How Can Reliable Equipment Increase Profits?

An important metric in lean manufacturing is overall equipment effectiveness (OEE), which is the product of Availability x Yield x Quality. Simply stated, OEE represents your performance compared to perfection. So if your availability factor is 79.9%, your yield factor is 80% and your quality factor is 93.8%, your OEE = 60%. This means that you’re running at 60% of perfection. While no organization actually achieves 100% OEE, your goal should be to close the gap between your current and desired performance level. 

So, what’s it worth it to you to increase the OEE of your manufacturing or process plant? And, what’s reliability got to do with it? The answer to these questions is simple – A LOT!

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The Aberdeen Group, a research think tank, completed a benchmark study about EAM practices. They benchmarked lower quartile, average and upper quartile performers on equipment asset availability, yield, and maintenance costs as a percentage of sales. They found that leading companies enjoyed an 8.5% increase in production availability, 6.3% increase in production yield and a 26.8% reduction in maintenance costs as a percentage of sales compared to lagging companies.

If you are intrigued by the Aberdeen Group’s data, then ask yourself, "What might happen to the income statement of a lower (25th) percentile performer if they adopted the practices of an average or upper percentile (75th) performer." The results are stark. By catapulting from the lower quartile to the average, sales increases by about 10%, and profit increases by 72%. By adopting the upper quartile performers’ business practices sales increase by 15%, and profit increase by 151%! 

So how does reliability factor into the equation? It’s really very simple, if the equipment assets aren’t reliable, availability suffers. Also, when the equipment assets aren’t reliable, you tend to be forced to run them at slower speeds, reducing throughput, or yield. And, as you might imagine, if the equipment assets aren’t running and producing, they’re down getting repaired – so you’re spending more on maintenance labor and parts. Focusing on the proactive aspects of equipment asset reliability management unleashes the production potential of your equipment assets and simultaneously reduces maintenance costs – a winning combination on the income statement!

Now that we have a clear focus on how reliability can positively impact the bottom line, let’s look at the practices that will enable you to achieve upper quartile performance.

Lean Equipment Asset Reliability Management isn’t a short-term, cost cutting proposition – rather, it must be managed over the life-cycle of your equipment assets and manufacturing processes. In general terms, that life includes design, manufacturing, installation, commission, operations, maintenance and disposal. In this post, we'll focus on design, operations, and maintenance. To help illustrate the point, we’ll draw a parallel between managing the health of equipment assets to managing the health of our own bodies –something with which we’re all familiar.

  • Design for Reliability – The inherent reliability, operability, maintainability, cleanability, flexibility and all the other “abilities” of an equipment asset are the “DNA” of the machine. In the case of a human, DNA largely determines native intelligence, how fast you can run, how tall you’ll be, your susceptibility to certain diseases and, ultimately, how long you’ll live. Sure, lifestyle management and the quality of health care provided are important, but DNA is the major influencing factor in determining quantity and quality of life. It’s easy to fall into the trap of “saving a buck” during this phase of the life cycle, but we wind up spending multiples of what we saved in the form of increased maintenance and operations cost.  Don’t fall into the trap of stepping over operations & maintenance dollars to pick up upfront pennies during design, manufacturing, installation and commission.
  • Operate for Reliability – It may come as a surprise, but plants often operate equipment in ways that adversely affect its health and reliability – just as we often voluntarily mistreat our bodies. Here’s your wake-up call: improper operation of equipment assets has a deleterious effect on their performance and life expectancy, just as the failure to ignore research and warnings about obesity, smoking, excessive drinking and a sedentary lifestyle deleteriously affect the performance and life expectancy of a human. Too often we choose operate equipment beyond its design capabilities, we erroneously start it up or shut it down incorrectly, utilize poor practices when changing over to a different grade or product, defer maintenance, etc. – just as we choose to carry extra weight, smoke, abuse our bodies and fail to seek out proactive health care support. Whether it’s your body or your machines, mis-operation proves costly.
  • Maintain for Reliability – We depend upon physicians and other health care professionals to restore our bodies back to health when we’re sick or injured just as we depend upon maintenance professionals to repair broken equipment. But there’s more. We also depend upon health care professionals to detect diseases early to reduce their impact and assure a speedy recovery. In much the same way, we depend upon maintenance professionals to catch machine problems early, for the very same reasons. Early detection of problems saves money and reduces the impact on the organization. If we pro-actively and precisely manage machine balance, alignment, tightness and lubrication with precision, the equipment enjoys a long, trouble-free life.

Reliability engineering and management systems provide a time-proven framework for managing the risk, reliability, availability, OEE and cost of operation of our machines and manufacturing processes over the life cycle. Conceived to assure safety and reliability in commercial and military aviation, nuclear power and other reliability-critical industries and applications, these systems are easily adapted and right-sized to fit the needs of the manufacturing and process industries – any business for that matter. Reliability System Deployment (RSD) enables you transition your organization to the upper quartile of EAM performance.

Lean & Reliable Equipment Asset Management can materially affect your income statement, balance sheet, return on net assets (RONA) and share price.  The difference in performance on key performance indicators is, according to research, stark by contrast.  When one considers the implications of moving from lower quartile to upper quartile performance on the financial performance of an equipment asset dependent manufacturing or process industry firm, management can’t stand idly by.  Even a small improvement on overall equipment effectiveness (OEE) can dramatically improve your profitability.  Moreover, the improvements are gained by managing your current investment in plant more effectively utilizing proven risk and reliability management tools and techniques - so it’s a very cost effective way to create distance between you and your competitors and satisfy the wants and requirements of your leadership.

 

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