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

• nnm@qad.com • Mobile: 404-725-5314

• Email the EAM Community Forum at: enterprise_asset_management_@qadshare.com

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