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Achieving Operational Excellence
Nancy Majure – EAM North America
Revision 2.1
Proprietary and confidential. Property of QAD, Inc. Not to be distributed or reused without prior written consent from QAD, Inc.
• Maintenance and Reliability Overview • Managing On-Time and Within-Budget Projects• MRO Inventory and Purchasing – Getting Control
of Operational Costs • Optimizing Plant Performance and Improving
Capacity• Appendices
Content
• Understand and be able to express the benefits of improving Asset Management processes
• Take away tips that can be acted on today • Develop a long-range vision to elevate your plant
operations to best practice or even world class
Goals of this Seminar
Maintenance and Reliability Overview
• Acquisition Cost (or Capital Costs)- Internal Labor, Purchased Materials, Subcontractor
Costs, Internal Material, Expenses- Obtained during Design, Construction, and
Commissioning
• Total Cost of Ownership - Internal Labor, Purchased Materials, Subcontractor
Costs, Internal Material, Expenses- Obtained during Operation and Maintenance
• Maintenance Cost - Acquisition Cost + Total Cost of Ownership
• Replacement Asset Value (RAV)- Usually from Insurance Carrier or Engineering - What it would cost to replace your facility
Important Values to Know
First Step – Where are You?
CM
PM
100%
0%
>85%
<15%
PM
CM
ReactiveWorldClass
BestPractices
Stage 1Run to failureNo records
Stage 2PM Critical Assets (Cal)No CM recorded
Stage 3PM Program (Cal)Some CM recorded
Stage 4PM (Cal & DUOM)All CM recorded
Stage 5PMs and PdMsAll CM recorded
1Benchmarks Best Practice1 World Class1
Schedule Compliance 30% - 50% >90%
% Planned Maintenance 10% - 40% >85%
Production Breakdown Losses 5%-12% 1%-2%
Maint Cost as % of RAV 3%-9% 2.5%-3.5%
MRO Cost as % of RAV 2%-4% 0.25%-0.75%
“RAV” = Replacement Asset Value, usually from insurance carrier
Benchmark – Very Reactive & Basic
1Benchmarks Very Reactive (est.)
Basic Maintenance Program (est.)
Best Practice1
World Class1
Production Breakdown Losses 25%-30% 15%-20% 5%-12% 1%-2%
Maint Cost as % of RAV 25%-30% 15%-20% 3%-9% 2.5%-3.5%
MRO Cost as % of RAV 15%-20% 10%-12% 2%-4% 0.25%-0.75%
Benchmark – Simple Example• QMI Manufacturing
- RAV = $10,000,000- Annual Sales = $100,000,000
1Benchmarks Very Reactive (est)
Basic Maintenance Program (est)
Best Practice1
World Class1
Production Breakdown Losses $25 - $30mil $15 - $20mil $5mil - $12mil
$1mil - $2mil
Maint Cost as % of RAV $2.5 – $3mil $1.5 – $2mil $300k - $900k
$250k - $350k
MRO Cost as % of RAV $1.5 - $2 mil $1 - $1.2mil $200k - $400k
$25k - $35k
• Reliability (R)- “The probability that an item will perform its
intended function for a specific interval under stated conditions.” (p. 20)
- Strategic task - Design feature
• Maintenance (M)- “Objective is to sustain asset reliability and to
improve its availability” (p. 4)- Tactical task
Understanding Maintenance & Reliability
• Ensure plant and its assets are available when needed in the most cost effective way with the highest quality to meet customer expectations
• Industry Leaders - Quality producers of product- With very competitive cost - Known to have the lowest maintenance costs
as a percentage of RAV (p. 6)
• However . . . there is a cost to get there
Maintenance & Reliability (M&R) Goal
M&R in Asset Lifecycle
Commission
Operate
Maintain
Retire / Replace
Design
Construct
Project Controls
Asset Management
Equipment & Asset
Life-Cycle
Acquisition Phase: Budget Controls,Acquisition Cost,Reliability &Maintainability
Operation Phase:Maintenance,Cost of Ownership
Managing On-Time and Within-Budget Projects – Capital and Expense
• Budgetary control PLUS . . . • Design
- Reliability (measured by MTBF)- Maintainability (measured by MTTR)
• Construction - Standardized Spares - Accessibility
• Commission - FMEA - RCM - BOM- Maintenance Plan
What is Project Control?
