Companies seem to revisit this issue with each change of management, whether it is the plant, engineering, operations, or maintenance manager. Based on his or her background, each manager will bring a different perspective on this question. Most managers, even those who may have progressed through the plant hierarchy, will fail to take into consideration the true cost of reactive maintenance. The investment it takes to properly maintain the plant equipment should be financially balanced, comparing proactive costs versus reactive costs.
On one side, there is the cost of proactive maintenance. In most organizations, this is usually easy to calculate. It is the cost of the maintenance labour, materials, tools, equipment, contractors, etc., performed in a proactive (budgeted) mode. This information is tracked in most accounting and budgeting systems.
On the other side is the cost of reactive maintenance (decreased maintenance efficiency and effectiveness) including the unavailability of the asset or equipment. This information is not always known or as easy to calculate.
What is the cost of unavailability or downtime?
It begins with the cost for the equipment to sit idle (operational and maintenance labour, utilities, depreciation, etc.) all of which is lumped into a budget line item called “cost to produce” — but these costs are only the tip of the iceberg.
Additional costs would also factor in the cost of a product not produced on schedule. This impacts the delivery schedule. If the company is going to minimize the impact on their delivery chain, they may have to notify their customers to expect a late delivery, which in a competitive marketplace could result in a dissatisfied or lost customer.
The company may choose to work additional shifts to make up the lost product, which impacts future maintenance and operations schedules. This also incurs additional costs since it requires additional operational and maintenance labor, usually in the form of overtime. It also requires additional energy to operate the equipment when it was originally not scheduled to run. If this energy is required during a penalty period for unscheduled energy consumption, then the cost can skyrocket.
The last three paragraphs assumed that there is unused capacity for the production or process equipment. However, what occurs when the equipment is already at capacity and it fails? How does the company recover the lost production? In some cases, such as the utility industry, they can purchase additional energy from the grid; this is usually at a much higher cost than the company would have produced it. However, in most cases, the lost production cannot be made up and the company must notify its customer that a delivery will be late.
Consider also, the start of the supply chain. If the production process is down in a just in time or lean manufacturing environment, then the suppliers will have to be notified to reschedule their delivery or the company will be forced to accept the delivery and stockpile the material at the start of their manufacturing process.
After considering this newsletter, it must be recognized that proactive maintenance is a more effective business model than reactive maintenance. How much more effective? Wasted reactive maintenance resources may average 30 percent or more than the required resources in a proactive work model. Production downtime losses will average at least four times the wasted maintenance resources. How much will your company be willing to spend to move from a reactive to proactive maintenance business model?
These questions will be topics for discussion in the next newsletters. Stay tuned.
Terry Wireman is senior vice-president of Vesta Partners LLC. You can reach him at email@example.com
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