Sustaining the Enterprise through Asset Management, Reliability and Operational Excellence
(Is It Asset Management, or Maintenance Management Re-branded?) November 2015 The RM Group, Inc. Knoxville, TN
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Contents Asset Management – Some Cautions The Reliability Program for Asset Management Reliability and Safety – A Bonus! Managing Cultural Change, Leadership, and Aligning the Organization Implementation
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Asset Management – Some Cautions
ISO 55000 provides a management framework for an asset management system It does not provide guidance for managing assets for optimal value over their life. In fact, it specifically excludes guidance and specs An asset is ANYTHING that adds value to the business, not just equipment (Don’t forget - People, processes, procedures, patents, etc. are all assets!) But, most people reading ISO 55000 are maintenance managers, and focus on physical asset management, i.e., maintenance The RM Group, Inc. Knoxville, TN
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Asset Management – Some Cautions
So, maintenance managers are developing the (physical) asset management strategy Many use “asset management” and “maintenance & reliability” almost interchangeably This is a mistake. It is not sufficient. Most asset management strategies are simply maintenance management strategies “re-branded” So, what’s missing, or poorly addressed? (my comments focus on manufacturing, so analogies must be developed for other businesses, e.g., railroads, hospitals, etc.)
Incidentally, Asset management strategy must be led from the top The RM Group, Inc. Knoxville, TN
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How do we sustain, and grow, the enterprise? (Prices trend down over time. We create a future by getting our practices right, driving unit costs down, and supporting gross profit)
Market Price “Big” InnovationYour Future
Profit = (Price – Cost) x Volume “Little” Innovation Drives costs down
Unit Cost = Cost Capacity
A
B
C
Market Share The RM Group, Inc. Knoxville, TN
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Asset Management – Some Cautions
Does your asset management plan include:
Business requirements of the assets over the coming 5-10 years? Production’s role? Design/capital projects’ role? Procurement/Stores’ role? Maintenance’s role? Disposal? Or other roles, based on the organization? Clearly define each role in managing the assets, adding value, minimizing losses & risks, and
sustaining the enterprise! The RM Group, Inc. Knoxville, TN
All must be aligned to the business strategy/goals 6
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Asset Management – Some Cautions
Asset requirements over the coming 5-10 years?
Is the business is closing?
Is the business being sold?
Is the business stable, with little or slow growth?
Is the business growing rapidly? Each business scenario requires a different asset management strategy
Each requires a different staffing and personnel development strategy Each requires a different capital allocation strategy The RM Group, Inc. Knoxville, TN
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Asset Management – Some Cautions
What is Production’s role in each scenario?
In data from 100’s of plants, production controls ~70-90% of all production losses (potential value); maintenance controls very little value! So, production plays a key leadership role day-to-day, and strategically! Production determines its role in each scenario for supporting business objectives and creating value! For example, if the business is growing rapidly, production takes the lead in eliminating production losses, (think OEE) before requesting capital investment for growth Maintenance is a support function in helping identify and minimize the losses and capital requirements
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Asset Management – Some Cautions
What is Design/Capital Projects’ role?
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Before new capital investment, production must assure excellence in the use of current assets, e.g., taking OEE from 60% to 80% Some capital may be required to support maximizing current performance, but no major capital is required Capital projects works with production & maintenance to develop policies & procedures for applying lowest life cycle cost principles, vs. lowest installed cost Including an asset registry and maintenance strategy in all capital projects for sustaining the assets! Data from large companies indicate that 3 months of production are lost during startup; maintenance costs are 25-50% higher in the first two years after startup 9
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Asset Management – Some Cautions
What is Procurement/Stores’ role?
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Procurement must apply the concept of Total Cost of Ownership – only ~25% is price! Much more focus must be given to the ownership costs, e.g., ease of operation & maintenance, energy consumption, ergonomic issues, quality/ease of supply Stores must balance the cost of working capital against risk of loss – risk of production losses and risk of maintenance inefficiencies due to lack of spares Stores must make it easy to do maintenance, while controlling working capital and overhead costs
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Asset Management – Some Cautions
What is Maintenance’s role? Most of you are all over this, e.g.: Asset registry and bill of material Equipment criticality ranking and equipment strategy, including risk management where appropriate Work management, planning, then scheduling Condition monitoring PM, including addressing specific failure modes Operator care tasks Skilled trades competencies Precision maintenance; quality build plans; etc.
