Don't Let Them Shut You Down: Part 1

Don't Let Them Shut You Down: Part 1

Maintenance and Regulatory Compliance

Many maintenance organizations do not realize how they are affected by regulatory compliance. However, much of what Maintenance does has a direct affect on compliance with federal regulations and can cost the company millions of dollars if their actions cause an out-of-compliance situation.

Understanding this from within maintenance organizations varies from complete ignorance to maintenance by decree. The latter is a maintenance strategy that is defined by fear of the regulatory bodies and causes paralysis when trying to adopt proactive maintenance strategies. On both ends of the spectrum, reactive maintenance is the prevailing strategy and changing to a true proactive reliability program is very difficult. Regardless of their understanding of the regulations which governs their business, the maintenance program is most likely not mitigating equipment failures. This, therefore, leaves the organization open to risk and regulatory oversight.

New Regulations

When the unhappy constituents of a congressional district or local government entity call their representatives, it is often the starting point of new regulations. Specific events can also drive the government to draft new regulations or increase enforcement of existing ones. This call for action becomes, particularly, loud when people are hurt or killed because of corporate neglect.

It is important to understand how and why new regulations start because this understanding is the key to preventing further creation of new ones or heavy-handed enforcement of existing ones. Both of these things can be avoided if we as industrial professionals take a proactive approach.

There are many recent events that have caused significant news coverage and bad publicity for all of industry. Some events have led to congressional investigations. It is a bad day for maintenance and engineering when a CEO has to testify on Capitol Hill for a catastrophic equipment failure that affects the public. Maintenance has moved into the limelight, and is receiving public attention, perhaps for the first time in the history of “wrench turning”.

Case Studies

Many examples of maintenance culpability have been documented and reported on in the last several years. All of the events mentioned within many of the case studies written could have been avoided if a well-developed maintenance plan and reliability program were in place.

On April 4 2008, the FAA grounded Southwest Airlines 737-300 aircraft in order to perform airframe inspections. While there was no impact to the public in terms of safety, this event became high profile because of news reporting.



According to the investigation reports, Southwest had deferred several airframe inspections. These inspections were to identify cracks in the fuselage of a certain size. Upon closer examination of this case, it turns out that the inspection had been developed by Southwest and far exceeded the minimum requirements of Boeing. Even the FAA recognized this as a non-critical inspection and as such, issued a non-mandatory airworthiness bulletin.

“A progressive inspection for fuselage skin cracking was initially distributed to operators in the form of a "non-mandatory" Service Bulletin (SB) that provided "risk mitigation" actions that operators were encouraged to incorporate into their maintenance program. This Service Bulletin was based, in large part, on an inspection program developed by Southwest Airlines. …cracks in the fuselage skin on the Boeing 737 airplanes were identified and mitigated well before they could pose a safety of flight issue. …the FAA did not regard the skin cracking as an "immediate threat" to the safety of flight of the airplane.”

Even though the FAA deemed there to be NO Safety risk with these deferments, they fined Southwest Airlines $10MM and delayed thousands of passengers. The lesson to take away from this event is, “Do what you tell the regulators you are doing.”

Elevating Maintenance and Reliability Practices The Financial Business Case: Part 5

Elevating Maintenance and Reliability Practices The Financial Business Case: Part 5

Costs – Top performers begin with some form of gap analysis to understand the current state of relevant practices and to measure gaps that exist between current state and top performance. From that point, calculating costs to close gaps is objective and fairly accurate. Major investment categories typically include:

• Development of Corporate Standards for work management, materials management, configuration change management and reliability excellence


• Development of a Roll-out and Implementation Strategy taking advantage of work done at one plant as appropriate for other plants


• Creation or Improvement of Foundational Information (Functional Location Hierarchy, Master Equipment List, Spares Materials Catalog, Bills of Material/Parts Lists)


• Objective Criticality Ranking of Equipment


• Methodical Analysis of Failure Modes, using combination of Reliability Centered Maintenance Analysis (RCM), Failure Modes and Effects Analysis (FMEA), and templating where appropriate, to determine the optimum PM and PdM activities that need to be deployed for your population of equipment


• Based on methodical analysis, perform PM Optimization, eliminating unnecessary PMs, deploying recommended PdM, and creating the PM/PdM work orders in the CMMS system to automatically schedule these activities


• Creation of Balanced Metrics Measurement system


• Training and Awareness


• Culture Change and Rewards System Alignment


• Compliance Monitoring and Continuous Improvement

There is a lot of guidance that can be used to estimate the costs of closing gaps, but for purposes of this article, suffice to say that while these costs are not insignificant, in the context of the benefits and the financial business case, they are almost always easily justifiable, with typical Returns on Investment (ROI) from 8:1 to 16:1 and higher, and with Internal Rates of Return (IRR) from 50% to 250% or higher.

Summary:

Well, in summary, what do we know and what do we believe?

• We know what good looks like, and a big part of that picture can be summed up with the phrase “More Predictive and Less Preventive”. We know that Predictive Maintenance is driving a large percentage of work on a daily basis at the top performing plants, and this, of course, is good news for the readers of this magazine. Our time has come!


• We know that the top performers achieved their success using remarkably similar practices – regardless of their industry, so we shouldn’t spend a lot of time debating what good looks like.


• We know that you can’t piecemeal your way to prosperity - the top performers attacked the opportunity holistically – weaving all of the aspects of a top-level practice carefully together to unlock the hidden benefits.


• We know that even the top performers have been unable to uniformly elevate their maintenance and reliability practices across the entire enterprise, and we believe there are good business reasons for trying to do so, including reduced cost of implementation company-wide (vs. taking a plant-by-plant approach) and increased ROI.


