9 Tips to Control Your Maintenance Budget
By John G. Smith
A maintenance department’s budgeting process can be described as a hybrid of science and art, set by a combination of measured statistics and personal experience. Yet deciding exactly what to spend – and how to keep the related costs under control -- can be a challenge.
Manufacturers will sometimes rely on a rule of thumb that their Maintenance Repair and Overhaul (MRO) budgets should hover between three and five per cent of the cost of production, but there are senior maintenance managers who openly question whether such a formula would ever offer an accurate picture of the money that should be spent. Every business presents unique challenges, after all. A company that machines aluminum with a high sand content will need to address the impact of a highly abrasive environment; a pulp and paper mill in Northern Ontario will have to deal with ambient temperatures that can turn mineral-based lubricants into a sticky sludge.
The age of equipment will play yet another role in the budgeting process. Maintenance costs are going to be minimized in the first two years of equipment life, when warranties still apply, observes George Dziarski, Director of Corporate Purchasing at Linamar, which operates 22 automotive facilities in Guelph, Ontario. “The third year should be relatively light still, because you’re just meeting the ‘top of the ramp’. Your wear and tear is just coming.”
He sees another problem with setting arbitrary benchmarks: “If you say it should be five per cent, that means, at the end of the day, you’re OK to live with that.”
Regardless of how the budget is set, there will always be pressures to keep overall costs under control. Almost 15 per cent of those who attended a recent International Maintenance Conference questioned whether they even had the resources to meet regulatory requirements.
Luckily, there are proven steps that will allot valued maintenance dollars in the most-effective way.
1. Focus on Prevention
A key step to establishing a predictable budget is to focus a greater share of efforts into scheduled maintenance practices.
“Preventive Maintenance and the work order system are the lifeblood of every maintenance department … to prevent the catastrophic failure of a blown spindle and ball screw in the same day,” explains Bil Monk, MMP, the Maintenance Manager of the Linamar Performance Centre and Comtech.
It’s a focus that rings true at all of Linamar’s facilities. Consider Lintool. That 160-machine operation is allowed a total of 120 hours of downtime per month, but 44.9 hours are allotted to Predictive and Preventive Maintenance.
“You can’t miss that one hiccup in the trends,” he adds. “When you see a change, you start tracking the change... If you miss it, it will come back to haunt you.”
2. Track and Measure
Indeed, any focus on predictive efforts will require a maintenance department to invest more resources into tracking and measuring related factors.
“Predictive Maintenance -- measuring wear, coolant use, oil use, wastage -- those all come down to numbers,” says Lintool Maintenance Clerk Melissa Kolesar. It’s why her facility hires a contractor to conduct a wear analysis on bearings, spindle heads and related parts on a monthly basis; another contractor tracks thermography.
Equally, there is always a careful eye to data that tracks the number of hours each machine is running, and when each work order is completed. A Plant Operating Committee reviews the related maintenance report once a month, and any excessive downtime is examined to determine whether unexpected problems could have been avoided through improvements to the Preventive Maintenance schedule.
The reporting structure also plays a role in ensuring that parts are on hand for any maintenance procedures. “When the maintenance guys go to troubleshoot the machine, they will go to verify what parts we need to fix,” Kolesar says. “In terms of the tooling or equipment used to fix it, that’s also tagged.”
3. Leverage Benchmarks
Another way to test the effectiveness of a maintenance budget is to compare the records of similar facilities.
“We have 11 facilities in North America, so we benchmark among each other,” says George Frattolin, Bowater’s Purchasing Manager, MRO. “What are we spending on capital, MRO and chemicals? If one mill seems to go through a large number of large-bore bearings, is it [related to] lubrication or environmental?”
The company turns to suppliers for advice as well.
“We rely on people like Kinecor to come in and tell us what’s happening in the industry,” he says, referring to the collection of information about improved components such as gear boxes and bearings.
“If you just take the time to understand what the best in business are doing, you will always be on the ball,” adds Monk. “I look at places like Toyota and Kodak. You know over the years they’ve proven they’re really good. Talk to some of the best in the industry. Don’t be afraid to call up on a Magna … most maintenance people will help out maintenance people.”