Types of Projects • Capital
- Profit enhancements- Increase capacity - Replacement
• Expense- Annual rebuilds- Marketing / Legal / etc.
• Customer Funded - Tooling - Prototype - Very common in
Automotive Verticals
• ETO (Engineer to Order)
Key Characteristic: Results in New Asset(s)
Key Characteristic: No Assets created
Key Characteristics: -Customer owns Asset-Customer pays you to build new production line to produce a part for them. -Customer will reimburse you for the cost to build the new production equipment. -When project is complete, the production line stays at your facility, BUT you do not own the production equipment – the customer does.
Key Characteristics: -Build equipment to customer specifications -Scheduled reimbursement payments from customer-At completion of project, ship equipment to customer
• Electronic approvals • “On Time, Within Budget” • Real-time financials • Streamlined month end reconciliation • Scheduled supplier payments • Scheduled customer reimbursements• True acquisition cost • Designed using history• Built-in reliability and maintainability • Formal commissioning and hand-off
Project Controls – Best Practices
• Budget vs. Actual Performance • Estimate vs. Actual • Margin (customer funded & ETO projects) • Month-end reconciliation (time and
variance)• Project close reconciliation (time and
variance)
Project Controls Benchmarks
• Identify all data collection points for project budget controls & consolidate
• Ensure all costs are collected • Determine average margin (ETO &
Customer Funded)• Review estimates vs. actual spend • Formalize commissioning process • Formalize asset hand-off • Develop plan for continuous improvement
Project Controls – Low Hanging Fruit
MRO Inventory and Purchasing – Getting Control of Operational Costs
• “MRO” – Maintenance repair operations • Repair parts plus . . .
- Internally fabricated parts - Supplies - Consigned / Vendor-Managed - Free-issue / Company Catalog
• Goal is to ensure right parts are available - at the right time - at the right price - in the right quantity - to sustain availability of plant assets
What is MRO Inventory and Purchasing?
• Integrate inventory, purchasing, and maintenance planning systems
• Utilize EOQ analysis to refine min/max/re-order points
• Secure inventory and improve physical layout
• Automate stock replenishment to free purchasing for more strategic activities
• Link parts to where used • Understand difference in Indirect Inventory
practices
MRO Inventory & Purchasing Best Practices
• Order processing costs can vary between $20 - $200 per order over the actual purchase cost
• Cost of stocking and holding an item in inventory can be as much as 30% of item cost per year
• Maintenance resources can spend as much as 20-30% of their time searching for parts
• Organizations that have high hidden inventory have a reactive culture
• MRO Inventory in a reactive environment can account for up to 50% of overall operational costs
MRO Inventory & Purchasing Facts
• Inventory Turns - Turns = (Inv Issue in year) / (Avg Inv)- Avg Inv = (Beginning + End) / 2 - Healthy value is around 2 turns per year for MRO
• Inventory Accuracy - Best Practice > 95% (p115)
• Maintenance Material Cost as % of RAV- Best Practice 2% - 4% - World Class 0.25% - 0.75%
• Stock Out Rate - Best Practice 5% - 10% - World Class 1% - 2%
MRO Inventory & Purchasing Benchmarks
Inventory & Purchasing – Low Hanging Fruit
• Secure and control access to inventory • Eliminate personal stores areas• Move “free issue” items out of crib• Provide an inventory return area • Tend to physical layout of stores area • Identify all stocked parts• Consolidate vendor base • Negotiate contract pricing • Begin developing justification for stores
clerk• Develop plan for continuous improvement
Optimizing Plant Performance and Improving Capacity
• Ensuring that assets are available when needed at optimum capacity in a cost effective manner
• Drivers:- Increased output with the same assets- Reduced need for capital replacement- Reduced maintenance cost per unit - Reduced total cost per unit - Improved performance (cost, productivity, and
safety)- Increased competitiveness- Increased market share
What is Asset Maintenance?