• We believe the size of the opportunity is three quarters of one Trillion dollars annually in the U.S. alone, and could exceed $2 Trillion world-wide!
  
• We know the direct benefits will come from maintenance spend reduction, spare parts inventory reduction, reduced energy consumption, improved quality, reduced scrap and increased throughput/asset utilization.


• We believe there is a correlation between success of any corporate improvement initiative – whatever it is - and improved reliability practices. The indirect benefits come from unlocking hidden benefits in other parts of the business previously thought to be unrelated to reliability, and they can be substantial.

Finally, we know that the financial business case for reliability – including predictive maintenance - is here, and the awareness in your executive suite is emerging. If you are involved in predictive maintenance, I urge you to be confident in what you are doing because the role you are playing is essential for your corporation to achieve success – and the executives in your company are figuring that out!

Robert S. DiStefano
Chairman and CEO
Management Resources Group, Inc.
Southbury, Connecticut

Elevating Maintenance and Reliability Practices The Financial Business Case: Part 4

Elevating Maintenance and Reliability Practices The Financial Business Case: Part 4

How Big Are The Benefits?

Recently, we studied statistics from the United States Department of Commerce, including their measurement of what they call “Net Stock of Private Fixed Assets” in various industries. This measurement is a close proxy of Replacement Asset Value (RAV). In 2003 (the latest statistics available from the USDOC), there were $4.9 Trillion of physical assets on the ground in United States industry. We applied our Four Quartile Benchmark Statistics of Maintenance Spend as a percentage of RAV, and we dollarized the value of elevating Fourth Quartile plants to the First Quartile in maintenance spend, moving the Third Quartile plants to the First Quartile, and moving the Second Quartile plants to the First Quartile. As you can see from the following chart, industry wastes approximately $183 Billion in excess maintenance spend annually in the United States alone!


* Calculated from Department of Commerce Current-Cost
Net Stock of Private Fixed Assets in 2003 (Total $4.9 Trillion)

Further, we can assume from numerous published case studies that three to seven times the maintenance spend reduction benefit is accomplished in operational benefits (including increased uptime, improved quality, more efficient production scheduling, reduced waste, reduced energy consumption, reduced inventories, etc.). Taking the conservative end of that statistic (three times maintenance spend reductions), you can see from the chart that another $553 Billion in “Productivity Losses” can be re-claimed through the maintenance and reliability improvements, making the financial business case in the United States alone $738 Billion in annual, recurring benefits. What is this number world-wide? Good question. We are currently trying to quantify that with good data, however our intuition is that, if the U.S. opportunity is conservatively estimated at three quarters of one Trillion dollars, the world-wide annual benefits could be $2 Trillion or more!

The following chart depicts the Reliability Adoption Life Cycle.


Assuming that 25% of plants have figured this all out (top quartile), the market is at the Early Adopter/Early Majority stage. 75% of plants have improvements to make and work to do. If we look for an example of a company that has uniformly elevated their practices fleet-wide, there are no examples, so we are still looking for the innovators. It should be pointed out though, that attacking the opportunity fleet-wide will ease the journey by reducing the level of effort necessary to implement the practices and make the changes. Attacking this fleet-wide should leverage work done once for reuse avoiding the re-inventing of reliability over and over again. The resultant lower investment should make it easier to justify the expenditures for foundational and culture change work, enhance the Return on Investment and speed the Rate of Return.

What Are the Benefits in Your Company?

Quantifying the potential benefits, as well as the likely costs to improve performance, in your corporation, is necessary. Here is some guidance.

Benefits - Here are some of the major benefit categories with some guidance on how to calculate the potential:

• Maintenance Spend Reduction: Calculate your maintenance spend as a percentage of Replacement Asset Value (RAV), and dollarize the improvement to top quartile performance (approximately 2 – 4% of RAV or better). If you are currently spending 5 – 6% or more, this benefit could be significant. The benefit comes from eliminating unnecessary work, working more efficiently, reducing the need for abundant stocked spares, eliminating collateral damage thereby reducing use of spare parts, reducing use of contractors, reducing overtime.



• Inventory Reductions: Calculate your stocked inventory value (include satellite spares, etc.) as a percent of RAV, and dollarize the improvement to top quartile performance (approximately 0.5% - 1.5% of RAV). The actual reduction will yield on average $0.20 cents on the dollar of reduction (some inventory will have to be scrapped). This is a one-time benefit. In addition, the recurring annual avoided carrying costs will be on average 25% of the full inventory reduction value – annually.



• Energy Consumption Reduction: Published guidelines show us that smoother running rotating equipment and leak-free operation of water, steam and compressed gas handling equipment will consume from 3% to 14% less energy (electricity, fuel).



• Increased Uptime: Increased Asset Utilization can have a variety of substantial financial benefits to a company, including selling more product on the existing capital assets (assuming the demand for the additional product is present), or reducing the cost of goods made on the capital assets through more stable operations (even if the demand for additional product is not present). Two downtime areas should be targeted: Unscheduled Maintenance-related Downtime and Scheduled Maintenance Downtime. Unscheduled Maintenance-related Downtime can eventually be almost eliminated. Scheduled Maintenance Downtime in a plant heavily dependent on time-based Preventive Maintenance strategies can be reduced by from 30% to as much as 60% (depending on the starting point). Dollarizing the value of this varies from business to business, however remember that these benefits can be as much as 3 to 7 times larger than the maintenance spend reduction!



• Improved Quality: Typically, scrap material and rejected/returned off spec product is measured accurately in most corporations. Calculate the value of the scrap material and assume that between 5% and 16% of that value can be eliminated through sound reliability practices. In addition, calculate the value of the rejected/returned product and assume that between 1% and 5% of that value can be eliminated through sound reliability practices. These statistics will vary business to business.