MAINTENANCE MANAGEMENT

Can you compare maintenance costs between plants?

After the series of columns dealing with the emperor's new clothes and benchmarking data, I have received many calls and questions during plant visits. Even though I have commented upon the difficulty of maintenance cost comparisons many times before, I feel that there is a need to further clarify my ideas in this area.

CUTTING MAINTENANCE COSTS THE RIGHT WAY. During the last year, I have worked in many mills where management consulting companies have convinced corporate management that they can help cut $10 million to $20 million from a plant's operating costs. If you take a look at the operating budget, you will see that after costs for raw material-including energy-the cost for labor ranks very high. As there is not much you can do within the plant about the raw material costs, the cutting of labor costs often becomes the focus.

Unless the plant spends capital money on increased automation and rebuilds, the labor cost for operators is difficult to reduce. Leftover is the cost for maintenance, which, as a consequence of increased levels of automation over many years, naturally takes a larger portion of the total cost of labor. In addition to this, top management's and the general consultant's lack of understanding about the impact of increased equipment reliability has caused many failed attempts to reduce maintenance costs over the long term, though short-term reductions have been successful.

One reason for these short-term successes is the mobility of top management. Another is that maintenance costs were often reduced in such a way that the volume of necessary work did not change and the way necessary work was performed did not change.

Since top management is often mobile, they do not end up taking the consequences of future increases in costs for use of contractors, overtime, lost production, deteriorated facilities, etc. It has been proven over and over again that the aforementioned costs will increase if the cutback of maintenance costs is done in the wrong way.

If the focus is instead to improve overall plant competitiveness, focusing on increased throughput of production as decided by the market, I have no doubt that the total manufacturing costs, including maintenance costs, can be reduced continuously.

As long as managers are recognized more for cutting one segment of total manufacturing costs than for producing overall results, plants will not reach their competitive potential. To reach this, the improvement focus should involve both top management and different plant departments.

COMPARISONS. To compare maintenance costs between plants has proven to be very difficult many times over. Not only is it difficult and unreliable, it also usually misses its purpose.

Because comparisons are so unreliable, they result in a lot of discussions about why they are wrong, instead of what you wanted to happen-to see the organization take actions to improve. The purpose of comparisons should be to identify improvement opportunities and to then act upon these opportunities so that results are produced.

One maintenance cost element that makes cost comparisons difficult is what many plants call "major maintenance." This is often defined as maintenance that can be capitalized or written off if so decided. Written off means that it is a maintenance expense and, as such, it is a cost and will reduce taxes. Capitalized means that the cost is an investment that increases the asset value and, as such, it will increase the plant's assets in the balance sheet. As a consequence, the plant will have to pay taxes on this increase in asset value.

In a study of 20 mills, I found that major maintenance was an average of 28%, varying between 11.7% to 56%. It was typical to see that major overhauls of turbines and recovery boilers had been capitalized about 50% of the time and written off about 50% of the time. At the end of a bad financial quarter, it might be tempting to capitalize major maintenance, while in a good quarter it might be good to label it as maintenance.

Without having the hard data to prove it, I am sure that, during times when capital budgets are reduced, maintenance costs go up, because the plants start using the maintenance budget for minor projects that otherwise would be in the capital budget. Organizations can spend a lot of time trying to figure out the right answers to the above just because they are so eager to compare costs instead of to start improving.

Other unclear cost elements such as lubrication, roll grinding, repaired store items, knife grinding, snow removal, etc., confuse the maintenance cost picture even more. So, my advice is to not compare with others too much. Instead, measure your own continuous improvement using some select indicators. These indicators should not only be used to measure results, but also to motivate your employees to do a better job.