4. Simplify Purchasing Practices
Then there’s the inevitable focus on cost controls, and one of the key steps to reduce the cost of MRO-related supplies is to simplify purchasing practices – a role that could seem daunting at first glance.
Mittal Canada of Contrecoeur, Quebec, for example, operates seven mills, each of which has unique requirements. The company spends $75 million to meet annual MRO needs, covering everything from parts to external services such as the leasing of cranes and industrial cleaning. Parts and supplies account for $18 million of that.
“It’s like having seven different customers, and we handle 85 per cent of their spare parts inside one location,” says Mittal Purchasing Manager Jacques Belhumeur. But the purchases are well-managed with an Internet-based interface known as ZADO. When Mittal’s maintenance teams need to procure parts, they log on to select goods from a pre-approved list of suppliers such as Kinecor. Purchase orders are automatically generated for approved purchases valued at less than $2,500 and sent to suppliers through an Electronic Data Interchange (EDI). The related invoices are automatically sent to Mittall Canada using the same EDI infrastructure.
The system was developed in a mere three months because it leveraged an existing auction system that was used by Mittal’s sales department.
Before ZADO was being used, the company was struggling with the volume of paperwork associated with individual purchase orders, says Belhumeur. “One purchase order for $100 or $100,000, it’s the same work,” he adds, noting that the streamlined process reduced the backlog of purchasing requests by 25 per cent.
Suppliers who are listed on ZADO have also provided pre-determined rates for the goods that they sell, further assisting budget efforts. “We negotiate with the different suppliers, whether it’s a landed cost plus ‘x’ for the margin, or it’s a list price less a discount,” explains Mittal Purchasing Manager Jean Aquin. Contracts are set for at least a year to secure such deals. (Kinecor has been awarded a three-year contract.)
Eighty per cent of Mittal’s MRO expenses can now be linked to long-term purchasing agreements, with products involving electrical, bearings and hydraulics, wire cables and hardware.
5. Shop Locally
When a plant is purchasing equipment from an offshore supplier, a key step to controlling future costs will be to find domestic sources for the related components.
“There’s a lot of OEM stuff you can’t cross over, and we spend a lot of time to get the local companies to support us with alternatives,” says Monk. “The warranty time is the best opportunity to build a real short supply chain.… You know what the part is like when it’s brand new, it can be positively identified, and you can better predict performance.”
The need to manage the supply chain can’t be under-estimated. Without a domestic supplier, the lead time for the simple ball screw on a Japanese-sourced machine could stretch as long as 10 weeks.
That’s where Kinecor has helped. Once equipment is purchased, the distributor invites an engineer from Michigan-based Threadcraft to conduct a plant audit, study any spare ball screws that are in stock, and then produce a similar product through reverse engineering.
“We’re the only ones outside of an Original Equipment Manufacturer actually stocking ball screws in North America,” boasts Steven O’Reilly, Branch Manager of Kinecor’s facility in Guelph, Ontario. The company is even preparing to stock spindles for Linamar’s Okumahowa HM80 and HM60 high-speed horizontal machining centres.
6. Focus on Fixing
The choice to embrace repaired and remanufactured components can also make a significant difference in budgets, and they can be embraced without sacrificing schedules.
Kinecor’s Guelph facility can complete a “quick fix” on ball screws within 24 hours, O’Reilly notes. Spindle repairs are completed through a partnership with Machine Tool Accessories in Cambridge.
Lintool, meanwhile, can have a pump motor fitted with new bearings and seals, and returned within an hour.
“We’re doing more of that now than we’re buying new products,” says Bowater’s Frattolin. Electric motors can cost 10 per cent less than their new counterparts, and still meet or exceed the specifications for a new motor, he says. “We have significantly reduced our new motor purchases.”
There’s another benefit: The 36-month warranties on the repaired motors are three times longer than the warranties offered for brand-new, mass-produced designs.
7. Standardize Parts
Frattolin notes that his company is also focusing on ways to standardize parts wherever possible, but lets end users select the related styles and manufacturers.
While it’s easy to become consumed by the purchases of supplies such as packing and gasket material that are ordered on a regular basis, the real focus should be on larger purchases, he adds. “If you looked at spending for MRO products, you’re going to find the 80-20 rule … 20 per cent of those products are big-ticket items [and] represent most of your spend.
