Calculating the ROI of equipment maintenance

Defining the ROI (Return On Investment) of maintenance consists in demonstrating to the organization what is the value generated by the maintenance activities in that industry.

It defines the sense of allocating resources to this activity and how it contributes to the generation of results.

The proposed approach serves to change the usual understanding that maintenance is a cost center or a necessary evil and to make it be perceived as a profit center, positively changing its paradigm.

This article points out ways to calculate the ROI of maintenance.

It seeks to list the main cost items and ways to mitigate them, leaving the reader to reflect and adopt what makes sense for his or her reality.

PREDICTIVE MAINTENANCE: INCREASING INDUSTRY EFFICIENCY

If the industry operates until the machines break down and is still in business, it has enormous opportunities for cost reduction and efficiency gains.

The reader who follows this blog already knows that the best maintenance strategy is the one that mixes the different types of maintenance: corrective, preventive, and predictive, taking into account the characteristics of your industrial park.

Considering that maintenance costs can reach 30% or more of the total cost of production, then adopting a strategy that allows reducing or avoiding part of these costs is a way to increase the competitiveness of this industry.

In this sense, predictive maintenance in critical machinery and equipment becomes the industry’s great ally.

The main maintenance cost items are:

• In-house or outsourced maintenance labor costs;
• Spare parts costs;
• Costs generated by the unavailability of machines.

HOW CAN THE MAINTENANCE MANAGER CHANGE THE PERCEPTION OF THE SECTOR

It is up to this professional to convince his management, peers and subordinates of what to do and why to do it.

Nothing better for this task than to anchor your approach in tangible, quantifiable gains:

1. Quality and safety gain: investment in maintenance translates into more safety for employees and better product quality, resulting in less rework. More efficient production means lower costs, which will be translated into competitive advantage in the medium term;
2. Gains from increased availability of machines and equipment: production will follow your planning, better use of assets will increase production capacity, enabling increased sales. Less downtime also means less frustration and better team morale;
3. Financial gains: fewer spare parts, higher machine productivity, frees up labor and speeds up scheduling. This optimization accelerates cash flow and increases business profits.

There is a universe of performance indicators that can be used in maintenance and that have different purposes according to the goals to be achieved.

In this case of ROI maintenance, the KPIs suggested to measure the effectiveness of the actions applied to generate profit are:

• Amount spent on maintenance as a percentage of ARV (Asset Replacement Cost);
• Value of the stock of materials and spare parts of MRO (Maintenance, Repair and Operation) expressed as a percentage of ARV;
• The cost of maintenance per unit produced;
• The cost of energy consumption of the industry, on an annual basis.

These metrics are usually taken on an annual basis and have the most impact on the effectiveness of applying maintenance investment to the company’s results.

CALCULATING ROI METRICS

Absolute maintenance expenditure, converted as a percentage of ARV, will show how soon assets in service could be replaced by new ones.

It is an index that serves as a benchmark for industries of various sectors and sizes. In the best industries, this indicator is below 3% according to the SMRP – Society for Maintenance and Reliability Professionals.

Example: Total annual maintenance cost of R$ 1,000,000.00 and replacement value of machinery and equipment in use of R$ 20,000,000.00.

ARV =R$ 1.000.000,00/R$ 20.000.000,00 = 0,05 * 100 = 5%.

The inventory value of MRO materials and spare parts refers to the entire inventory of the plants under evaluation, including consignment stock and vendor-managed stock, if any.

According to the SMRP, in the best industries this indicator is below 1.5%, that is, the value of the stock of materials and parts is less than 1.5% of the Asset Replacement Cost (ARV).

The reduction in maintenance cost per unit produced will improve OEE, Overall Equipment Effectiveness.

This happens because this indicator will incorporate the impact of breakdowns and machinery unavailability in the analysis of maintenance cost effectiveness in relation to the company’s outcomes.

The cost of energy consumption can be improved by 5% to 10% depending on the maintenance program adopted.

The greater the participation of preventive and predictive maintenance, the better the energy efficiency of the industry.

PRODUCTIVITY INCREASE IN MAINTENANCE

Among the causes of labor productivity loss are: waiting for spare parts; waiting for instructions, information, technical drawings; waiting for the machine to be shut down for maintenance; running from one emergency repair to another…

With structured and systematized work, clear and documented processes, trained staff, and a computerized maintenance management system, it is much easier.

In addition, it has been proven that maintenance staff productivity can be improved by using basic maintenance management techniques such as:

• Plan the work in advance;
• Schedule the tasks and assign the executors (operators);
• Ensure that the necessary spare parts are available locally;
• Coordinate that the necessary tools are available at the required location;
• Reduce emergency maintenance by replacing it with preventive and predictive maintenance as much as possible.

SPARE PARTS CAN BE REDUCED WITH PREDICTIVE MAINTENANCE

The amount and variety of spare parts and materials stock will depend on the quality of management, the size of the operation, the age of the plant, and the maintenance strategy adopted, among other factors.

With preventive maintenance one can start to plan this stock.

However, it is in the use of predictive techniques that one can anticipate wear and the risk of failure to plan the acquisition and replacement of parts, with great return by postponing financial outlays.

In addition, only with predictive techniques is it possible to extend the useful life of parts and components and to minimize, if not eliminate, unscheduled downtime.

COST OF ENERGY CONSUMPTION AND PRODUCTION SCRAP

By adopting an optimal maintenance strategy, combining corrective, preventive, and predictive maintenance techniques, it is possible for the industry to reduce its energy costs by up to 10%.

This includes mechanical, electrical, steam-generating, hydraulic, or pneumatic systems.

An adequate maintenance process, aiming at the ideal operating condition of machines and equipment, will certainly have an impact on production quality, reducing scrap and therefore increasing productivity and profit.

The best industries are going down the path of monitoring the condition of machines and equipment to remain competitive.

Stay tuned! Get to know the Solution.