Results-oriented organizations focus first on the quality and volume of production throughput, followed closely by the cost to produce the required quality and volume. This approach will improve reliability performance, which will drive manufacturing costs down.
Most organizations focus more on cutting maintenance costs, and, as a consequence, maintenance costs go down temporarily, only to increase much more than the initial savings. In addition, reliability goes down, paving the way for losses that can be substantial. This behavior and results have been proven many times, especially in economic downturns. The root cause of this phenomenon is often shortsightedness and what the late quality leader Dr. W. Edwards Deming described as one of the most serious diseases in American industry: "the mobility of top management."
The three case studies that follow demonstrate what happened in two organizations that focused on cost reductions and in a third organization that focused on Results Oriented Maintenance.
Case 1: Cost and head count reduction
The accompanying graph shows a 3-year case study in a food processing organization with an aggressive cost reduction program. A key measure used in maintenance benchmarking exercises was the number of maintenance crafts people and first line managers such as planners and supervisors.
The head count reduction was done through attrition and layoffs. The major mistakes by this organization were:
Case 2: Aggressive cost reduction
The graph for this case shows results at a chemical plant, a high-cost producer in its market, where management decided to do whatever it took to cut costs, mainly in maintenance. When the cost-saving initiative started, market prices for the plant's products were low and profitability in a short-term perspective was low compared to other plants in the corporation. The fast-paced cost reduction actions included:
After realizing the catastrophic consequences of what had happened, the mill took initiatives to bring maintenance to world-class status. Results are very encouraging and the mill is today one of the top performers. Reliability is approaching 94 percent. Maintenance costs have gone up, so has quality production throughput, and manufacturing and maintenance costs per ton are lower.
The actions taken to bring maintenance to world-class status included:
Case 3: Reliability improvements first, costs second
This plant manufactures the same product as the plant described in the previous case, but it decided to focus on reliability improvements instead of only cost reduction. This included:
Reliability improvements increase production throughput and drive down maintenance costs. Maintenance cost reduction is a consequence of reliability performance; it is never the other way around. MT
The number of crafts people was reduced by 14.3 percent the first year. After 1 year, 6 percent were hired back. In the same period, contractor spending went up 88 percent. Total maintenance hours including overtime, contractor hours, and in-house hours went up 10.5 percent. Total maintenance costs went up 29.2 percent. On top of that, reliability and production throughput decreased 6 percent. This plant is now investing in hiring and training more maintenance people, implementing lost maintenance practices, and moving all maintenance resources back to professional maintenance management after initially decentralizing maintenance to operations.
In the first 2 to 3 years maintenance costs dropped from $35 million/yr to $27 million/yr and results were hailed as good. However, reliability started to decline. When beginning this initiative, overall production reliability (OPR)—the product of quality performance, time performance, and speed performance—was 93 percent; it bottomed at 78 percent 6 years after the start of the initiative. At this time the market price for the plant's products had doubled. The drop of 15 percent in OPR and quality production output corresponded to a loss of over 300,000 tons during some very good years when product could be sold at top prices. Financial losses because of low OPR resulting from shortsighted maintenance cost savings are conservatively estimated to exceed $1.2 billion over a 3-yr period.
During the first 3 years, maintenance costs increased 8 percent (2.5 to 3 percent/yr). During the same period, reliability as measured by OPR, and consequently also production throughput, increased steadily from a low of 83 percent to 90 percent. Reliability continued to increase to 92 percent. In financial terms, a short-term increase in maintenance costs of about $3.3 million resulted in savings of $17 million annually. The value of increased and sold production represented $18 million annually. Total maintenance costs were reduced by 40 percent. Today this plant survives another economic downturn because of the reliability initiative it initiated and implemented.