Maintenance Debt Dictates Your Maintenance Cost

04.12.2017

Most maintenance managers feel the pressure of lowering maintenance costs and at the same time improving reliability. As you know, annual maintenance costs have a strong correlation as to how well basic work processes such as planning, scheduling, and preventative maintenance are executed in our mills, mines and factories. 

Another factor that heavily influences maintenance costs is your existing “maintenance debt”.  IDCON’s definition of maintenance debt is the total cost of repairing all equipment in need of repair.  This equation does not include improvements, only the costs for repair of existing equipment problems.  It is important to remember that the maintenance debt is the sum of all repairs, because a valid maintenance repair job can never be avoided, only delayed.  If you think about that statement, and find it to be true, you will also arrive to the conclusion that you have to pay the maintenance debt, there is no other alternative.

Imagine two identical organizations: ”Efficient Plant” and ”Chaotic Plant”.  For the past 10 years, “Efficient” has kept up, and continuously improved its preventive maintenance (PM), planning and scheduling and other key work processes. Thanks to this dedication they have maximized their resources and effectively managed their maintenance budget; retaining a maintenance debt of $300,000. Chaotic, on the other hand, has spent the last 10 years working reactively, leaving them unable to keep up with repairs. They are falling behind and need to spend $5 million to make all necessary repairs.  The annual maintenance budgets for both plants are identical, and they have the same resources and staff size.  The reliability is at 90% for Efficient Plant and 75% for Chaotic Plant and each plant currently has about 100 craftspeople. 

A fairly typical reaction for many companies in Chaotic’s situation is to reduce the maintenance budget in an effort to minimize the expenses and through this effort show better results (theoretically). The problem? The anticipated results will only last for a very short time. An industrial organization can never avoid a valid repair work order. Sooner or later the repairs have to be done. On top of this, 99.9% of the time, it is more cost effective to repair sooner rather than later, often by a ration 1:3 -1:9. 

Putting a Price Tag on Chaos

So, what is the price tag for Chaotic to reach the same reliability as Efficient? It will cost roughly $4.7million (The difference in maintenance debt between the plants) in maintenance hours and material.  But, for the theory to work in the long term, they also have to implement efficient work processes to be able to maintain that level of reliability. 

If we assume that 30% of Chaotic’s maintenance debt ($1.5 M) is material, and one maintenance hour costs about 60 dollars, the total cost to get to Efficient’s reliability will be 58,333 maintenance hours + $1.5 million in materials. Breaking it down further: 31 full-time employees working a full year (58,333 hours and 1,880hrs/worker/year) + material. 

Alternatively, the repairs can be done over a longer period of time since it may be hard to plan and schedule for that number of people in one year, there is a training period, and other factors that play a role.  One could, for example, add 10 additional people for 3 years.  If Chaotic gets its PM, planning and scheduling implemented in the plant, the additional people will be a temporary need.  A good idea may be to match the incoming “temporary addition” with natural attrition in the work force, in order to keep a trained work force in place? 

table1

Table 1: It will cost Chaotic Plant $4.7 Million including and 31 additional craftspeople for a years and 1.41 Million in materials to catch up with Efficient Plant’s results. The theory only works if Chaotic Plant’s manages to perform as well as Efficient in the future with regards to planning, scheduling, PM and other basic work processes.

P3

Table 2: Three plants of similar size and maintenance budget have different maintenance debt. The maintenance debts are causing plant 1 & 2 to over run their maintenance budget every year.

P4

Table 3: An estimate of the number of work hours that is needed to eliminate the maintenance debt in each plant.

P2

Figure 4: Plant Chaotic needs 31 effort years to reduce the maintenance debt. They decided to use 10 additional people over 3 years. An idea is to add 15 people to the regular workforce and let attrition reduce the workforce back to 100 over 3 years.

 

Understanding the Cost of Maintenance is Crucial

We have an upcoming job with a large corporation, where the maintenance debt plays a key role. Two of their plants have $45/unit higher maintenance cost than the other. IDCON’s task is to analyze why. It is an interesting project and we need to understand how maintenance is run, how finances are reported, and the history of these plants. 

It is important for the project to understand what it costs, and how much time is needed in order to improve the reliability. We inspected a portion of the equipment with knowledgeable in-house personnel and analyzed the backlog with each maintenance department and came up with an estimated value of the current maintenance debt. It is a rough estimate, based on a few sample areas. While an exact sum would be great to have, the most important thing is to initially identify whether the debt is small, medium, or large. The project approach we used can be summarized as follows:

  1. A work process study to deem whether existing preventative maintenance, priorities, planning, scheduling, and basic material management work processes effect the maintenance cost.  
  2. Comparing maintenance costs with another successful plant in order to get a feel for bookkeeping practices.  Verify that similar items are included in the maintenance cost when we compare plants. 
  3. Trying to identify the size of the ”maintenance debt.” 
  4. Collectively documenting a plan, in order to improve the situation. 
  5. Implementation.
  6. Follow up. 

At our initial audit for our client, we estimated the maintenance debt to be $3.5 million, which includes 40,833 work hours in one plant, and $4.2 million and 49,000 work hours in the other. At a third plant, which has much better reliability and lower maintenance cost than the other two, the maintenance debt was only $1/4 million with 4,700 work hours. 

All three plants are about the same size, with around 110 maintenance employees. In the two problem-plants, we can tell it will take 2-2.5 years to manage all the valid repairs needed with an additional 15-25 people, assuming all craftspeople work 1,880 hours per year.

From Analysis to Implementation Plan

After this analysis, we created an implementation plan with each plant, and reached the typical conclusions for reliability improvement projects. In order to effectively reduce a maintenance debt, the plants need to validate all work requests and prioritize, plan and schedule, every validated work order. They also have to make sure preventive maintenance and condition monitoring is in place in order to minimize and identify potential new problems or breakdowns. 

The added benefit of adding an analysis of the maintenance debt is that you get approximate figures of work hours and costs needed to improve the situation. 

The most important piece of the puzzle is that corporate management accepts the identified repairs that have to be dealt with before reliability can be expected to improve significantly. They have created a 3-year plan including an additional expense budget (around 2 million / year/ plant) for the maintenance debt.  Both plant and corporate leadership understand that the biggest risk factor for success is to get personnel in the plant implementing the basic work processes.  But, with strong leadership and some patience, I am convinced they will succeed with this sensible approach.

This corporation’s situation with struggling plants, could describe most of the clients IDCON works with. The only difference is the size of the maintenance debt. The size of the maintenance debt is oftentimes directly related to how well PM and planning and scheduling has been carried out in past years. I hope these thoughts and examples can help you get a grip on maintenance debt, to improve reliability in your mine, plant or mill.

Tor-Idhammar-maintworld

Torbjörn Idhammar, President of IDCON INC in Raleigh NC, USA,
www.idcon.com 

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