Strategic Success for Shutdowns
How do the C-Suite leaders ensure they have given the proper direction and support, so that plant(s) have a clear message and guidance on what STO’s mean to their company’s success?
If you ask most C-Suite leaders if they have long range planning, they will commonly respond with a resounding “YES”. This article’s intent is to look at the inclusion of Strategic Asset Integrity as part of the plan. Many times, it is left to the plants to figure out what should be done to “keep it running”.
Challenges without C-Suite Support
This can create problems from the very beginning of the process, due to overall company alignment:
- Plants do what they think is right with little to no direction
- They consequently do it differently from one plant to another
- They do not measure success the same way
- They have budgets and timing “edicts” handed down, with little to no input from plant subject matter experts, as to the work scope needed in the plants to ensure we have the appropriate time and budget to accomplish the right work on the right assets.
- Start dates are moved backwards and forwards, with no thought of the impact to the STO plan that the plant personnel are trying to work to, nor how it affects procurement issues such as locking contract resources, materials, etc., which cost additional money and can have adverse effects on the performance of the STO’s objectives being achieved.
Industries call these events by different names, typically based on which business sector you fall in. Shutdown is typically used in manufacturing and mining, Turnaround is typically used in the energy sector, and Outage is typically used on utilities going down (HVAC, Compressed Air, etc.)
Regardless of what you call it, an STO is essentially a predetermined period, when a defined set of planned activities are to be completed. The work to be accomplished should be activities that can only be performed while the plant is out of service.
Personnel in the plant are the ones who struggle to make these events successful. The question we should ask is why do they struggle to create a plan that will successfully achieve the end results that are expected? Oftentimes, it can be because they don’t know what corporate leadership’s expectations are.
It is very common to see the following types of issues among companies in a wide variety of industries. Below is an example from the Petro-Chemical and Refinery Association. *
- 95 % of post-SD recommendations are not implemented
- 90 % of SDs do not reach expected goals
- 90 % of SDs have scope creep of between 10–50 %
- 80 % of SDs exceed planned costs by 10% or more
- 50 % of SDs overrun
Importance of C-Suite Support
It is critical that STOs are included in C-Suite discussions when determining long range plans. Most C-Suite leaders will ensure they have looked at future trending expectations, such as sales and marketing, new product development, major expenditures for plant expansions, brownfield plant closures, bringing greenfield plants online, etc.
These long-range planning meetings should include plant management, which will provide updates related to long term asset conditions of the existing assets within their plants, which would assist with an overall understanding of the company’s strategies over the next 5 – 10 year’s plans. Which assets will need replacement? What regulatory items will dictate certain timing of outages at the site?
This is a great opportunity for the company’s leadership to develop company goals and drivers, with input from the plant’s leaders, thus gaining an overall alignment as to why the company performs STO’s, what their importance to the health of the company is, and how they support the Corporate Vision and Mission. Only then can the plant leaders can return to their plants with a clear method of communication on what, why, when and how.
Integrated Activity Plan
As C-Suite begins this inclusion to their long-range planning efforts, more effective decisions will made in direct support of their company’s future goals and objectives in coming years. This is called Integrated Activity Planning. (IAP)
As the Integrated Activity Plan is formulated, with input from all functions of the company, decisions can then be made in a more rational and productive manner for all functions. Examples of corporate leadership supporting the company’s long-term strategies include which plant(s) should be taken down at certain times of the year, what sequence should the plants go down, how to best support the market by transitioning product flow in advance of a plant STO event to minimize sales impacts, what major expenditures will be made, based on the function of each facility, etc. These decisions should be influenced by the plants providing their predicted work scope, based on their plant’s individual long-range plans. This will assist in developing viable timing of events, as well as a clearer understanding of future budgeting projections.
Once the Plant Managers have this corporate plan, they can be much more confident in making the proper decisions on how their STO events will be managed, once back at their sites. They will be able to develop their plant’s goals and drivers, which will directly support the long-range corporate plans. This will create significant synergies between the company and the plants. Corporate leaders will have greater confidence that the sites are now managing each site’s STO based on goals and drivers in support of the company’s vision and mission.
Corporate Process Guide
After development of the Integrated Activity Plan, it is critical that corporate leadership supports building a Corporate Process Guide that will be used as guidance to all plants on what a good STO should look like. This will ensure all plants have a clear, standardized path to follow. Of course, each plant will have to make minor changes based on their size and complexity, but the point is, while they may have to perform the functions differently, they should be doing these key functions. This provides a good means for corporate to better compare plant STO performance and results when plants are being reviewed.
Corporate leadership should support building the Process Guide by including plant leadership / subject matter experts. This allows each plant to have input as to the content of the guide, increasing a sense of ownership, as opposed to an “edict” being passed down from Corporate. They are the experts on these events. They know what works and what does not work. Including them will provide a much better process which will create alignment between corporate and the plants, allowing a greater chance at proper implementation back at their site.
These are considerations for the initial phase of STO development. This article touched on topics at a high level, and there are many other details which must be included, but it is meant as a sampling, which hopefully if implemented will assist in ensuring plant asset integrity is properly supported. This will create order for the plants, to support the company with increased asset integrity to support greater production, revenue, and decreased spending.
When strategic plans are developed at the C-suite level, individual plants gain clarity on their ultimate targets. This clarity provides them the ability to set their plant-level STO strategies in support of their company’s vision.
Not only does strategic clarity empower each site or plant to execute shutdowns successfully, it can and arguably should increase safety while optimizing duration and cost.
