Don’t make hindsight a feature of asset management strategies

02 November 2021 Consultancy.com.au 3 min. read
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Jack O’Brien, a management consultant at Pollen Consulting Group, builds the case for not making hindsight a feature of asset management strategies for machines.

In our consulting work with manufacturers, we often work with clients who have almost no inventory of critical spare components for their assets and machinery. Some of the recurring phrases we hear on the shop floor: “Maintenance is seen as a cost centre, rather than a value creator”, “The spares may never be used, so what’s the point?”, and “The maintenance budget is too heavily focused on repairs, wages, salaries and compliance.”

These are all very valid points. Yet few businesses understand the true cost of not holding critical spares and the resulting additional downtime. This can include loss of production, priority ordering and delivery expediting fee and special delivery costs for overseas parts (such as airfreight and ‘cash & carry’).

Don’t make hindsight a feature of asset management strategies

From a non-tangible perspective, there could be expired stock due to an inability to undertake processing, lack of stock on hand for delivery, risking reputational damage as well as poor employee morale from a continuous firefighting culture.

So, does the risk of these costs justify not spending the necessary capital required to hold stock of critical spares? Let’s consider the benefits:

  • Reduction in Mean Time to Repair (MTTR) resulting from improved maintenance response times;
  • Improved Delivery in full, on time (DIFOT);
  • Reduced operator overtime;
  • Improved Overall Equipment Efficiency (OEE);
  • Employee morale improves as staff and workforce focus less on firefighting activities and more on other value adding activities, such as major projects and planning. 

An example

Pollen Consulting Group recently undertook analysis of the critical spares holding for a major food and beverage processor. The client had low- to-no holding of critical spares inventory. Many of the parts required were held overseas and before Covid-19, would be flown in and delivered to site by a supplier representative within 24 hours. 

The current macro-environment, including hotel quarantine due to Covid-19 restrictions, and overseas supply chain impacts have created challenges for the company in responding to downtime events.

The Pollen Consulting team undertook a gap analysis between the company’s present holding of critical spares and those recommended by original equipment manufacturers (OEMs). Working collaboratively with the maintenance and engineering team on site and their knowledge and experience on the production floor, we were able to revise this list to those items deemed critical to business continuity.

In total, the analysis identified approximately $1.15 million of required spares for purchase and 4,000 individual assets. By undertaking a cost versus benefit analysis, we determined that the current tangible cost of breakdowns per annum was approximately $600,000 to the business. 

Whilst these metrics assist in understanding the potential ROI that an investment in critical spares may yield, this was not the focus of the business case put forward to the board. Rather, the argument for purchasing critical spares is that they are an insurance policy against plant breakdowns. They are a necessary ‘critical enabler’ that adds value by improving response times, reducing MTTR, leading to improvements in OEE and DIFOT. 

The key lesson

The key lesson? Don’t make hindsight a feature of your strategy, understand what critical spares your business needs and the benefit they can deliver. Focusing on these ‘critical enablers’ in the maintenance and reliability strategy can improve business performance overall.