How SAP’s Two Mobile Apps for Asset Management Differ
Going mobile is a key piece of asset management strategy for many companies. SAP has two mobility options—the classic SAP Work Manager app and the newer SAP Asset Manager. Both are intended to provide workers in the field with easy access to necessary information they’d otherwise need to access in the office. However, the two apps are different in their functionality and deployment options.
First, functionality in Asset Manager is not as robust as Work Manager. This is largely a product of Work Manager being a mature solution with many years of development, while Asset Manager has a limited feature set in comparison. Both will see increased capabilities in future releases.
The Mobile SaaS Experience in Asset Management
Where Asset Manager may be appealing to customers is that it is a software-as-a-service (SaaS) product (Work Manager can be deployed cloud and on-premise) that has been designed to integrate with modern technologies such as Internet of Things (IoT) and predictive analytics. Asset Manager is also designed specifically for modern devices—right now just iOS but an Android app is coming.
Work Manager works on iOS, Android and Windows devices currently. It also has back-end support for both SAP ECC and SAP S/4HANA. Asset Manager does yet have support for SAP ECC, but that is expected to happen soon. Development on Asset Manager is done with a mobile development kit, while development on Work Manager through on SAP Mobile Platform or SAP Cloud Platform
Why does it matter that Asset Manager has been designed specifically for modern iOS devices? That means a more user-friendly native interface. That’s a huge asset—pun intended—for adoption. The easier an app is to adopt; the more likely workers are going to use it.
As for purchasing the two apps—Asset Manager is a subscription-only service, while Work Manager can be acquired via subscription or with more traditional on-premise licenses.
Map View in SAP Asset Manager.
SAP Work Manager Isn’t Going Away
When SAP introduces one app that looks as if it may be intended to replace another app, it’s natural for customers on the older solution to wonder if they will lose maintenance and updates. That’s not the case, according to Karsten Hauschild, EAM Solution Manager at SAP, who spoke at the ASUG Rail SIG event in Orlando during Sapphire Now.
“SAP will continue to invest in Work Manager as long as customers use it—it is not a dead product,” says Hauschild.
So, if you are using Work Manager and you are happy with it, don’t feel like you have to move to Asset Manager just to avoid losing mainstream maintenance and updated functionality from SAP. Instead, look at what your business needs in a mobile app to find which one is best for you.
What’s the business case for SAP S/4HANA? That varies by company of course, but those with a vested interest in SAP Enterprise Asset Management (EAM), there are some clear benefits in making the leap from a legacy system to SAP’s latest ERP innovation.
From the user experience, to analytics and the ability to extend with SAP Cloud Platform, there are key differences in S/4HANA from its predecessors. There are challenges in moving to SAP S/4HANA, though. That’s why Martin Stenzig, Rizing CTO, took to the podium in front of a packed room at SAP-Centric EAM in Austin, Texas to discuss those key topics that SAP customers should keep in mind when considering the leap to S/4HANA.
Combining Mobility and Usability
EAM isn’t commonly something that happens on one laptop or in a single location. For many industries, maintenance is done by field employees, making the challenge of entering and accessing data a challenge—and one that requires mobile capabilities.
However, simply providing mobile capabilities to field maintenance workers does not guarantee adoption. Employees have to be encouraged to use mobile applications, and the best way to do that is by providing a simple user experience that makes work easier.
“The discussion is changing. It’s not anymore about mobility and usability—it is a combination of both,” says Stenzig.
For SAP customers, Stenzig points to the SAP Fiori user experience in SAP S/4HANA as way to take traditional SAP transactions that were tougher to access in SAP GUI and put them in a more user-friendly interface. Fiori is browser-based, which means it is can be accessed on many different operating systems, allowing a field employee conducting on a mobile phone or tablet to see the same screen as their colleague back in the office who may be scheduling the maintenance.
SAP itself point to the Fiori user experience as a key differentiator in asset management on S/4HANA versus asset management on legacy SAP ERP systems. However, Stenzig does warn that a key question to ask when considering Fiori Launchpad—it does require connectivity–as an access point for employees in the field is whether or not they will have access to WiFi or mobile internet.