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Asset Management – Some Cautions What
about disposal?
Residual
value of the assets, if any? Disassembly costs? Abandon in place? Decontamination costs? Hazardous waste disposal costs? Transportation costs? Other costs?
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Asset Management – Some Cautions If
your asset management strategy is maintenance led (most are): You’ll
be “pushing on a rope” You’ll only do more efficiently work that you shouldn’t be doing at all Your
ability to “add value” will be limited Maintenance is an enabler for adding value, much like Accounting, HR, etc. – and they are absolutely essential! The RM Group, Inc. Knoxville, TN
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Asset Management – Some Cautions
Finally, and most importantly, a strong asset management program must address:
Effective Leadership/Sponsorship (vs. permission) Alignment of the Entire Organization to the Strategy (See ISO 55000, 2.4.3)
Teamwork among Functional Groups to the Strategy Systems Level Thinking (“Line of Sight” in ISO 55000) Changing the culture - People do want to change:
IF given compelling reasons, IF there’s something in it for them for the changes, IF they participate in creating the changes!
“Culture eats strategy for breakfast” Peter Drucker The RM Group, Inc. Knoxville, TN
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Asset Management – Some Cautions
Strong leaders will make sure all this happens! According to Terry O’Hanlon, a member of the ISO 55000 committee: “Financial asset management and ISO 55000 asset management are the same!” I agree!
Asset management is about managing ALL the assets – people, processes, and equipment minimize risk, while assuring financial success! It’s about value creation! (not just managing equipment) so that you sustain and grow the enterprise! The RM Group, Inc. Knoxville, TN
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Asset Management – Some Cautions Reliability Web’s Asset Management Model:
The focus! Is this enough? The RM Group, Inc. Knoxville, TN
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The Reliability Program – Sustaining The Enterprise by Managing the Assets
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The Reliability Program
Doing better Mtce will not contribute much to Reliability
(note where most defects occur) Design (Life Cycle Cost) Defects
Buy
Store
(Cost of Ownership)
(“Like a Store”)
Defects
Defects
Install/ Startup
Operate
(With Discipline)
(With Care)
Defects
Defects
Maintain (With Precision) Defects
Root Causes
Rate Losses & Downtime
Source: In Cooperation with Andrew Fraser, Reliable Manufacturing Assoc.
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Unneeded Work - $$ Injuries (& Env. Events) Asset Utilization & Necessary Work 18
Minimum unit cost of Production Copyright Copyright 2014 2012
DESIGN For Reliability, Operability, Availability, and Maintainability
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Minimum Adequate Design (MAD) Some companies use minimum adequate design. Focus tends to be on budgets and schedules, often ignoring longer-term effects MAD will vary widely with your perspective
According to SMRP, 86% of companies do NOT use “life cycle cost” for capital projects
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World Class Design Requires specific processes:
Disciplined method for lowest life cycle cost AU/OEE targets & reliability in the design Maintainability: access, lifting, monitoring, etc. Post installation support and review
Intense application of Operations and Maintenance knowledge base Use of FMEA/RCM* principles in the design *Failure Modes and Effects Analysis Reliability Centered Maintenance The RM Group, Inc. Knoxville, TN
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Phases of Life-Cycle Cost Commitment 100
65%2
66%1
25
Planning
50
30%2
Preliminary Design
75
85%1
50%2
97%1
Construction/Startup
95%1
85%2
0
Life Cycle Phases Sources: 1) Ben Blanchard, Design and Manage to Life Cycle Cost, MA Press, Forest Grove, OR, 1978; 2) John Schultz, Allied Reliability, Charleston, SC The RM Group, Inc. Knoxville, TN
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Life Cycle Cost and Cash Flow Considerations
Life Cycle Cost Policy Cash Flow ($)
ROI Lowest installed Cost Policy
Time
Minimum Life Cycle Costs => Maximum Long Term Profits
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INSTALL and STARTUP– with precision for long life
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Startup and CommissioningCritical to Reliability You’re
~10 times more likely to introduce defects during startup than normal operation 92% of rotating machinery has defects at startup that result in premature failure Source: 1) Reliability Magazine, February 2001, and 2) Machinery Reliability Conference, Phoenix, April, 2001 The RM Group, Inc. Knoxville, TN
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OPERATE RELIABLY – with care and precision, and within process limits
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Reliability Based Operations Reliability cannot be driven by the maintenance organization. It must be driven by the operating units, …and led from the top. Charles Bailey, VP of Operations Eastman Chemicals (Retired)
To expect maintenance to “own” reliability is like expecting the mechanic at the garage to “own” the reliability of our cars. Ron Moore The RM Group, Inc. Knoxville, TN
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Of all production losses from ideal (AU/OEE), ~2/3rds are NOT equipment related; ~1/3rd are, but most of these are Ops driven; Only ~ 10% of losses are Mtce driven JIPM: 70% of eqpt. failures are preventable by operators
Changeovers, rate/quality losses, raw material, market demand, production planning, etc.
