6 Ways to Reduce Equipment Maintenance Costs
When you manage assets for a large company, it can feel like the weight of the world (and your assets) are on your shoulders.
You attempt to balance the demand of the assets against the funds available in the maintenance budget. The money available for maintenance is never unlimited, while the need for maintenance always increases.
Reducing maintenance costs relies on far more than simply reducing the budget. Instead, you should consider implementing maintenance management practices that utilize your budget in the most efficient and cost-effective way possible.
To help you reduce your maintenance costs, we will cover six ways you can start managing your maintenance to increase productivity and eliminate inefficiencies.
Six Methods to Improve Maintenance and Save Money at the Same Time
- Track Maintenance analytics
- Implement Preventative Maintenance
- Prioritize Maintenance Based on Asset Criticality
- Control Your Maintenance Budget
- Monitor Asset Warranties
- Plan and Schedule Your Maintenance in Advance
1. Track Maintenance Analytics
Succeeding in maintenance is about understanding where you are and what your next steps are to improve. Reporting and analytics put this power in your hands.
To visualize the current state of your maintenance, you will need to have insight into work order metrics like break-in work, schedule compliance, schedule capacity, scheduled work and unscheduled work, and regulatory work compliance.
To gain access to these types of metrics, you will usually need a maintenance reporting and analytics solution. The fine-grain data you can receive from this kind of solution can make all the difference in the way you run your maintenance.
With these insights, you can provide management with an accurate picture of your maintenance. Management may not listen or care if you tell them that the maintenance team is overworked or needs an increased budget.
However, they will find it harder to ignore cold, hard numbers. This will help you receive the support you need to create change within your organization.
It is key to remember that improvements to reporting don’t accomplish anything alone. Instead, it gives your team insight, goals, and the ability to move forward. Having the data at your fingertips shows you where improvements can have the most impact.
One of the less obvious advantages of improved reporting is how it can help you to discover best practices within your own organization. Site business processes are often very different, even within the same company.
One of the great advantages of analytics and reporting is that it allows you to compare and benchmark them. Not only does this show you which sites are excelling at particular parts of your maintenance mission, it allows you to draft individualized plans to improve the processes at each site.
2. Implement Preventative Maintenance
Reactive work is recognized as being 3 to 5 times more expensive to conduct than properly planned preventive maintenance work.
When maintenance moves from reactive to a planned environment, there is less wasted time and effort looking for the right part, getting instructions, and less confusion around who is doing what and when. Just imagine the craft productivity that could be attained if your technicians go straight to the job and straight to work, rather than spending the first hour or two searching for a plan of action.
If you’re mostly doing corrective maintenance, you probably don’t have much time to do material planning, and as a result, you’re going to carry excess inventory just to avoid stockouts. But stockouts are inevitable since material purchases are only guided by repair history.
You may also have to rely on the expedited buying of material that was not planned. This means higher procurement costs for the materials and rapid delivery.
The key to effective maintenance is the right work, at the right time, done at the highest level of quality. Moving from a reliance on reactive and corrective maintenance to a preventative maintenance strategy will benefit your assets and your budget.
3. Prioritize Maintenance Based on Asset Criticality
If you have made the decision to move from reactive work to preventive maintenance, then you need to determine what needs to be maintained and when.
A reactive vs. preventive scenario:
You’ve got to make a decision, and you’ve got to make it fast. A piece of equipment on the plant floor has just failed, and the only available crew has a full schedule of preventative maintenance work orders. You know the PM work can be pushed back a bit (it’s preventive, after all), so you decide to shift the PM crew to reactive maintenance and get that asset back online.
It sounds like a good plan. The problem is that we didn’t give you all the information. The equipment in need of corrective work is not production critical. Having it offline for a day will only reduce capacity by a minimal amount.
The asset scheduled for PM work, on the other hand, is crucial to continued operations. It’s true that PM work can often be pushed back, but what about the times that it can’t? In short, if the critical asset fails, production is completely halted until you can get it back up and running.
These are extreme cases, but they highlight the need for determining work order prioritization and asset criticality. There are always limits on the resources you have, some equipment will always be more important to production, and some maintenance tasks are more time-sensitive than others.
An asset criticality index gives you the ability to properly prioritize your work orders. For more on how to create one, read our blog “Creating a Work Priority Index: 4 Essential Steps.”
4. Control Your Maintenance Budget
Building an effective budget and monitoring it closely is very important. It can also be harder than it sounds. How you build your budget depends on your maintenance strategy and goals, as well as any rules your organization has in place for budgeting.
A maintenance budget should be established to meet the demands of the assets, based on history, targeted asset life, and production demands. Simply copying last year’s budget and adding a small percentage, as is the case in many companies, won’t meet those goals.
Our client, Alcoa, believed that 20 to 40 percent of their maintenance budget was controllable. That doesn’t mean they could cut that percentage from the budget, but it did mean that they could control it.
If you’re like most maintenance organizations, about 20 percent of your assets consume about 80 percent of your budget. Start by looking at that equipment, with the aid of your asset criticality index, and build a budget for each piece of critical equipment.
This will help you to control your costs by showing where money should be spent, where it shouldn’t, and where it absolutely must be spent to avoid production downtime.