An important piece of SAP’s plan for how customers deploy S/4HANA is utilizing the SAP Cloud Platform as a way to augment systems that would be considered vanilla by past SAP ERP standards.
“How SAP envisions SAP Cloud Platform is to keep core S/4HANA fairly static and with a sidecar approach transfer tables you need into the cloud,” says Stenzig. “If you want to build add-ons to SAP systems, do it out there (in SAP Cloud Platform).”
Stenzig explains while this strategy makes logical sense, it’s not necessarily easy to accomplish. It’s important to have a stakeholder drive the development on SAP Cloud Platform, because if so the time to innovate is reduced dramatically.
“If you don’t do anything with [SAP Cloud Platform] right now, that’s fine, but you need to get versed on it,” he adds.
Stenzig said the biggest lesson that SAP EAM customers considering a transition to S/4HANA should consider is the importance of training SAP Basis teams for the move. Their tasks change with S/4HANA, going from not just working with the core SAP ERP system, but to previously optional components such as Enterprise Search. Basis teams must also consider working with SAP Fiori, which means different browsers and different security certificates. There’s also the integration with SAP Cloud Platform—these are all things that Basis teams need to know.
“The challenge we see is that Basis organizations simply aren’t trained—that’s not their fault, it’s normal while going to S/4HANA to underestimate that part,” says Stenzig. “Either contract somebody, train individual people, or make it part of the contract that you already have. As a partner, [Vesta Partners] is making it a contingency to make sure your Basis people can do what is required.”
Taking EAM ‘Out of the Stone Age’
Why make all this effort to move to S/4HANA? Well first, Vesta Partners EAM Codex can make the process easier and faster, but aside from that moving to S/4HANA is part of laying the technological footprint that can enable companies to take advantage of new technologies. That means SAP Leonardo and that entails—Internet of Things, blockchain, Big Data, advanced analytics and more.
“You want to get to the point where you can talk about predictive maintenance or digital twins, but you’ll never get out of the Stone Age until you change the foundation,” concludes Stenzig.
The Difference Between Asset Maintenance in SAP S/4HANA vs. SAP ECC
SAP S/4HANA® is SAP’s next-generation ERP, but here’s a little secret: Transactions in legacy SAP ERPs—such as SAP ECC—can be just the same in S/4HANA. Does that mean running asset management with S/4HANA is the same as running it in SAP ECC? Not quite, and the fact that S/4HANA is optimized to run on the SAP HANA database is a key differentiator.
“I hear comments that S/4HANA asset maintenance is the same as ECC, but SAP HANA is why certain things are only possible in S/4HANA,” says Karsten Hauschild, Solution Manager at SAP, who spoke at the SAP-Centric EAM conference this week in Austin, Texas.
The SAP Fiori Impact
Hauschild points to S/4HANA’s user experience, which is driven by SAP Fiori applications such as Request Maintenance and SAP GEO Framework. The former drives maintenance request notifications, while the latter taps into SAP ESRI to run SAP plant maintenance transactions via maps.
“The user experience from a workflow/work order perspective is vastly different from SAP GUI (SAP’s transaction code-driven user interface),” says Hauschild. “That’s from feedback we’ve gotten from current customers—that SAP GUI is ugly.”
There’s also a S/4HANA-specific maintenance scheduling application which is meant to replace SAP Multi Resource Scheduling (MRS) for scheduling individual technicians.
The case for an improved user experience is about expanding the number of employees that can access the data in the SAP system, Hauschild adds. SAP GUI screens that aren’t part of Fiori apps have also been updated to look more like Fiori.
Beyond an interface that is prettier to look at, S/4HANA is also utilizing its in-memory database to drive embedded analytics and what SAP calls “Enterprise Search”—a keyword-based search function. The embedded analytics provide visualizations directly on S/4HANA transaction screens, while also providing automatically calculated KPIS.
Enterprise Search allows users to find transactions and information within the SAP system regarding a term—rather than looking up by transaction codes or work order numbers.