Equipment Related Losses-Maintenance Equipment Related Losses- Operation Non Equipment Related Losses
Source: Author experience; Similar findings reported by BASF-UK, Eastman Chemicals, Whirlpool, and Borg-Warner-US The RM Group, Inc. Knoxville, TN
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The Five Manufacturing Domains Performance Levels
World Class Manufacturing
Strategic Domain Proactive Domain
Planned Domain
Eliminate Defects; Lowest Cost Competitive Advantage
Fix it before it breaks; Least Stable Fix it after No Surprises, Regressive it breaks; Competitive Parity Domain Most Expensive Don’t fix it Overtime Meet Budget, Source: Heroes Staged decay
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Reactive Domain
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Organizational LearningIndustry Leadership
W. Ledet The Manufacturing Game; Kingwood, TX Copyright Copyright 2014 2012
Correlation of Operator Care/PM and Maintenance Costs (Avg data at each level for 200 plants surveyed) Mtce Costs as a % of Original Equipment Cost
16 R = 0.85 R2 = 0.73
14 12 10 8 6 4 2 0 0
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MAINTAIN – For Reliability
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Excess Defects Lead to Reactive Behaviors-
Typical Maintenance Practices 60 50 40 30
Time-based
20
Condition-based
Root Cause-based
10 0 Reactive
Preventive Predictive
Proactive
Source: Author’s surveys and The Reliability-based Maintenance Strategy: A Vision for Improving Industrial Productivity, R. Moore, F. Pardue, A. Pride, J. Wilson, September 1993, CSI Industry Report. The RM Group, Inc. Knoxville, TN
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Eliminate and/or Manage Defects-
Benchmark Maintenance Practices 60
Planned and/or Scheduled Condition-based
50 40 30 Time-based
20
Root Cause-based
10 0 Reactive
Preventive
Predictive
Proactive
Source: Author’s surveys and The Reliability-based Maintenance Strategy: A Vision for Improving Industrial Productivity, R. Moore, F. Pardue, A. Pride, J. Wilson, September 1993, CSI Industry Report. The RM Group, Inc. Knoxville, TN
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Reliability and Safety Excellence in Asset Management and Sustainability are Critical for a Safe Operation The RM Group, Inc. Knoxville, TN
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Safety is a Top Priority Most
all organizations say safety is a top priority They have policies, standards, processes, systems, etc. to support this They are committed to enforcing these policies
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Safety Policy Statement
All injuries are preventable
No task is so urgent that it cannot be done safely
Management must provide a safe work place
We are each responsible for preventing injuries
Everyone is empowered to stop unsafe behavior
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Reliability and Safety Relationship If
executives were truly committed to safety… They would be committed to reliability, and would have similar policies, standards, processes, and systems They typically are not, and do not Consider a typical sampling of the data
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120
R = 0.80 R2 = 0.64
135
115
115 110 95 105
75
100
55
95
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OEE/AU- % of Base
Injury Rate v. AU/OEE over Time - Company A
Injury Rate OEE/AU
48 53
41 45
33 37
25 28
17 21
9 13
90
5
1
15
Month The RM Group, Inc. Knoxville, TN
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Total Injuries per Year
Correlation of Corrective & Reactive Work Orders with Injury Rate – Plant No. 1 400 350
R2 = 0.684
300 250 200 150 100 6000
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R = 0.827
8000
10000
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12000
14000
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Total Injuries per Year
Correlation of PM & PdM Work Orders with Injury Rate – Plant No. 1 400 350
R2 = 0.911
300 250 200 150 100 4000
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R = 0.955
6000
8000
40
10000
12000
14000
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(normalized to a base number)
Injury Rate
The More Disciplined Your Maintenance, the Fewer Injuries you have
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R = 0.95 2 R = 0.90
4 3 2 1 0 60
70
80
41
90
100
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And, is More Cost Effective Reliability Index v. Production Unit Costs Production Costs $/Unit
(As reliability increases, costs decrease) 120
R = 0.632 R2 = 0.40
110 100 90 80 70 60 50 30
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50
60
42
70
80
90
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From the data we should conclude: Safety is everyone’s responsibility &
Reliability is everyone’s responsibility
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Defects & Process Errors Reduce Reliability and Increase Hazards Major Incident
