01_mtc org & plant acquisition

1. Maintenance & the Industrial Organisation1. Maintenance & the Industrial Organisation

Topics covered:

Models for Industrial organisations & the maintenance function

Total cost of maintenance

1Dr Hari Agung Yuniarto – JTMI UGM [email protected]

Total cost of maintenance

How maintenance impacts the business

Maintenance preconceptions

Maintenance strategy review process

Why Do We Do Maintenance?Why Do We Do Maintenance?

To preserve the functioning of our equipment

When we can no longer do this economically, it should be replaced

Maintenance is sometimes deemed as a means to an


Maintenance is sometimes deemed as a means to an end --> a profit centre Vs a cost centre

Organisation as an Open SystemOrganisation as an Open System

Management System

Financial Climate, New Technology, Legislation

Raw materials,EnergyFinance

Products,Waste,


Processing Plant

Physical Assets, manpower, spares

Finance Waste,Safety,Reputation

Maintenance FunctionMaintenance Function

Management System

Budget, New Technology, Company Procedures, Legislation

InformationFinance Output,


Activities

Physical Assets, manpower, spares, skills

Finance Output,Reliability,Safety,Quality

Maintenance Management SystemMaintenance Management System

Strategy & Policy

Organisation

•Objectives•Constraints•Resources

•Structures•accountabilities

Feedback Loop


Planning & Control

Management Information

•Job scheduling•Job execution•Provision of spares•Use of technology

•Exception reporting•Plant history file•Trends•Value of money analysis

Feedback Loop

EQUIPMENTEQUIPMENTDirect

Costs

Indirect

Costs

Total Cost of MaintenanceTotal Cost of Maintenance


Labour

Spares

Subcontractors

Excess downtime

Lost sales

Surplus equipment

TOTAL COST OF MAINTENANCETOTAL COST OF MAINTENANCE

Labour Materials ContractsVisible

Hidden Poor plant reliability and

Total Cost of MaintenanceTotal Cost of Maintenance


performance

Wasted time through inefficientprocesses

Poor teamwork and communication betweenfunctional groups

To be true to our guiding principles (or values)

To survive and grow as an organisation

This requires us to make some money

What are we in business for?What are we in business for?


Return on InvestmentReturn on Investment

Making money is measured by:Making money is measured by:


ProfitabilityProfitability CashflowCashflow

By reducing income

By increasing costs

By forcing expenditure to be made sooner

By increasing the capital required

How does maintenance affect these?How does maintenance affect these?


By increasing the capital required

Investment

Return on Investment Return on Investment -- ROIROI

Income

Expenses


ROI = Profit = Income – ExpensesInvestment Investment

Expenses

Effect of Downtime on ROIEffect of Downtime on ROI

Return on investment = (Income – Costs) / Investment

A change in downtime of a few percentage points has a major impact on return on investment


major impact on return on investment

Return on Investment Return on Investment –– Du Pont FormulaDu Pont Formula-

£120m/year

£80m/ year

+

£8m/ year

£2m/ year

-

£40m /year

£10m /year

..

£30m /year


+

-

£5m

£4m

£2m

£113m

+

£113m

£7m

0.25/year

.

.

.

.

£120m

Items in Total CostItems in Total Cost

Maintenance budget

Capital replacements

Value of spares inventory

Equipment efficiency

Product quality

Standby equipment

Reduced throughput


inventory

Downtime

Value of product inventory

Reduced throughput

The role of maintenanceThe role of maintenance

To ensure that the plant and machinery under its care can satisfy the operational demands placed upon it at the lowest total cost

Operational factors involve:


safe operation

maximum availability of equipment

achievement of required production speeds

achievement of desired product quality

achievement of required life

Maintenance preconceptionsMaintenance preconceptions

Throwing money at a problem will somehow resolve it


Performance and costs have a fixed trade off

A large number of spare parts

Having people who can react quickly to failures

Excessive standby equipment

Preconceptions Lead To..Preconceptions Lead To..


The belief that spending money increases output

Too much emphasis on preventive maintenance

Greater competitive advantage

Improved return on investment and profitability

Extended equipment lives

Benefits of Successful PracticesBenefits of Successful Practices


A platform for continuous improvement

Lobby for maintenance to be seen as a strategic issue

Link maintenance to competitive advantage

Emphasise the indirect costs as well as the direct ones

Maintenance on Boardroom AgendaMaintenance on Boardroom Agenda


Show how good maintenance affects the balance sheet, profitability and capital programme

Make the production director your best ally

Talk Rp Rp Rp

Operations & Maintenance Strategy Review ProcessOperations & Maintenance Strategy Review Process