The Same, But Different
As an example of the similarities between the two ERPs, Hauschild says all plant maintenance transactions that exist in ECC are in S/4HANA, and have been since its launch. Overall, an SAP customer moving to S/4HANA from ECC doesn’t have to change business processes, it’s just the way SAP supports those processes from a user experience and analytics point of view—with Fiori, embedded analytics and enterprise search—that is different, he explains.
Now, that doesn’t mean that it will be a guaranteed breeze for customers to move old transactions onto S/4HANA—that process can still be arduous. Fortunately, that’s where Vesta’s EAM Codex solution comes into play, to speed up that transition to modernized SAP enterprise asset management.
The Role of Maintenance in Asset Management – A Terry Wireman Blog
If your organization calculates return on fixed assets, you should be aware of the impact maintenance has on that indicator.
The investment a company makes in its assets often is measured against the profits the company generates. This measure is called return on fixed assets (ROFA). This indicator is often used in strategic planning when a company picks what facility to occupy or the plant in which to produce a product.
Asset management focuses on achieving the lowest total life-cycle cost to produce a product or provide a service. The goal is to have a higher ROFA than your competitor, so as to be the low-cost producer of a product or service. A company in this position attracts customers and ensures greater market share. Also, a higher ROFA will attract investors to a company, ensuring a sound financial base on which to build further business.
It is the responsibility of all departments or functions within a company to measure and control their costs, since they ultimately will impact the ROFA calculation. It is only when all departments or functions within a company work together that the maximum ROFA is achieved. However, it is beyond the scope of this article to deal with all those areas in detail. So, the maintenance function is the focus here.
Maintenance and Asset Management
In what ways does maintenance management impact the ROFA calculation? There are two indicators that may be used to show the impact:
Maintenance costs as a percentage of total process, production, or manufacturing costs. This indicator is an accurate measure for the costs of manufacturing and should be used as a total calculation, not a per-production-unit calculation. Maintenance will be a percentage of the cost to produce, but is generally fixed. This stability makes the indicator more accurate for the financial measure of maintenance, since it makes trending maintenance costs easier. If the maintenance cost percentage fluctuates, then the efficiency and effectiveness of maintenance should be examined to find the cause of the change.
Maintenance cost per square foot maintained. This indicator compares the maintenance costs to the total amount of floor space in a facility. This is an accurate measure for facilities because the cost is also usually stable. This indicator, too, is easy to use to trend any increases over time. If the percentage of maintenance costs fluctuates, then the efficiency and effectiveness of maintenance should be examined to find the cause of the change.
These two indicators show that traditional maintenance labor and material costs will have an impact on the ROFA. However, ensuring the equipment or assets are available can also have an impact. So, there are two main areas to examine: 1) maintenance costs and 2) equipment or facility availability.
Maintenance productivity in most companies with reactive maintenance policies averages between 25% and 35%. These percentages translate into less than 3 hours per 8 hour shift of hands-on activities. Most of the lost maintenance productivity can be categorized into the following kinds of delays:
· Waiting for parts.
· Waiting for information, drawings, instructions, etc.
· Waiting for equipment to be shut down.
· Waiting for rental equipment.
· Waiting for other crafts to finish their part of the job.
· Running from emergency to emergency.
While 100% maintenance productivity is an unrealistic goal for any maintenance organization, 60% is achievable.
The productivity of maintenance technicians can be improved by concentrating on basic management techniques, such as:
· Planning jobs in advance.
· Scheduling jobs and coordinating schedules with operations or facilities.
· Arranging for parts to be ready.
· Coordinating the tools, rental equipment, etc. Reducing the emergency work to below 50% (measured by work orders).
With computer assistance, planning time per job is reduced, resulting in more planned and coordinated jobs. This results in more time for preventive maintenance activities, which in turn helps to reduce the amount of emergency and breakdown activities. The results are fewer schedule changes and increased productivity (by reducing travel and waiting times). Organizations that are successful in achieving good maintenance labor controls experience significant increases in labor productivity.
Material costs are related to the frequency and size of the repairs made to the company’s assets. The sheer number of parts, in addition to stores policies, purchasing policies, and overall inventory management practices contribute to overall costs of maintenance materials. In some companies, little attention is paid to maintenance materials, and inventories may be higher than necessary by 20% or 30%. This increases inventory holding costs and makes materials unnecessarily expensive. Sometimes, the inability of stores to service the maintenance department’s needs results in “pirate” or “illegal” storage depots of “just-in-case” spares. This practice also drives up the cost of maintenance materials.