Major Accident
10 losses
Loss of Containment
6,500 repair work orders
Process Safety Breach
20,000 defects
Numerous Minor Process Errors
Operational Discipline is essential to eliminate defects and process errors The RM Group, Inc. Knoxville, TN
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Establish a Policy Linking Reliability and Safety All injuries are preventable… All injuries, and failures, are preventable No task is so urgent that it cannot be done safely… No task is so urgent that it cannot be done safely, and reliably Management must provide a safe workplace… Management must provide a safe, & reliable, workplace We are each responsible for preventing injuries… We are each responsible for preventing injuries, and failures Everyone is empowered to stop unsafe behavior… Everyone is empowered to stop unsafe, & unreliable, behavior
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If you truly believe in Safety, then Reliability is a MUST to minimize the risk of injuries, costs, and environmental incidents (Should be given comparable executive attention as any high-powered consulting recommendations) The RM Group, Inc. Knoxville, TN
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Leadership, Organizational Alignment, and Managing Cultural Change
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Leadership Leadership- the ability to inspire ordinary people to consistently perform at an extraordinary level Leadership begs the question “How do I get people to genuinely look forward to coming to work every day?”
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Aligning the Organization
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Align the Organization
Organizing creates naturally competing groupsshifts, areas, plants, etc. With increasing task inter-dependence, collaboration and teamwork are essential for organizational success. (e.g., production and maintenance, between shifts, between marketing and manufacturing)
Alignment requires the creation of superordinate goals that take priority over “group” interests:
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Remind people often to focus on the higher level goals Think at a systems level – don’t optimize at the suboptimal level in your little silo – ask ‘what effect will this have on the system’? Develop shared measures between “competing” groups and partnership agreements Source: Edgar Schein, Organizational Psychology 50
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Managing Cultural ChangeA Process Model
“Culture – what people do when the boss isn’t around.” Ian Fyfe, BP (now w/Ineos)
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Facilitate Employee Implementation
People do want to change,
IF given compelling reasons for change IF there’s something in it for them:
More secure future Better pay or rewards Less stress and hassle Less personal risk or fewer injuries
IF they participate in the design of the changes:
Set up structured improvement time, e.g., small action teams Train and apply the appropriate tools for their needs Remove the obstacles from their success Routinely solicit, and act on, their ideas for improvement Show gratitude and appreciation for their contribution
All three IF’s must be addressed, aligning employee interests with corporate interests “People own what they create” – help them create!
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Strategy for Implementation
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Strategy for Implementation Led
from the top- executive sponsorship is essential (Permission is not sponsorship, or leadership! Active engagement is essential)
Production & Maintenance PartnershipClear goals and expectations must be set, and reasonably achievable Shared KPI’s for reliability & business results must be in the annual management appraisal and bonus system Shop floor engagement process, including cross-functional teams, structured improvement time, and a support system
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Keeping all this in mind, Are you sustaining the enterprise? Is your asset management strategy…
Maintenance Management Re-branded? Or
Holistic Asset Management? The RM Group, Inc. Knoxville, TN
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Appendix - Contact Details Ron Moore Managing Partner The RM Group, Inc. 12024 Broadwood Drive Knoxville, TN 37934 Tel/Fax: 865-675-7647 Email:
[email protected] Ron Moore is the author of Making Common Sense Common PracticeModels for Operational Excellence, 4th edition; of What Tool? When? A Management Guide for Selecting the Right Improvement Tools, 2nd edition, both from MRO-Zone.com; and of Business Fables & Foibles, and Our Transplant Journey: A Caregiver’s Story, both from Amazon.com, as well as over 50 journal articles. Ron’s latest book, Where Do We Start Our Improvement Program? is scheduled for release in September, 2014.
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