Being able to take the next step in executing a reliability strategy often entails quantifying the value of taking on the effort. Often, there are subjective measures assigned, such as internal or external audit criteria, and some score that comes because of these audits. Where the rubber really hits the road is when we can connect the dots between what we are trying to accomplish and some clear and measurable source of value.
Why is it so Important to Measure Value?
Value comes in many forms, a few of them subjective and many of them quantifiable. The value that is quantifiably measured provides several distinct advantages over some subjective description of our performance, as can be seen below.
Quantifiable Measures of Value Enable:
• Common Goals: A clear, indisputable indication of where we have been (the past), where we are now (the present), and a goal we are trying to reach (the future).
• Accountability: With quantifiable measures of value, the debate is severely lessened, and you can rally the team around a common cause.
• Business Case: Most importantly, when seeking support, quantifiable measures of value allow you to build a business case, with an associated return on the investment, making the possibility of receiving the green light even more likely.
Sources of Value
Given that these quantifiable measures of value seem to be so important, how do we go about establishing them. While it may be easy enough to find a long list of established measures, finding those measures that best apply to you and your organization may be tricky. Expect endless debate about what is applicable, what is fair, and what truly reflects your performance when establishing these measures of success.
While overall equipment effectiveness (OEE) may be the prime standard for an automotive manufacturing plant which practices discrete manufacturing, it is not commonly used in process industries, such as an oil refinery, where the high level of equipment redundancy and difficulty in discerning the difference between one unit produced and the next is challenging. In the latter case, measures like availability and throughput seem to have more meaning.
The truth is we all must find our own way, leaning on those that came before us, and finding that combination of factors that allows us to place a finite numerical value on what we have achieved.
The SQCDM model helps to provide some insight into sources of quantifiable value. Originally thought of as QCSD, it has been commonly modified to place safety (S) at its correct position in the forefront, and to add Morale (M) as an additional factor that holds more importance today than it has in the past.
S: Safety and Environmental
It should go without saying that a reliable plant is a safe plant, and this has been proven to be true. Studies show that as the level of reactive maintenance increases, the recordable injury rate increases in kind — there is a direct correlation. Why is this?
Reactive work by nature places our employees in a less than desirable position. I would offer that, overall, reactive work is performed at the time and place of the equipment’s choosing, while proactive work (repair, restoration, or inspection) is performed at a time and place of our choosing.
When we perform proactive work, we can properly assess hazards and implement safeguards to prevent against them, ensuring personnel are sent to perform work with the correct tools and materials, equipment is prepared in advance facilitating safer working conditions, and the associated equipment downtime is agreed to in advance lessening the pressure to restore production rapidly.
Determining the exact algorithm to calculate the effect that our reliability improvement efforts will have on our safety and environmental performance is of course challenging. We can however focus our attention on common sources of near misses or reportable incidents in the past with the goal of eliminating these common causes. In this category, a goal of zero incidents is often the norm.
Q: Product Quality
The degree to which the cost of poor quality (COPQ) is affected by improvements in maintenance and reliability performance varies depending on the manufacturing process but in many cases can be significant. While product quality is largely a given in some industries (power generation, for example), in others, this factor can be profound (say, pharmaceutical or food and beverage). Some might place this source of value under the umbrella of yield.
In those situations where this factor is significant, a machine upset or breakdown can lead to a total loss of raw materials currently being affected by the machine, in many cases, with this loss being permanent.
When determining the value of our reliability efforts, we must try and consider the degree to which product quality or yield is affected by the reliability of equipment and include the positive impact that we could offer through our maintenance and improvement efforts. In other words, if we can permanently eliminate the occurrence of machine failures due to causes X, Y, and Z, how much effect would that have on product quality (yield).
C: Cost (Cost to Produce)
While a focus on cost reduction is likely one of the first sources of value the mind comes to, it may be better to consider affecting cost to produce in other related ways (more to come on this in our discussion on production rate) with a deeper focus on cost reduction as your program matures.
Given that we considered the effect on raw materials in our discussion on product quality, we should consider reduction in the cost to produce as described in the table below:
||The cost associated with labor, both internal and external (contractor)
||Labor savings are tricky in that we need to remember that we do not save any money until we send someone home. This may be a nonstarter in some situations – especially when it comes to internal labor. Considering this, it may be better to focus on more productive use of the time we have allocated for our people.
Of course, overtime, and external contractor labor may be on the table, and could be a source of value.