Good inventory controls enable companies to lower the value of the inventory and still maintain a service level of at least 95%. Such levels enable maintenance departments to be responsive to
the operations or facilities groups, while increasing their own personal productivity. Organizations that are successful in managing their maintenance inventories typically average 19% lower material costs and an overall 18% reduction in total inventory compared to companies that have not focused on this area.
Equipment or Facility Availability
Consideration of equipment or facility availability reveals the connection between asset management and maintenance management. Downtime cost for equipment may vary from several hundreds of dollars per hour to literally hundreds of thousands of dollars per hour. These costs are due to lost production from assets and/or lost or reduced efficiency (or occupancy) of a facility.
In some companies, levels of downtime run beyond 30%. Such levels result in lost sales opportunities and unnecessary expenditures for capital equipment. In general, the organization is in a weak competitive position.
By committing the organization to good maintenance policies and practices and using its computerized maintenance management system as a tracking tool, management can reduce equipment downtime. The result is more throughput, and more throughput enables the company to get more products or services from its assets, resulting in lower production costs and a higher ROFA.
Maintenance and ROFA
If asset management is a focus for your organization, it is possible for the maintenance function to contribute to overall plant profitability. While it takes cooperation and focus of all departments and functions within an organization to be successful, the maintenance department can have a dramatic positive impact on ROFA.
Since maintenance is typically viewed as an expense, any maintenance savings can be viewed as directly contributing to profits. By achieving maximum availability from equipment, a plant or facilities manager ensures that a company does not need to invest in excess assets to produce its products or provide its services. This result is a good indication that a company is truly managing its assets.
Zero Breakdown Strategies – Step 5 – Preventing Human Error
Preventing human error will exist in at least two areas. The first to be considered is operations. If a piece of equipment is observed to be mis-operated, what really is the cause of the mis-operation?
* Is it a possibility that the operator was never trained correctly to operate the equipment?
* Isn’t it possible that the equipment was not designed for operability?
When these are observed, isn’t it possible to provide some form of interlock to prevent mis-operation?
The real cure to preventing mis-operation of the equipment is to develop standardized operating procedures and insure that all operators are trained to operate the equipment identically.
ISO-9000 standards require that the operators are to be trained to such a level that when they rotate from equipment to equipment, there is not the slightest variation in the quality of the product produced. If this was really accomplished in companies today, two things would occur. First, the operators would be so skilled that product quality would never be an issue (an ISO-9000 objective). Secondly, any equipment deterioration would be quickly identified and corrected before it reached the level where it would impact product quality (another ISO-9000 objective).
Unfortunately, there are very few structured operator training programs in industry today. Most are word of mouth, on-the-job training, or learn as you do programs. Structured operator training program with testing for skills proficiency would eliminate most of the operator errors in industry today.
What if the human error lies in the maintenance department? Then again, ask what caused the mistake? Isn’t possible that there are:
1. poor working conditions
2. poor tools and equipment
3. poor support structures
4. poor troubleshooting information and procedures
So when examining maintenance errors, consider the working conditions. It is usually hot, dirty, and dark when maintenance makes most repairs. Is it easy to make a mistake in these conditions? The answer, of course is “Yes”. So can the conditions be improved to make it easier to make repairs without making mistakes? The answer again is “Yes”!
Improving tools and equipment is important also. There are new technologies, new tools and new equipment that can help maintenance make repairs more accurately and quickly than the past. Are the maintenance departments using those tools at all plants and facilities? Definitely Not! In many plants and facilities, the attitude is negative about the maintenance function and subsequently they never get the tools and equipment necessary to achieve “World Class” levels of performance.
Consider also from a design perspective, are proper support structures such as auxiliary hoists and booms put in place when the equipment is installed? If so, this will make repairs much easier and quicker. In many plants and facilities, something must be rigged up each time the repairs to be made. This impacts the amount of time it takes to do the repair and increases the related downtime.
