of production (assuming it affects production) + additional damages to equipment (in some cases).
A maintenance job will either cost the same, or more in the future to repair if the maintenance job is delayed
For sure, the job will never become cheaper to do by delaying it; at least it is hard to think of any instances where it would.
In summary, if jobs are deferred, they will become more expensive to fix in the future. An analytical person may think that the operations maintenance team may prioritize jobs incorrectly and that there is a cost-saving to be made by better analysis of the necessity of each job. That analysis is often absolutely correct, but again, changing the behavior in a plant around work screening and prioritization is not done over a coffee break or in a couple of weeks; it would take time to do. Check out IDCON’s Practical Prioritizing for Leadership in Maintenance to learn more about building a successful partnership between operations and maintenance through a unified work process.
Change could be done fairly easily and could really help a cost-cutting effort in some plants. Start by asking, “do we really need to do this job?” But most plants already scrutinize jobs very carefully because they have had a limited budget for years, so in reality, this only applies if a plant has been careless with maintenance costs in the past.
What work would a maintenance manager typically cut out? What can be deferred?
Even though most managers know better, they are forced to cut something, and it can’t be repairs that may stop production. Equipment projects should not be in a maintenance budget, so that is seldom an option. If there are projects in the maintenance budget, they probably can’t be cut, since contracts with vendors have been signed, and it would take too long to get results before the 3-6 months.
What is left is the preventive maintenance work. Condition monitoring and fixed time replacements are typically the work that is removed. In some cases, even grease routes are cut out.
Will reducing the number of people and less preventive maintenance cut maintenance costs?
The short answer is yes, it will — for about 12-18 months. After 12-18 months, the maintenance cost will rise again because the preventive maintenance wasn’t performed.
- The fixed time replacements weren’t done so that equipment is now breaking down.
- Condition monitoring (inspections) were not done, so the planner has no forewarning of breakdowns and now has to wait for breakdowns.
- Since the warning system (Condition Monitoring) is eliminated or reduced, the planner tries to plan breakdown work that is happening today.
But jobs can’t be planned that fast, so craftspeople will be handed emergency work.
An unplanned and unscheduled job often takes 3-9 times longer than a planned and scheduled job to perform.
So, if the production is down, it will be down 3-9 times longer, and the total production volume of the plant will go down. The revenue side of the equation is reduced AND the maintenance cost is going up. More breakdowns mean more labor, more parts and more downtime.
The equation Revenue – cost = profit is hit twice!
The plant is typically around two to three years into the cost-cutting efforts when the cost starts to increase again rapidly. Often, cost-cutting consultants and top managers have been praised for their great success in the cost-cutting effort. If the maintenance manager is lucky, they have achieved a promotion to plant manager or corporate so that they don’t have to deal with the mess created a couple of years back.
Usually, the cost increase isn’t tied to the past maintenance cost-cutting efforts. In some cases, the connection isn’t made because management has changed, and the new management may not know the history. If the same management is there, it is unlikely they will admit actions taken a couple of years ago were a mistake. They may say, “This maintenance cost increase must be something completely new! Why is the cost increasing? We have no idea! We better bring in a business consultant to analyze it!”
Often, another business consultant looks at the business and compares the maintenance cost with similar plants in the industry and draws the conclusion that the maintenance cost is too high, and the same circus starts over again. In some companies, this goes on for 3-4 cycles with 2-3 years apart until the plant is financially dead. Perhaps the production is moved abroad because the cost of manufacturing is too high in the original country.
The Acceptance of Hidden Maintenance Cost
Hidden maintenance cost is a term to describe cost-inducing events that are either fully acceptable and/or are produced because people are unaware of them. The hidden maintenance costs are not always classified as maintenance costs; they can be classified elsewhere, but have a connection to maintenance.
Here are some real-world examples of the hidden maintenance cost:
Bricks were falling out of a lime kiln in a chemical plant in Canada. A lime kiln is a 300-foot steel tube that is lined with brick. The tube has a powerful burner in one end and is rotating and mounted at a small angle for the lime to travel through. This is a maintenance job that can’t be avoided.