5. Monitor Asset Warranties
Warranty cost recovery is often overlooked by many maintenance organizations. The amount of money a maintenance department can save by tracking warranties can be substantial yet is often lost because many maintenance teams lack the systems necessary to assemble, submit, and track warranty claims for a successful recovery.
Using a system like a warranty tracker allows you to save money on your bottom line. In our whitepaper “Warranties Are Worth a Closer Look,” we explain how you can use a warranty tracker to avoid missing warranty claims.
The numbers below show what you could expect to recoup if you claimed every warranty to which your organization is entitled:
- New Equipment: 3%
- New Parts: 1%
- Rebuilt Parts: 5%
- Contract Labor: 5%
None of those percentages individually are very large. The overall average rate is only 3.4%. However, let’s plug in some dollar figures and see what happens.
For this exercise, we’ll assume your overall capital equipment budget is $25,000,000. Your actual capital equipment expenditures may be higher or lower than this. Of that, new equipment is around $10 million, and your organization is spending $5 million each on new parts, rebuilt parts, and contract labor.
At $10 million dollars, your expected recovery on new equipment warranty claims is about $300,000. New parts, which cost you $5 million, have the lowest warranty recovery return rate at 1%. Even here, though, you can expect to recoup $50,000 in warranty claims. Rebuilt parts and contract labor could net you another $250,000 each. The grand total, if you’re submitting all eligible warranty claims, comes to $850,000.
This assumes, however, that you are recovering 100% of all submitted claims. Warranty Week reported that the average warranty recovery rate for companies using manual processes is between 10% - 25% of total potential warranty expenses. Manual warranty program administration can result in inefficiency, error, delayed claims, and thus a low rate of recovery.
However, instituting an automated warranty management solution has been shown to raise recovery rates to 50% of total recovery opportunities according to IDC Manufacturing Insights. Companies with very focused and efficient processes may recover even more than 50% of total warranty expenditures. Even at a rate of just 50%, the potential exists to recover $425,000 when using the numbers in our example.
Would you turn down a $425,000 increase in your budget? Of course not! Yet that’s exactly what you’re doing when you don’t have a good warranty management system in place.
One approach would be to take just one or two hours per week to focus on identifying warranty work orders for possible warranty claims. Focus first on claiming reimbursement for the largest amounts on your most expensive equipment or parts. You may be surprised at just how fast you manage to get the payback on your time.
Warranty claims are a potential goldmine for maintenance departments, but sadly the money is often left sitting on the table. If you’ve been asked to cut 5% from the maintenance budget, there’s a very good chance you could balance that cut through warranty claims alone.
It’s very easy to miss the opportunity for a warranty claim. Say you’re replacing a pump, and you think to yourself, “That pump was only six months old. It shouldn’t have failed like that.” Today, you’re concentrating on getting the pump back online. Tomorrow you’ll be concentrating on something else. Before you know it, thinking about making a warranty claim isn’t even a thought that comes to mind.
Your organization could certainly use the money (couldn’t we all?). But this lack of action has other long-term effects. A year later, when the purchasing department needs to purchase some new pumps, they may go with the same vendor who provided your prematurely failed pump. Why wouldn’t they? After all, they don't see any warranty claims!
You can use warranty claims to evaluate your vendors. It might be worth considering competitors if products from your selected vendor keep failing prematurely or more than expected.
6. Plan and Schedule Your Maintenance in Advance
Planning and scheduling are at the core of maintenance process improvement. Taken together, planning and scheduling recommend what work you do, when it should be done, and what resources should perform the work. It’s hard to think of what could be more important to your maintenance.
Picking the right work, at the right time, and having the right people perform it can certainly save maintenance dollars. A big part of these savings come from better labor utilization.
In his “Maintenance Planning and Scheduling Handbook,” Doc Palmer notes the most utilization you will ever get out of a maintenance person is about six to seven hours per eight-hour shift. There are many reasons for this including breaks, meetings, gathering materials, traveling to and from job sites, etc.
Note that the figure quoted above is with planning and scheduling. Without planning and scheduling, the average wrench time at about two to three hours per day, not six or seven. In other words, proper planning and scheduling can cause productivity to rise by 100% or more! A 100% rise in productivity is almost unheard of for any project.
Maintenance planning and scheduling are recognized as industry best practices for many reasons. However, just because your organization is planning and scheduling doesn’t mean best practices are being followed.
A properly executed maintenance project shouldn’t cost more money than it saves you. Instead, it should save money and result in a more efficient maintenance process.
The old saying is that it takes money to make money, and it’s true in this case. That’s why one of the earliest steps in any maintenance project is to secure funding. It is critical to ensure that you have a properly researched and planned business case showing the estimated return on investment (ROI).
Reduce Your Maintenance Costs With The Prometheus Platform
Getting ahead of your maintenance issues allows you to save money on maintenance, keep production running, and keep your facility and employees safe.
As we mentioned earlier, maintenance projects will ultimately save you money, but will still require funding on the front end.
If you provide us with an estimate of your assets, work orders, technicians, labor rate, and other metrics, we can create a personalized business case that shows you an estimated return on investment for a maintenance project.