“The big savings opportunity involves focusing on the big-dollar spends. By leveraging a commodity like chain, you are able to go after the manufacturer for support. If we buy chain from three manufacturers, what improved service and costs are obtained if I consolidate [the purchases]?”
8. Consider Total Cost of Ownership
In the race to trim costs, it’s also important to remember that the cheapest part is not always the best investment. A premium offering could last much longer, saving labor costs associated with replacements, and limiting the downtime that can affect a facility’s overall production. Because of that, Mittal Canada asks suppliers with contracts that last longer than a year to focus on the Total Cost of Ownership. Kinecor, for example, is in the midst of analyzing the choice of air filters used in ventilation systems.
“If a supplier says, ‘I’m going to be able to save you $10,000, we establish the criteria. If it’s savings on labor, we know that’s worth so much per hour,” says Aquin. Suppliers are expected to offer a credit if savings are not realized, and Mittal shoulders responsibilities as well. “If the people in the plant do not cooperate, it’s up to us to help the supplier and find out why we are not applying it,” he says.
Some decisions relating to a Total Cost of Ownership will require more detailed calculations than others.
Bowater is able to use an Enterprise Resource Planning (ERP) system to track multiple work orders that have been issued for the same bearing, but it can be difficult to track the performance of a bearing that has been used in 50 different locations during its 20-year life.
“On a $50 seal, it’s going to be pretty quick math,” Frattolin says. “You save on the performance of the pump, the water reduction, and the labor for installation.
“On large gearboxes and motors, determining the Total Cost of Ownership is more important because these units are expensive investments that have the ability to affect production downtime for longer periods of time.”
“The MRO lifecycle stuff is being overplayed,” Dziarski counters. “The lifecycle of a program is what dictates lifestyle requirements [for a component].”
Those who run production lines in the automotive world can be lucky to see a lifespan stretch further than five years, he explains. A vehicle platform like a Honda Civic may be maintained for seven years before re-tooling. Others will last much last than that. (Pontiac Aztec, anyone?) If a bearing lasts more than a decade, it would surpass the useful life of the machine itself. Sure, that machine may be re-sold, but the machine will also be torn down and the bearings will be replaced in the process.
“Then it’s a waste if you think about it.”
9. Outsource Inventory
Organizations should also be examining whether they should stock some supplies in the first place.
“I’ve met maintenance managers that are frugal, and maintenance managers that are frivolous,” explains Dziarski. “I know of one who sold a bill of goods to each general manager about putting so much in the way of spare parts [into inventory]. Those end up in the surplus warehouse for auction. His theory of covering all the bases, I’m not sure that was good for the corporation.”
A mere decade ago, Mittal Canada’s inventory strategy for MRO-related supplies was to “keep it in stock,” Belhumeur adds. Today, however, the company is always looking for suppliers who can provide Vendor Managed Inventories (VMI) or deliver goods on a Just In Time basis.
Frattolin agrees with the strategy. “I don’t go to Canadian Tire and buy everything and bring it back to the garage,” he says. “When I need something, I go get it.” To use the same analogy, system-critical components such as a $50,000 gear box should still be kept in stock, like a spare tire carried in the trunk of a car.
Bowater has millions of dollars tied up in MRO-related inventory. “But how much of that’s going to truly bring the mill down if it’s not available?” Frattolin asks. “Inventory managers need to identify critical spares from consumables … and start driving the consumable back to the suppliers to manage and supply.”
Some Linamar-owned companies have turned to Kinecor to address carrying costs, O’Reilly observes. The Guelph-based maintenance managers who rely on the distributor even have the opportunity to access Kinecor’s shelves 24 hours a day, simply recording what they take from inventory. Reports of the purchases are submitted the next business day, while teams meet with purchasing and maintenance staff every quarter to ensure costs are controlled.
The savings aren’t limited to the inventory of parts. Through an agreement to supply 11 Linamar plants with hose and fittings, Kinecor is also supplying free crimpers, cabinets, power packs and tooling for hydraulic hoses.
“Inventory for a maintenance department is extremely difficult to control. It’s just not a good discipline for them,” adds Monk, who believes the supply of parts such as fittings, hoses, belts and fuses are best addressed with a Vendor-Managed Inventory.
“I push a lot of that back on the supplier." |
