September 7th, 2023
Don’t Slack When It Comes To Preventative Maintenance
As we head into the busiest time of the year, fabricators are thankfully reporting that there are no major supply chain issues. However, one thing to keep in mind is the importance of preventative maintenance (PM). Over the last few years of pandemic induced “off the chart” levels of demand, many production managers did not get a chance to keep up with PM because they were under the gun to get units out the door. There was little or no down time to work on equipment and oftentimes parts were simply unavailable due to supply chain issues. It seems that PM was placed on the back burner. Well, if you have not used this year’s slow start to catch up on PM procedures, now is the time to give your critical machinery some much deserved TLC before the busy season gets into full swing.
One thing that continually surprises me this time of year is when I see the train wrecks that occur as a result of preventable equipment failure. Whether it’s a CNC glass cutter, a washer, a saw, welder or corner cleaner, chances are it has many wearable parts that take constant abuse running eight to 10 hours per day in these sweltering summer temperatures. So, what happens, for instance, if you ignore the PM on your CNC glass cutter and it goes down? You have 1,000 windows to produce for the day and no way to cut glass. What is your backup plan? A Fletcher cutter? Not for 1000 windows!
Chief financial officers take note: PM is not a luxury. It is a necessity. Do not be the person that wishes you’d have approved that PM plan submitted by your maintenance manager last year. Perhaps you did not want to inventory common replacement parts, thinking you could get them quickly if needed. Somehow you thought it was just too expensive. Well using our glass cutter example, compare the cost of the PM plan versus the extra cost you will incur buying and having delivered insulated glass, instead of making your own for the next few weeks while you’re waiting for your glass cutter to get fixed.
During the year, I perform quality audits in many of my customers’ facilities. These audits represent an opportunity to hear about different views that my customers have toward PM programs. Some take PM quite seriously. Some do not. My favorite story includes the time I asked a maintenance guy named Louy if his company had a PM program in place. He laughed and said, “Sure, after the machine breaks down, we do a “PM, or post mortem” on it!
The truth is that PM programs actually offer a nice return on your investment. This occurs in three ways:
1. Less overtime pay: Machines run more efficient and at peak levels when maintained properly. Chances of a breakdown are significantly lower. This reduces the likelihood of having to keep workers late and pay overtime.
2. Less scrap/rework and better quality: Reject rates are lower when machinery is operating correctly. When you have multiple machines or lines, pressure is put on other stations to increase output if one machine goes down. Production rates on the remaining machines are pushed past the point at which acceptable quality rates can be maintained. This also translates to higher warranty expenses in the months ahead.
3. Extended life of machinery: Conducting proper PM extends the useful life of machinery, thus lowering the overall expense for replacement machinery during the time frame of the PM program.
So, can we measure the value that a PM program brings to the table? During my graduate work for my MBA, one of my favorite courses was Cost Accounting, so recently I started researching to see if there was a cost accounting approach to measuring the value of PM.
I came across an article written by Wei Koo and Tracy Hoy of Jones Lang LaSalle. Koo and Jones proposed the use of Net Present Value (NPV) to determine whether or not a PM program was worth the cost for any particular piece of equipment. I love their approach and feel it makes perfect sense. Now, for those of you not familiar with the concept of NPV, it is calculated as follows.
One takes the cash outflows and cash inflows for each year over the life of the project and discounts them back to year zero (or present day) using a discount rate, which is usually the rate of return for some safe investment or alternative investment opportunity available to the company. In this case, NPV of the PM program is calculated by comparing the repair, energy and replacement costs for both PM and non-PM scenarios. The costs for each future year are discounted back to present day using the assumed discount rate, and the present day difference between the two scenarios is calculated. The decision is easy – a positive NPV means that the PM program is worth implementing and a zero or negative NPV means that it is not. Koo and Jones ran many scenarios and found that modest annual expenditures in PM helped machinery to last longer, require less frequent replacements, and also lowered the energy bill since the machines ran more efficiently. In most cases the NPV came out with a positive value!
But this approach still does not take into account the possible loss of revenue that might occur if orders are canceled, or if customers are lost when the line breaks down and you cannot ship on time. Losing even a single customer has a long-lasting effect. It takes ten times the effort to win back a lost customer than it does to land that customer in the first place.
So, the moral of the story is: “Don’t slack when it comes to PM!”