• Record all work – PM and CM • Collect all costs to the asset and task level • Plan work • Schedule work • Implement robust PM program
- Predictive / Condition-Based - Technology to detect potential failure - Defined in FMEA and RCM activities
• Empower resources to report issues themselves electronically
• Change culture from reactive to proactive
Asset Maintenance Best Practices
• Unplanned work costs 2-3 times more to execute• In general every hour of planning saves 1-3 hours in
work execution• Reactive emergency mode activities cost 3-5 times
more than non-emergency• Actual maintenance craft productivity can vary
between only 30-50% of actual paid time • An average of 80% of an asset’s Life Cycle Cost (LCC)
is incurred during the Operate & Maintain phases• An average of 40% of failures are due to operator
error• Organizations with high schedule compliance also
have high uptime and asset utilization rates
Asset Management Facts
• Overall Equipment Effectiveness - OEE = Availability x Performance x Quality - Best Practice: 85% - World Class: 98%
• Schedule Compliance = Scheduled Tasks Completed / Total Scheduled Tasks - Best Practice: 30 – 50% - World Class: >90%
• Planned Work = Planned Tasks / Total Tasks - Best Practice: 70 – 85%- World Class: 85 – 90%
Benchmarks
• Reactive CM Unscheduled = Unscheduled Work Time / Total Time- Best Practice: 20 - 40% - World Class: <10%
• Overtime - Best Practice: 6 - 10%- World Class: <5%
Benchmarks 2
• Production Losses Due to Breakdown- Best Practice: 2 – 5% - World Class: <1%
• PM Compliance Target: PM Completed with +/- 10% of frequency- Example: 30 Day PM’s should be completed
within +/- 3 days of due date
Benchmarks 3
Asset Maintenance – Low Hanging Fruit
• Identify all equipment & hierarchy• Formalize a PM program • Start the culture change • Begin recording all work • Select and Publish Monthly KPIs such as:
- PM:CM ratio - Maintenance Unplanned Downtime - Top 3 Failures & Root Cause - % Schedule Compliance
• Initiate FMEA for most critical equipment to refine PM program
• Develop plan for continuous improvement
Conclusion – Where Do You Go From Here?
Determine Your Current State
CM
PM
100%
0%
>85%
<15%
PM
CM
ReactiveWorldClass
BestPractices
Stage 1Run to failureNo records
Stage 2PM Critical Assets (Cal)No CM recorded
Stage 3PM Program (Cal)Some CM recorded
Stage 4PM (Cal & DUOM)All CM recorded
Stage 5PMs and PdMsAll CM recorded
Functional Area Estimated Stage
Project Controls
Purchasing Processes
Inventory Controls
Plant Maintenance
• North America QAD EAM Director: - Nancy Majure
• [email protected] • Mobile: 404-725-5314
• Email the EAM Community Forum at: [email protected]
Questions?
• 1 Maintenance and Reliability Best Practices by Ramesh Gulati, Industrial Press, Inc, 2009
Appendix – Footnote
• Society for Maintenance and Reliability Professionals www.smrp.org
• Reliability Web www.reliabilityweb.com • Uptime Magazine • Plant Services www.plantservices.com • Practical Plant Failure Analysis by Neville
W. Sachs, P.E., CRC Press, 2007 • Reliability Based Spare Parts and Materials
Management by Don Armstrong, IDCON, Inc., 2008
Appendix – Other Recommended Resources