Consider to the age of the workforce. If the experienced individuals in the workforce work to leave, how would current workforce cope with that loss? Is it possible to develop troubleshooting flowcharts, and guides to help assist inexperienced individuals in troubleshooting, thus shortening repair times?
Artificial intelligence systems are currently being developed for maintenance. This may be the way of the future to help eliminate unnecessary equipment downtime.
All of these issues must be considered before automatically considering a particular problem is a design problem. In many cases companies will blame chronic equipment problems on the design engineer or the equipment manufacturer. Upon closer examination, it is found that in most cases the root cause of the problem is a maintenance or operational issue. It is key that these issues are addressed before attempting to redesign the equipment/ asset.
Consider in your plant or facility if all of the steps to zero breakdowns were the focus of improvement initiatives, what percent of all of your equipment failures would be eliminated? And how much time and resources would you have to focus on TRUE equipment/ asset problems? And:
What would your investment in a zero breakdown strategy improvement initiative actually be?
“For the longest time GIS and SAP EAM were continents all onto themselves. Each contained many little countries but nobody from one continent would talk to anybody from the other, except for the occasional letter from an aunt. This is analogous to the way enterprise applications work in many organizations. While they are often viewed in a similar way, as large software applications, at best they perform different parts of similar tasks. More commonly they do different things, employ different practices, workflows and methods, communicate in different languages and utilize varying modes of governance. While the different continents analogy makes initial sense, when you dig into the capabilities and uses they look more like different planets.
Companies often use GIS and SAP for different purposes even if they are part of the same workflow. At its most basic level, GIS is used to add location to business processes. The majority of business data has a location component and GIS imbeds the “spatial factor” into operations. Companies employ GIS systems to map their assets, and it is the platform for querying infrastructure attributes. It is used as the foundation to build applications for regulatory compliance, integrity management or field activities like asset or environmental inspections. Having a geographic view of these processes makes the solutions significantly more effective. It is imbedded in complicated analyses like risk assessment or financial management because it is the “magic” ingredient that exposes critical, previously unseen, relationships. GIS is in emergency management and control rooms because geography turns complicated data into powerful, vital and quickly understood information. Implementations have proven that GIS improves an organization and makes it easier to operate effectively.
SAP on the other hand manages a separate yet linked series of vital functions. Companies implement SAP for enterprise resource management. It is a powerful solution and when an implementation is complete it can revolutionize almost every major process in an organization. It provides the consistency and captures the details critical to any organization’s business processes. SAP has the functionality to create and maintain an Asset Register which is used as the foundation for enterprise asset management. It defines the process and facilitates the purchasing of materials and then supports critical equipment traceability to eliminate potential disasters. It is the tool that integrates work management with finance and supply chain so that valuable financial decisions can be made and systems can be in continuous operation…”
Zero Breakdowns Strategies – Step 4 – Improving Design Weaknesses
Design weaknesses can be improved in the equipment by strengthening the various parts to extend component life. This may take the form of some type of wear resistance, where a material is changed in a high wear area to a material that has a higher wear rating than the components around it.
Corrosion resistance may require the changing of material that is more corrosion resistant than the material around it to improve the process reliability. There may be occasions where stress in the design of the components is the issue and the design must be changed to minimize the existing stress and fatigue.
It may also be necessary to change materials and shapes of items so that they increase their reliability there may also be the need to improve assembly accuracy so equipment is assembled correctly. While all of these are great ideas to improve design weaknesses, there is one major problem with assuming a design weakness. How many people really know the true design life of basic components?
For example, what is the design life of a V-belt. In some companies V-belts are changed every three to six months, and this is a waste of manpower, spare parts, and equipment capacity. The true design life of a properly rated, properly installed, and properly maintained V-belt is three years of continuous operation or 24,000 hours. Yet, many companies change V-belts much more frequently.
However, this is not a design problem; it is usually an installation and maintenance problem. For example, how many companies really follow the proper design procedure outlined by the manufacturer when installing a V-belt? Usually it is a small minority. Installers may pry the belts on, run belts on, jog units to get belts on, but they do not follow proper procedures. They seldom check alignment, they seldom the check tension properly, or they seldom check for sheave wear. All of these can be root causes of major reductions in the belt life.