Image 1: Lime Kiln
At the time, the cost to repair it at the upcoming shutdown was CAN $50,000. Management decided to try to get a good financial quarter and postponed the repair for the next shutdown six (6) months later.
Referring to the earlier logic in this article, they had two choices:
- The first choice is to pay $50,000 now in the upcoming shutdown.
- The second choice is to pay $50,000 + risk of break down (%) X Cost of break down.
No matter how you spin these options, option one will always be cheaper since you add the cost of the breakdown risk in option two.
Management decided to wait for the repair until the next shutdown. Maybe because they had pressure to deliver results for the current quarter, or perhaps because of production bonuses, it is not clear. The lime kiln broke down six weeks later for a total cost of CAN $300,000. The cost not only included maintenance cost, but also the lost production profit and additional damages.
The management for this plant took a decision for $250,000 during a 30-minute meeting. The same team could never have taken that decision without approval; if it were a capital investment of $250,000, it would have required several approvals.
The hidden maintenance costs are many. Perhaps someone decided to stop changing grease in a gear and grid coupling because it takes too much time in a shutdown; how much does that cost? Someone else decided to move a 2-day shutdown a few days before the start. What does it cost to reschedule, re-arrange all work to the new date? How about an old classic? Someone decides that a pump shaft does not need to be precision aligned during a repair; just use a straight edge, or if you don’t have one of those, use a cigarette to check the alignment. How much does it cost for a plant to have 500 misaligned pumps?
Why are Hidden Maintenance Costs Allowed?
The hidden maintenance costs are typically incurred because of the lack of clear maintenance processes and standards. There has to be an understanding of the future costs of maintenance actions and/or doing nothing. This choice is often called opportunity cost in financial terms.
There are two or more choices, and the cost difference between them could be an opportunity. In reality, it can be very hard to see the opportunity costs. For example, if a plant has poorly documented preventive maintenance routines, the cost of fixing that problem is not clear to all. If the Bill of Material (BOM) causes people to spend 1-2 hours a day searching for spare parts, the cost versus benefit to fix the BOM is seldom clear.
There is definitely “a cost of doing nothing,” but it is a missed opportunity, not a direct cost
The opportunity cost for maintenance can be compared to the maintenance of your body. If you don’t exercise for 30 minutes today, the opportunity of being healthier in the future is missed. As you see, these opportunities are not always easy to connect.
The culture of instant gratification is another reason hidden maintenance cost is allowed. Most of us want to have things now. We want our candy, soda, and desserts now; we don’t care if we gain weight later. We buy things with 20% interest on a credit card instead of saving to buy them later for a much better deal than paying 20% interest. The stock market demands instant results as well; no one wants to wait for a stock to be profitable in 2-5 years. There is software that competes for milliseconds in speed to get better trades.
The Amazingly Good News About Maintenance Cost
There is great news about the maintenance cost! If you work in a plant, mine or mill, you are most likely under pressure to increase the equipment reliability and reduce the maintenance cost at the same time. The good news is that the two go hand-in-hand — you just have to start at the right end.
If the focus is to cut maintenance costs, you will not achieve any long-term results to write home about. But let’s see what happens by shifting the focus to equipment reliability instead of cutting maintenance costs.
If the maintenance department works together in a partnership with operations to achieve reliable production, the most amazing things happen. How to improve overall reliability is a very large topic, but there are some basics that always have to be executed. They are:
- Maintenance prevention such as cleaning, lubrication, alignment, balancing, correct installation, etc.
- “The chain” of Inspecting, Planning, Scheduling and finally Executing Work.
Image 2: The chain that must not be broken
If these basics are truly implemented, a plant will achieve reliability
Note that some of these actions require support systems. Just to mention one example, good planning can’t be done unless there is information and physical access and kitting of spare parts. Execution of work can’t be done well unless people have the right skills and attitude. Scheduling can’t be executed unless there is a close partnership with operations in order to coordinate production schedules with maintenance schedules. These are just a few examples, but I hope the point is made.
