Can maintenance be a profit centre?
We all know the need for maintenance will never go away. And it seems that every maintenance department in the country needs more money to meet its targets. But what if you could tell management that if it let you have the budget you really...
We all know the need for maintenance will never go away. And it seems that every maintenance department in the country needs more money to meet its targets. But what if you could tell management that if it let you have the budget you really want, the maintenance department could end up saving the company a lot of money, putting more profit on the bottom line? That would get their attention. And it should give you all the assets you need for a successful and smooth-running maintenance operation.
First of all, the concept behind this scenario is based on the fact that a small amount of money saved generally puts a large amount of money on the bottom line of a corporate spreadsheet.
Ralph W. “Pete” Peters of the Maintenance Excellence Institute puts it into perspective, as follows. Based on an assumption that an organization’s net profit ratio is 4%, that means it needs $25 of sales for each $1 of net profit generated.
That also means if you could save $40,000 in the maintenance department, for your company that would be the same as having an extra $1 million in sales revenue. The bean counters would certainly like those numbers.
There are several avenues to explore to enhance a maintenance budget: Improving craft productivity, increasing equipment uptime, reducing maintenance storeroom inventory, getting better pricing from suppliers, or improving equipment life are just some plausible examples.
For example, by using a computerized maintenance management system (CMMS) to improve craft utilization – having the right skills and carrying the right tools to the right job at the right time – could result in a net gain of craft productivity of 20%. If your shop has 40 craftsmen averaging a wage of $35,000 a year, that 20% increase could save $280,000 a year. Or you may instead forgo the labour savings and get the backlog of work orders cleared and have more time for predictive/preventive maintenance, versus breakdown work.
Clearing all those outstanding work orders would likely result in increased equipment uptime. Say downtime was reduced 25% (from 8% to 6%). In an operation where the value of downtime was estimated to be $800,000 annually, a 25% increase in uptime would put $200,000 of value on the bottom line.
Being better organized also can reap large financial benefits. If the inventory of spares in the maintenance storeroom could be cut by 25% – for example, from $1 million to $800,000 – the carrying costs for all those extra items would be eliminated. Assuming carrying costs of 30%, that $200,000 savings would put $60,000 on the bottom line.
Of course, you may want to use these savings to invest in a CMMS, training, or test and measurement equipment that will give you the improved troubleshooting capabilities and productivity gains you need. In this case, the cash on the bottom line can come later, but meanwhile, you’ll be well on your way to a smooth-running operation and to achieving a world-class standard in maintenance – without begging the boss for a bigger budget each year.
It’s certainly worth a try.
Bill Roebuck, Editor & Associate Publisher