How Lean RCM reduces Totex

How Lean RCM reduces Totex

How Lean RCM reduces Totex

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Here Richard Kelly talks about how Lean RCM reduces Totex. This analysis of the benefits of Lean RCM and Life Cycle Costing is written with a slant towards the water industry however the points are equally applicable in any other manufacturing or process industry.

Lean Rcm

Lean RCM increases the reliability of equipment and processes to the maximum, cost-effective level. Availability levels in the high 90s and approaching 100% are possible whilst at the same time, Lean RCM typically eliminates 50 to 80% of traditional preventative maintenance activities.

Totex

Totex stands for Total Operating Expenditure. A term that is making waves in the UK water industry after the regulator, Ofwat, informed the water utility companies that, from now on, their performance will not only be measured in terms of controlling operating costs but will include capital expenditure as well. The underlying objective is to stop the water companies diverting higher than optimum operating costs (stemming from activities such as reactive maintenance) into capital spend to mask inefficiencies. By measuring the total picture (Totex) Ofwat, and, of course, the water customers whose interests they represent, will have greater visibility of the true performance of their water provider.

Life Cycle Costing

Although good news for consumers, this is not a case of the water industry leading the way but merely following a practice that has been in place in many high-performing manufacturing companies and the aircraft industry, amongst others, for several decades. In fact, one could well be forgiven for asking why it has taken so long to introduce. The practice more often referred to as Life Cycle Costing is a robust process that ensures capital equipment is chosen not just on having the lowest purchase price but on the lowest projected total cost of ownership and operation over its intended life cycle.

This encourages the asset owners and operators to work with capital partners to design equipment that is fit for purpose and will operate reliably and efficiently, with the minimum amount of intervention, over its working life. A key component in this process is the adoption of Lean thinking and the application of reliability centred maintenance (Lean RCM).

The 10 ways in which Lean RCM reduces total operating expenditure (Totex)

The adoption of Lean RCM is starting to gain momentum within some of the more forward thinking water companies although there is still some way to go to help senior management understand that Lean RCM is not purely about maintenance costs as the following 10 points serve to illustrate:

1. Increases the ability of processes and equipment to achieve the required outputs
Allows production targets to be met, with the prescribed amount of resources, on time thus supporting the 3 pillars of world class manufacturing/operational excellence-Quality, Cost Delivery.

2. Increases safety and reduces environmental risk
By giving careful consideration to all of the key functions of a process, not just those essential for making the final product. Identification and analysis of important safety, environmental and hidden functions gives appropriate strategies for risk reduction. It is no coincidence that businesses with high safety and environmental standards achieve high profitability and sustainability.

3. Reduces the requirement for finished product stock
You cannot be lean without being reliable. A Reliable process is the starting point for having the confidence to reduce finished stock levels and make the savings that brings without affecting customer delivery.

4. Lower Power Consumption
Reliability is not simply the difference between “Stop” or “Go” Reliability is also about performing efficiently whilst the process is running. Monitoring critical equipment conditions, an output of Lean RCM, helps to ensure assets that consume significant amounts of power are maintained within their optimum range of efficiency.

5. Less process waste
One of the biggest contributors to processing waste is an unstable process with many starts and stops due to frequent unplanned downtime. There is a direct correlation between the increase in reliability gained through Lean RCM and a reduction in processing waste.

6. A reduction in initial capital spend
Equipment that is designed for reliability usually costs marginally more than equipment which is value-engineered i.e. constructed in such a way as to minimise the build cost and the selling price. The smart buyer looks beyond the price ticket by being involved in the design and functional specification of equipment with the equipment manufacturer. In this way, they design-in reliability and ease of operation thus reducing operating costs and ensuring the lowest life-cycle cost. Totex target met. The foolish buyer focuses on beating down the price of the suppliers to get a perceived “bargain” and fails to achieve Totex targets.

On the other hand, improved reliability gained through the application of Lean RCM reduces the need for so many levels of equipment backup (which are so prevalent in the water companies today) thus reducing initial capital outlay.

7. Extends the life of capital equipment
By focusing on a condition based approach to maintenance, interventions are only made when required thus asset life can be considerably extended. Currently, assets deteriorate more quickly than necessary due to two inefficient mechanisms; firstly, ineffective preventative maintenance schedules leading to high levels of reactive maintenance which in turn causes significant secondary deterioration; secondly, unnecessary, time-based, interventions replacing components which (as the Lean RCM process will show) do not conform to an age-related profile.

8. Reduces maintenance cost
Lean RCM reduces maintenance costs by prioritising;
1. Getting to the root cause before introducing the solution
2. Designing for no maintenance at all
3. Designing for maintenance on-the-run
4. Designing for maintenance that can be performed by equipment operators
5. Focusing on condition based maintenance so that interventions only occur when required
6. Eliminating non-value-adding traditional maintenance activities which at best have no impact and often lead to maintenance induced errors
9. Lower spares inventory requirement
There is significant justification, based on evidence from application and case study, to claim a 50% reduction in the quantity of spares inventory that will exist after the application of Lean RCM. Whilst this in itself represents a significant saving, often there is a bigger prize just by being able to find the parts required more quickly when there is an equipment failure.
10. More effective usage of the time of higher-motivated management and employees.

Every man hour spent fixing a failure is an hour lost from being available to make improvements. Total operating costs (Totex) can only be reduced to the minimum by freeing the resources to engage in a continuous improvement culture.

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