*WORLD CLASS Shutdown MANAGEMENT LESSONS BENCHMARKING, National Petrochemical and Refiners Association, David W. Fontenot
But the effort to benchmark the maintenance cost/unit produced is quite futile if it is the sole focus. Why? First, because the maintenance cost is extremely hard to compare between plants due to variability of the following:
- Company definition of maintenance cost
- Local tax laws
- Currency exchange rate variations (If comparing internationally)
- Company practices (and ethics)
- The maintenance debt
- Difference in production flow
- Difference in equipment selection and engineering before plant start up
- The age of the equipment
Second, the maintenance cost by itself is not very interesting or even very relevant. Perhaps it can be compared with baseball pitches or ice hockey slap shots, which are roughly the same speed.
A good pitch or slap shot is a tad over 100 mph. Many are obsessed with measuring the speed of a pitch or slap shot, but is it relevant? A little bit, but neither baseball nor hockey is about fast pitches and hard shots, it’s about winning the game. Similarly, the name of the game for any company in the world is one thing, profit! That is why companies exist.
A paper mill in Canada had one of the highest maintenance costs ($ Mtce cost/ ton) in the industry, but they were the most profitable ($ profit/ ton). The mill spent money on maintenance:
- Precision repairs
- The correct materials
- The right maintenance tools for everyone
- Trained their people
- Organized the technical data such as Bill of materials, equipment registers, added work order history, etc.
All these items cost money, mostly temporarily, and increased the maintenance cost. What was their return on investment?
They achieved exceptional equipment reliability and could sell more product. Therefore, the revenues increased a lot more than the total cost even though their maintenance cost was relatively high.
The point is that the maintenance cost by itself is not very interesting to benchmark, and in some cases, completely misleading for any relevant business decision. Sub-optimizing by performing a maintenance cost analysis by itself is a mistake that can lead to poor decisions by top management.
The reality I see is that many maintenance organizations are completely focused on reducing maintenance cost and/or to keep within the maintenance budget. But it is important to understand that if the product manufactured can be sold with a profit margin, meaning that sales price/unit is larger than the cost/unit to produce it, reduced downtime (therefore increased production time) will be more important than cutting the maintenance cost.
It should be mentioned that there are other factors in an organization's operation that are important beside profit and cost. Those factors are not explored in this article since the focus is on maintenance cost. Some examples of other important factors are:
- Quality of the product. There are few things more expensive than poor quality.
- Environmental compliance and awareness
- Follow all regulations including over and above safety and environment
- Leadership ability
- Culture (perhaps just an outcome of all above, but still)
Is Maintenance Cost / Estimated Replacement Value (ERV) the right benchmark to use?
A popular benchmark is the Maintenance cost / Estimated Replacement Value (MC/ ERV). Many consultants have promoted this as a great number to compare between plants. Some have even claimed that 2 percent is “best practice”, or “world-class”. The 2 percent is often used regardless of what industry that is being benchmarked. Referring to the variance in the numerator (if a/b=c, then a is the numerator i.e., the maintenance cost) that we have extensively covered above, we know that the maintenance cost varies greatly. Trying to benchmark the MC/ERV between industries is preposterous and incompetent.
Take a simple example of a conveyor belt that transports iron ore outside in a hot, humid environment to a similar belt that transports wood chips indoors in a northern paper mill. The wear of the belt that carries rock in the sun will be more than the one that carries wood chips indoors. Therefore, the maintenance cost will be higher. A pump that pumps room temperature water wears differently compared to one that pumps bitumen in the oil sands.
Adding to the uncertainty of Maintenance Cost/ Estimated Replacement Value, is the ERV itself. Few plants have a correct number for the estimated replacement value since the actual depreciation of the assets hasn’t been kept up correctly.
Is Maintenance Cost Useless to Benchmark?
No, it is not useless to benchmark maintenance cost. Maintenance cost is an important indicator for a plant’s performance. But, the maintenance cost must be put in perspective with all factors described above. The age, past maintenance performed, the initial investment quality (Life Cycle Costing), and all other factors must be analyzed. It would be impossible to make an analysis that encompasses all the important factors that include maintenance cost. Therefore, the number shouldn’t be analyzed as a “stand-alone” number.
What should, and can, be analyzed is the maintenance cost performance over time in a specific plant without comparing it to other plants. The cost should be analyzed together with a set of additional “balancing” KPIs such as Overall Production Efficiency (OPE), total cost, revenue, etc.
What Should be the Main Goal for a Maintenance Management if it’s not Reducing Maintenance Cost?
Let’s look at the maintenance cost from one more angle. If reducing maintenance cost is the key goal for a maintenance department, it is a very easy goal to achieve. Simply stop doing any maintenance work and your cost will be zero, goal achieved! Some may say that the idea above is silly, no mine, plant or mill would do that. Of course not, but why wouldn’t they?
If you stop doing maintenance work, the equipment and the plant stops running, and your revenue will go to nil.
Plants should define what the outcome of the maintenance department should be. It is a critical discussion to have because it changes the whole approach to maintenance in an organization. The product of maintenance work should not be service, it is not repair, it is not cost. The outcome of maintenance work is equipment reliability.
If the goal for maintenance is to deliver equipment reliability instead of reduction of maintenance cost, high reliability will reduce the cost over time, and you will get the best of both worlds.
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Modern facilities are focused on streamlining production processes while lowering operational costs and eliminating equipment downtime. Managing inventory for different departments within an organization can be nerve-racking. Facilities must maintain sufficient stocks of replacement parts, tools, safety supplies and other consumables needed for Maintenance, Repair and Operations (MRO) activities.