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.