Again, the focus on more efficient use of resources doing the right things, that maintain higher rates of production may be the better move than simply trying to save a dollar here or there associated with labor.
|Materials and Equipment Rental
||Cost associated with materials used in maintenance and repairs as well as rental equipment used in the performance of these repairs
||Savings in material and equipment rentals are certainly tangible, with the value being derived with the more efficient use of resources. A reduction in last-minute expedited orders, ordering extra materials and equipment that are not needed just to be safe or to cover for our inefficiency all represent a source of savings.
Storeroom inventory may also be a target, with the logic being that as we get more reliable and less reactive, our lives become more predictable, providing us with the ability to decrease the total costs associated with storeroom inventory. Maybe not the place to start, but certainly an area of focus for more mature organizations.
D: Delivery (Production Rate)
To put it simply, if the machines run more reliably and efficiently, we make more things that we can sell, we generate more revenue, from which we make more profit. If you are fortunate enough to be in a sold-out position (meaning you can sell everything you make) this calculation is straight forward. If you are not, then a greater focus on the efficiency with which you make those items you can sell is in order (in this context, efficiency = cost).
When we talk about the value associated with downtime, it is important to understand the magnitude of benefit we may expect to seek.
When considering throughput, the mind immediately places a focus on machine breakdowns, let’s call those unplanned downtime. I would offer that, there are two factors to consider, planned and unplanned downtime.
||Loss of production capacity due to a slowdown or complete stoppage of a machine – will lead to a partial or complete loss of production capacity until the repair and/or switching to a redundant asset can be performed.
Unplanned downtime can be minor or major in impact. While an initial focus on major sources of unplanned downtime is in order, eventually a focus on common sources of minor unplanned downtime must be considered as it can add up quickly.
||Planned Downtime Losses associated with routine and predictable events:
- Restoration Activities
- Machine Improvements
- Size Changes
- Operational Adjustments
The benefit/challenge with planned downtime is that these events are somewhat predictable, allowing us to prepare for them in advance, and maximize the efficiency with which we execute them.
In this case, efficiency is equivalent to:
- Safe Execution
- Optimized Labor
- Optimized Materials and Equipment Costs
- Optimized Production Impact (planned downtime)
When we talk about ways of recapturing value from planned downtime, there is a three-part test we apply:
- Does this activity need to be done at all?
- Does this activity need equipment downtime to be performed (for some or all of it)?
- Have we worked to optimize this activity, so we are minimizing the downtime required to the greatest extent possible?
Probably the most important factor in calculating the value associated with reducing equipment downtime (both planned and unplanned) is understanding the dollar figure associated with a single hour of production.
This is especially true when preparing for a major shutdown (turnaround, outage) event where large amounts of downtime are associated with a significant amount of work. If you took a poll of your workforce, you might be surprised at the lack of awareness of the financial impact of a single hour of downtime. This figure needs to be at the forefront of our thinking as we prepare for such events, as it can lead to creative thinking to find more efficient ways to perform the necessary tasks.
Part of the answer to this puzzle is to amend how we communicate downtime’s impact. When we talk only about duration, our minds tend to forget the financial loss, as if time were free. When we tend to talk about both time and production loss, it is much easier to get motivated and develop solutions appropriate for the size of the prize.
Finally, it should be noted that in order of magnitude of impact, any positive improvement you can make to production capacity will likely far outweigh any savings you may be able to make in labor and materials savings on a per unit basis. When we consider the cost of an hour of lost production compared to overtime or contractor costs, there tends to be quite a large gap, especially at the beginning of your improvement journey.
I would suggest that in the early stages a major focus be placed on recovering production capacity, with cost savings being gradually added to the mix as your process matures, and you are looking for additional sources of value. Of course, this can be easily proven or disproved once you have assigned a value to a single hour of lost production.
Nearly impossible to quantify, but a powerful force multiplier is the effect that visible success has on the morale of your workforce. The key words in that last sentence being “visible success”.
If you want to drive engagement and ownership at the front line, one of the keys factors to accomplishing this is parsing out part of your overall plan and assigning it to the front line, coaching them through the process of driving this improvement, and most importantly celebrating their accomplishments through the purposeful communication of the value they have captured in one or more of the categories above.
It has been said that success breeds success, and this is especially true when driving improvement in your maintenance and reliability process. It may be difficult to monetize, but one must certainly acknowledge this source of value, and leverage your communication efforts to spread the message as deep into the organization as possible.
Taking the next step on your reliability journey to execute your strategy can be difficult if you cannot demonstrate the tangible benefits you expect to deliver from the effort. Thinking through the SQCDM Model can help you build the case or consider partnering with a reliability consulting firm that can take you through the process.