The key is to focus on the execution on the floor. The execution of “the chain” and preventive maintenance is the key. It is easy to get distracted with tools. Tools such as a good CMMS, artificial intelligence solutions, and inspection tools are very helpful in improving The Chain and/or preventive maintenance, but they are only enhancements. Without the basics, they are useless. The basics have to be in place before technology and tools can help accelerate the results.
If the basics are implemented, there may be an initial maintenance cost increase to start, but as equipment becomes more reliable over time, there are fewer breakdowns, fewer spare parts are used, fewer resources are needed, and the mine, plant and mill will produce more. Production will go up, and the maintenance cost will eventually come down.
The initial maintenance cost increase has several components, but the main cost is the cost of improving the equipment condition. When equipment is inspected better (step 1 in the chain), problems are found, and those problems need to be repaired (step 2-4 in the chain). Those repairs will cost money. But, as noted before, the repairs will be cheaper to repair now compared to later.
In IDCON’s experience working with plants, mills and mines, we have found that delayed repairs that turn into breakdowns are often 3-9 times more expensive.
At the end of the day, all maintenance activities should lead to:
1. Prevention of failures and breakdowns
2. Make repair jobs be safer and completed more efficient
3. Make a repair job be completed with higher quality
These three things are the end goal for all reliability activities. For example, condition monitoring using vibration analysis (VA) is useless unless the problems found are planned, then scheduled, then the bearing is changed. The breakdown of the production line was avoided (1. Preventive maintenance), and the bearing can be changed safer, faster and better because VA gave us lead time to plan and schedule the job. But VA in itself has no use without the chain.
If the plant focuses on reliability, the maintenance cost will follow.
Clarifying the choices for reducing Maintenance Costs
There are only three ways to cut the maintenance cost. We have explored these three ways in this article, but let’s make the three choices crystal clear. The available choices to cut the maintenance cost for any organization are:
1. Cut the cost short-term by reducing people and/or delay maintenance work
2. Reduce the need for maintenance
3. Execute maintenance more effectively
1.Try to cut maintenance costs within a few weeks or months by focusing on the maintenance cost itself. Short-term results in lower cost can be achieved. But, since the reliability of equipment is completely disregarded, the cost will go up again due to more breakdowns and poor reliability. The graph below illustrates the mechanics of this choice.
2. Reduce the need for maintenance. This strategy is probably the most powerful, but also takes the longest time to hit the financial bottom line.
Image 3: Cost initially goes down but will go back up as reliability declines.
This strategy includes doing maintenance as well as possible for as long as it is cost-effective over the life of the equipment (looking at total life cycle profit). Clearly, cost-effective measures are good lubrication practices, precision alignment of shafts, balancing of rotating equipment, good operating practices and quality installations by maintenance. All these practices are very basic, but few organizations execute them well. The process requires investment, training and good management, but typically costs very little to implement compared to the uptime they deliver.
An example of dedication to precision can be illustrated by a plant that had an alignment standard of 2 thousandths of an inch for 1800 rpm shafts. To enforce this standard, they had a sign-off form for accepting a sub-standard alignment. So, for example, if someone wanted to start up the production line early and pull a crew from an ongoing alignment job, they had to sign a form saying they thought the additional production time was worth sub-standard pump life. As you can imagine, those forms weren’t used very often.
By doing things right, the life of equipment is prolonged, and therefore, less work goes in for repair. Using earlier terminology, it can be said that the maintenance debt is reduced. For day-to-day work, we may simply say that the backlog is going down.
3. Execute maintenance more effectively.
This is a large topic by itself. We summarized the key components by explaining the concept of “the chain.” The idea is that your plant is so well organized that work can be executed effectively.
The easiest way is to compare a NASCAR pit stop with someone changing tires and doing basic maintenance at home. A bunch of tasks, including tire changes, are done in a few seconds in a NASCAR pitstop, while it takes the average person hours to do the same job.
The key components in “The Chain”
1. Inspect (also prioritize the work carefully)
2. Plan
3. Schedule
4. Execute
In Formula 1, it can be done even faster. If you think that this is because they are allowed to modify the car to have one bolt instead of the standard five, you’re right! The same can be done in industry. We can modify a coupling guard to see through the guard so that inspections can be done with a stroboscope on-the-run instead of a shutdown inspection.