MaintenanceTasks

Review sparesholdings

balancing risk& cost

Business review

Functional analysis

Load tasks& sparesMedMed

Criticalityreview

High~ 10%High~ 10%

ExecuteMaintenance

Feedback of performance service levels & costFeedback of performance service levels & cost

Comparisonwith agreedBenchmarks

for best practice

Team-based RCMOn critical systems(Reliability Centred

Maintenance)

Specify tasks directly where experience, company


Tasks

Statutoryrequirements

analysisto develop operational

requirementsof systems

& sparesInto

ComputerSystem

DevelopOrganisation

aroundtasks &skills

Med~ 30%Med

~ 30%review

using riskmatrix

Low~ 60%Low~ 60%

MaintenanceProgramme

Guideline figures:Condition-based 55%Planned preventive 20%Design-out 10%Run to failure 10%Statutory 5%

where experience, companyrules or Industry best practice

suggest the way ahead

Structure review Of tasks using thePro-active monthly

forum

Business review


for best practice

Strategy Review 1Strategy Review 1



Gap Analysis

Business review

Functional analysis


for best practice

11 well sites & 1 collection / loading site

Daily output 95,000 barrels of oil, 970te

of LPG and 2m m3 of natural gas

£500m investment - commissioned 1990

Zero planned maintenance on rotating






Zero planned maintenance on rotating

equipment

37 Large pumps & compressors >75kw

62 Medium sized <15kw & >75kw

92 Small sized <15kw

Business review

Functional analysis MedMed

Criticalityreview

High~ 10%High~ 10%


for best practice

oProcess criticality

oCapital cost

oOperating point

oProcess criticality

oCapital cost

oOperating point






Med~ 30%Med

~ 30%review

using riskmatrix

Low~ 60%Low~ 60%

oOperating point

oSafety

oOperational reliability

o(history or generic)

oOperating point

oSafety

oOperational reliability

o(history or generic)

MaintenanceTasks

Business review

Functional analysis MedMed

Criticalityreview

High~ 10%High~ 10%


for best practice


Maintenance)




Tasks




Med~ 30%Med

~ 30%review

using riskmatrix

Low~ 60%Low~ 60%




forum

96 machines vibration monitored

166 machines oil analysed

96 machines run to failure

Planned maintenance on filters

96 machines vibration monitored

166 machines oil analysed

96 machines run to failure

Planned maintenance on filters

MaintenanceTasks

Business review

Functional analysis


Criticalityreview

High~ 10%High~ 10%

ExecuteMaintenance


for best practice


Maintenance)


99.93% availability

150% design throughput

25% lower costs



Tasks




& sparesInto

ComputerSystem

DevelopOrganisation

aroundtasks &skills

Med~ 30%Med

~ 30%review

using riskmatrix

Low~ 60%Low~ 60%





forum

MaintenanceTasks

Review sparesholdings

balancing risk& cost

Business review

Functional analysis


Criticalityreview

High~ 10%High~ 10%

ExecuteMaintenance

Feedback of performance service levels & costFeedback of performance service levels & cost


for best practice


Maintenance)


Complete Review ProcessComplete Review Process


Tasks




& sparesInto

ComputerSystem

DevelopOrganisation

aroundtasks &skills

Med~ 30%Med

~ 30%review

using riskmatrix

Low~ 60%Low~ 60%


Guideline figures:Condition-based 55%Planned preventive 20%Design-out 10%Run to failure 10%Statutory 5%




forum

ThoughtsThoughts

There is no absolute level of maintenance

You can choose how much to do

Its about balancing risk & cost


A BalanceA Balance

2. Plant Acquisition Policy2. Plant Acquisition Policy

Topics Covered

Life cycle costs

Maintainability


Building maintainability into designs

Relationship between capital replacements & maintenance strategy

Plant Life CyclePlant Life Cycle

Installation

Commission

Operation

De-commissionAcquisition


Plant Life Cycle

Need

Sanction

Design Plant in use

Maintenance

Life Cycle Cost ProfileLife Cycle Cost Profile

Opex

Design

Installation & Commissioning

Capex


Sanction Start Up Closure

Operation & Maintenance

75%

100%

% T

OTA

L L

IFE

CO

ST

CO

MM

ITTE

D COMMISSIONING

OPERATION

Life StagesLife Stages


0%

25%

50%

LIFE STAGES

% T

OTA

L L

IFE

CO

ST

CO

MM

ITTE

D

CONCEPTUAL DESIGN

DETAILED DESIGN

PROCUREMENT

COMMISSIONING

Co

st

Acquisition Cost

Life Cycle Cost

Life Cycle Costs & ReliabilityLife Cycle Costs & Reliability


Reliability

Co

st

Operational Cost

ElementsElements

Establish cost of ownership before buying:

Cost of aquisition

o Acquisition, price, delivery, design life

o Installation and commissioning

Disposal, recycle or resale costs


o Disposal, recycle or resale costs

Cost of operation

o Operation, fuel/energy usage

o Performance

o Insurance

o Maintenance labour, contractors and spares costs

Cost of equipment should be kept and analysed throughout the whole of its life

Maintainability and reliability of equipment should be considered carefully in any comparisons as this has a strong effect on

Elements ContinuedElements Continued


carefully in any comparisons as this has a strong effect on downtime

o Access and handling

o Modular replacement

o Fault diagnostic aids

o on-line tools, fault trees etc.

Trade-offs between capital and revenue explored

Plant availability optimised from start up

Production and maintenance fully involved in new projects

BenefitsBenefits


Conscious decisions taken about the maintenance requirements

Asset management strategy is aligned with business needs

Life Cycle Service ContractsLife Cycle Service Contracts

Maximum leverage is when you purchase a major piece of equipment

Agreed supply spares and service requirements in one negotiation


negotiation

Don’t let your supplier deal with separate parts of your organisation i.e. design for new supply, maintenance for service and purchasing for spare parts

Case Study ExampleCase Study Example

Gas turbines for Oil & Gas industry

Purchase contract specifies reliability requirements

Supplier holds stocks of spare parts at his expenses


Supplier’s service department carries out overhaul activities

Re-blading intervals agreed

The Value of MoneyThe Value of Money

Would you rather have $1m today or next year? Why?

The time when we have money available must be taken into account

This is done by a discount rate: the value of money is


This is done by a discount rate: the value of money is discounted if we only see it in the future

Your finance department will be able to give you the figure to apply in your company

Choices Based on Life Cycle CostsChoices Based on Life Cycle Costs

Glass Furnace A

15 Year Life

Purchase cost £1.2m

Energy £100k / year

Glass Furnace B

20 Year Life

Purchase cost £1.4m

Energy £80k / year


Energy £100k / year

Maintenance £30k / year

Refurbishment £50k every 5 years

Cost of quality £10k / year

Rising by £1k every year after refurb.

Energy £80k / year

Maintenance £25k /year

Refurbishment £60k every 10 years

Cost of quality £5k / year

Rising by £1k every year after refurb.

Microsoft Excel

Worksheet

Life Cycle Example Life Cycle Example –– Family CarFamily Car

Factors:

Purchase cost

Running cost


Maintenance

Insurance

Depreciation

Financing cost

What is the best life cycle replacement strategy?

Investigate OptionsInvestigate Options

Ann

ual C

ost


0 1 2 3 4 5

1

2

34

5

Ann

ual C

ost

Age When Purchased

Years Kept

Selected StrategySelected Strategy

Buy three year old cars

Keep them for three years


Then sell them

On going monitoringOn going monitoring

Track running, maintenance costs & reliability

Trim the 3-3 strategy as required:

Sell a poor car early


Sell a poor car early

Keep a reliable, low running cost car longer

Life Cycle Asset ManagementLife Cycle Asset Management

Secret is to do the assessment at the right level

Neither too high nor too low


At the level of a plant process

Life Cycle Asset ManagementLife Cycle Asset Management

Operations& Maintenance

Strategy

Opex, Capex&

Experience

BusinessRequirements

Feedback ofCosts, Condition& Performance

52 7


RCM Studies~ 40 off

Life CycleCost Modelling

Computer Tools

Optimum Capex / Opex

Repair / ReplaceStrategies

RegulatoryRequirements

Opex / Capex& AMP Plan

AssetBase

0 1 2 34 5

1

2

3

4

5

£1,040

£1,050

£1,060

£1,070

£1,080

£1,090

£1,100

1

4

3

10

6 9

8

Repair / Replace ConsiderationsRepair / Replace Considerations

Cumulative Cost

Shortcut to INDEX.HTM.lnk


Age

Repair Limit

Microsoft Excel

Worksheet

Life Cycle Cost IssuesLife Cycle Cost Issues

Requires a fundamental shift in the culture of an organisation

Must have top-level support


Must have top-level support

Non-cyclical business environment required

Getting StartedGetting Started

Establish vital key life costs your assets e.g. for Water Industry pumps these might be purchase price, electricity consumption & maintenance cost

Monitor only these costs on your largest assets

Use rules of thumb & guidelines for the rest


Involve operations & maintenance personnel in the conceptual design stages of projects

Explore both revenue & capital solutions to problems

Use life cycle principles when purchasing equipment covering:

New supply, maintenance, services, up-grades & spare parts

Microsoft Word

Document

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