Another example is roller chain. The design life of roller chain properly installed properly rated and properly maintained is seven years. Roller chain installed improperly and not properly lubricated has an expected life of nine days. This is a tremendous difference in life expectancies. It is not a design problem, but more likely it is going to be a maintenance and installation problem. For example, some companies will continue to install a new roller chain over worn out sprockets. A chain and sprocket should be changed at the same time (a maximum of 3 replacement chains can be achieved). While this may seem excessive, it is the recommendation. (Just ask any motorcycle owner)
However, some companies may find that they can allow one sprocket to wear out 4 or 5 chains before changing the sprocket. In reality, it must be kept in mind, that when the chain is worn out, a similar amount of hardened material is worn from the sprocket. The tooth geometries changed as the chain the wears against them. Once the chain has worn, the tooth geometries are changed enough that it will increase the wear on the second chain, a corresponding increase will occur for the third chain, and the fourth chain, accelerating the wear until the chain fails very shortly after installation. It is only by understanding proper installation and maintenance practices around these components that design weaknesses can ever truly be identified.
Bearings are another example. How many bearings in a typical plant actually achieve the L-10 rating of the bearing? In most cases the bearings never achieve the design life, simply because they are mishandled installed incorrectly, or maintained incorrectly. One study showed that less than 5% of pump bearings in the petrochemical industry ever reach the L-10 rating. The actual rating is over 15 years, yet the majority of the bearings (95%) average just over a year of actual usage. Some companies changed bearings on a weekly or monthly basis and, when in reality they should be achieving years of use from the bearing.
Another study showed that just about 2/3rds of bearing failures are caused by user induced problems. These problems would include maintenance issues, operational issues, and construction/installation issues.
Best or Worst Practices?
In examining this ZBS step, it must be asked what atrocities do most employees commit against the basic components that prevent achieving design life?
For example, do you see plant technicians installing bearings with hammers? What impact does this have on the design life of the bearing?
Have technicians ever been observed welding on the same plane with bearings allowing the electric arc to pass through the bearing? This again, dramatically shortens the life of the bearing.
In the case of roller chain, repair sections are placed in chain or special links are put in chain. This introduces different forces in the chain drive that accelerate the wear. The chain will experience tight loads and light loads as the worn and new chain simultaneously operate. This creates tremendous wear on all affected components.
All of these issues must be considered before assuming a particular problem is a design problem with all components. In many cases companies will blame chronic equipment problems on the design engineer or the equipment manufacturer. Upon closer examination, it is found that in most cases, the root cause of the problem is a
maintenance or operational issue. These issues should be addressed first, then the true design error will be clearly identified. Then the design problems can be dealt with properly.
However, as a final note, do not assume that chronic equipment problems are always design issues. Most equipment problems are related to a basic root cause already mentioned in these blogs. If these issues are examined first, the solutions can be quickly implemented. This process will then make available resources to concentrate on solving what are really design problems.
Will YOU Choose What is Behind Door #1 or Door #2? – A Terry Wireman Series
The choice is there – so let’s choose carefully. In my last blog, I discussed how to find the $100K per year job. This blog is going to continue that theme with some additional references and successes from individuals that are working towards the $100K job.
In Germany, they average 40 apprentices per 1,000 workers. In the United States the ratio is 3 per 1,000 workers. Youth unemployment in Germany is less than ½ of what it is in the United States. Would more apprenticeships reduce youth unemployment in the US? Which door will YOU choose?
So what is the point? Consider these questions – Does everyone need to go to college to be considered successful? Is there an alternative path to having a successful life without a college degree? If there is another path, how many high school guidance counselors steer their students toward this alternative path and career? How many parents would propose this alternative to their children?
A typical graduate from college in 2014 left campus with a debt load of $31,000.00 and started to work on a job that averaged $45K per year. Apprentice School students emerge debt free and will make on average $55K on their first job. Which door will you choose?