Image 4: Modified Guard to do inspections on the run.
When options 2 & 3 are implemented, IDCON has seen many clients follow the curve below. There may be a slight increase in cost early in the improvement effort to reduce maintenance costs. But as equipment becomes more reliable, the cost will come down as a consequence of the reliability improvement.
Image 5: Focusing on reliability reduces overall maintenance cost.
The delay factor in maintenance cost
Maintenance cost has a delay effect going both ways. If we do things right, it takes time to see the reduction in cost. If the maintenance is cut quickly by doing less maintenance, there is a delay effect for the cost to go up again. Why?
Part of the delay effect is the physical nature of mechanical failure. If you buy a new car and never change the oil, the car may run for five years (wild guess, I have not tried) before the engine seizes. But, if you change the oil every 6-9 months, the car engine may run 25 years. So, if the maintenance is cut out from the start, the results of this particular failure will take five years to notice.
If we misalign a bearing to 10 thousandths instead of precision align it to 2 thousandths, the life may go from 15 years to three years (an estimate), again, it will take three years for the misalignment to cause a problem.
In a plant, there are thousands of equipment and millions of failure modes, but the delay effect will be the same. An improvement will take time to show, so will poor maintenance.
The Nothing happened effect and maintenance cost
The positive delay effect also creates another psychological problem. Let’s say things are done correctly. Shafts are aligned! Bearings are lubricated with the right amount, clean and the correct type of oil! Bearings are installed with a bearing heater to shafts, etc. What happens? Well, nothing happens! A well-maintained plant runs well, at a low cost with few breakdowns.
When a plant is well maintained, it could be hard to defend the cost of preventive maintenance, lubrication filters, cost for high-quality hydraulic fittings, etc. I bet someone may ask the question, “why do we spend so much on preventive maintenance when we never have any break-downs?”
This is the main reason that basic reliability has to be UNDERSTOOD by the organization as a whole. The organization must understand that training of craftspeople is important, that rubber parts, electronics, and hydraulics must be stored cool and clean, that planning of work is important, etc.
Image 6: Accounting's perspective of maintenance spending.
There are similar situations outside the plant environment. A fire department's work is primarily to prevent fires through regulations, education, and inspection. Should we get rid of them because there are few fires? Railroad crossings have automated gates, but they cost electricity to run. Should we take them out since there are few accidents at these crossings?
It can be hard to show the value of something that didn’t happen. Maintenance of infrastructure such as bridges, roads, railways and electrical grids is often under fire in most countries, partly due to this fact.
An educated management team is critical in order to achieve long-term equipment reliability and be able to have a healthy maintenance cost.
What’s the bottom-line in cutting maintenance costs?
It is quite possible to cut the maintenance cost, but it shouldn’t be done by focusing on the maintenance cost itself. It can be argued that the maintenance cost/unit is completely irrelevant; what is more relevant is the total cost/unit. At the end of the day, we should look at profit, which is sales price/unit less the total cost/unit. If maintenance cost is analyzed by itself, the wrong conclusions will be drawn.
It is important to understand what actions may induce hidden costs and/or produce hidden revenues. Hidden costs such as the inefficient use of labor, materials, poor planning and poor preventive maintenance are widely accepted, and the effects are poorly understood in industry. Understanding and implementing the correct work processes for good reliability and maintenance will generate improved reliability and lower total costs/unit produced and maintenance cost/unit produced.
Improved financial performance is not immediate; the correct procedures have to be in place for some time in order to see the financial results because of the “delay effect” in maintenance. A well-tightened bolt will never, ever come loose, while a poorly-tightened bolt may come loose after a couple of years.
More Information About IDCON
At IDCON, we understand the pressure you face trying to build a reliable plant.
We provide side-by-side reliability and maintenance consulting, and training designed to keep your equipment running.
For over 45 years, we’ve partnered with 100s of plants around the world to eliminate the costs and the pressure caused by unreliable equipment. And we’d love to do the same for you. Contact us today to see how we can help you keep your plant running.