In many cases parents and guidance counselors think anyone can be an apprentice- and they want their children (or students) to be special. But can apprentices be considered special? The Apprentice School has 4,000 applicants for 230 openings annually. This gives the Apprenticeship School about the same admission rate as Harvard (and without the student debt). It that something to be ashamed of? I think not. The last year of school, the apprentice will make $54K. Which Door?
In the article link at the end of this blog, there is a quote from a Mr. Perez where he says “At the educational level, we need a comprehensive strategy to change the hearts and minds of parents,” Mr. Perez said “There are highly selective, four year colleges that are easier to get into than many apprenticeship programs.”
So we see that the trade-offs between college and an apprenticeship inevitably raise one of the thorniest educational and economic issues today: Who should or should not go to college?
“If you’re in the two thirds of the population that don’t have a college degree, how do you feel if someone says to be a success, you have to have it?” Mr. Petters (Quoted from the reference below) said. “It shouldn’t be a requirement for a middle class life. We have people in our organization who don’t have a college degree and are great, who’ve raised families and had great lives.”
One apprentice said that many of his high school friends who have graduated from college are back home living with their parents. By contrast at age 23 he owns his own home has no student debt and is making over $18.00 per hour. I know which door I would want my children to choose…
Understanding the “Impact” Cost of Reliability and Maintenance
In previous blogs, I have discussed the cost of inefficient maintenance practices and the impact they have on a company’s expenses. In this blog, the focus will change from maintenance costs to what I refer to as “The Impact Cost of Reliability and Maintenance”.
When considering the impact costs, consider this scenario: A production plant in a sold out condition. Everything that can possibly be manufactured is being sold to customer. If a production line or critical piece of equipment fails (unreliability) during the production run, the production is halted until the equipment is repaired and returned to service (reactive maintenance).
What did the production disruption cost the company? Was it the total lost sales dollars or was it only the profit that was lost? First consider the difference between lost sales revenue and lost profits. Profit is usually calculated by taking total income (sales) and subtracting total expenses (salaries, energy, etc.) and what is left are the profits. If the production disruption reduces the total income by lowering the possible sales volume, then lost sales would have to be a factor in calculating the impact of the production disruption. This reduces the numerator in the impact calculation.
At the same time, the expenses may also be increased during the production disruption. There may be overtime for the maintenance technicians making the repair and there could be product loss in quality or quantity (particularly in a continuous process operation). These increased expenses impact the denominator in the impact calculation.
While this may seem simplistic, very few organizations consider all of the parameters when considering the cost of lost production. Visualizing the problem becomes more clouded when a plant is not in a sold out condition. Now the impact on lost sales revenue becomes a matter of debate among managers (especially financial managers). Can the lost production be made up and still meet the customer delivery in a timely manner? If the answer is “Yes”, then the sales volume may not be impacted. However, the profit component of the calculation will still be impacted, since expenses will be increased to make up the production. This is true since the equipment will now have to be operated when it was scheduled to be shut down. So there will be increased labor costs (usually at an overtime rate) and increased energy costs. There is a possible increase in raw material costs, since the supply chain demand will fluctuate. So again, the true profits of a company will be impacted negatively.
There is yet another scenario: What if the company has an extra line or excess capacity? Can the production crew be moved over to the spare line and run the product without any impact on profit? Possibly, but this line of reasoning leads to a much larger problem: A poor financial standing with investors. Why? Simply stated – profits are only part of the picture.
A higher level indicator used to evaluate companies today is Return on Invested Capital (ROIC). This indicator is utilized in Industry Weeks Best Plants program ROIC is – in its simplest form – the profits a company generates versus the invested capital that is being used to generate the profit. A quick analysis of this calculation would show that a company that uses fewer assets to produce the same profits as a competitor would be viewed as a better investment by Wall Street. So back to our position at the start of this blog – Would assets that are more reliable (higher output) and have a lower cost to maintain (lower life cycle cost) be more valuable to a company? The answer would clearly be “Yes”. The impact cost in the form of fewer assets and increased profits (ROIC) would make the company a much more attractive investment for the financial community.
How much of an impact does your reliability/ maintenance organization have on your company’s assets that are utilized produce its product? This is the TRUE impact cost that companies must focus on to maintain a competitive edge.