Preventive Maintenance

Look in the Internet and you will find plenty of material on the subject of preventive maintenance including cost justification. Interestingly I have not found any mention of preventive maintenance’s impact on sales revenue, Throughput, and the consequences for profit and profitability. I did not do an exhaustive search. The first page of Google results all focused on the probable positive effects on cost. Clearly focus is on the local maintenance cost benefits.

Cost Benefits

The documents I have perused have focused on the following items comparing preventive maintenance with ‘waiting until something breaks’.

1. Actual cost of preventive maintenance
2. Effects of preventive maintenance on expected useful life
3. Cost of repair/corrective maintenance
4. Frequency of required repairs when equipment is not maintained
5. Cost of replacing equipment
6. Effect of preventive maintenance on energy consumption
7. Expected useful life of equipment

The various analyses have shown that in most cases benefits are considerable although there is a few that one would find questionable. In other words in most cases the benefits are so dramatic that there is no question of the value of preventive maintenance. In the remaining cases costs with or without preventive maintenance are near enough equal – a decision either way would not be wrong. 

Throughput Benefits

I have not seen evaluations of preventive maintenance’s impact on sales, Throughput and the consequences for profits and profitability. Reliability of supply is a key issue of most companies. Unreliability of supply forces companies to hold stock as an insurance against supply interruptions. If this protection is insufficient (there is always pressure to reduce stock), then these companies may suffer further damage:

1. More price pressure due to poor reliability.
2. Lost business due to the inability to supply. This could be lost sales during the downtime of equipment or, if the problem persists or happens too often, then customers may be lost.T
3. o regain or replace lost customers results, generally, in lower prices in order to buy business back.
4. To regain or replace lost customers costs considerable effort from the sales organisation – effort that would be better focused on gaining new customers (from those competitors that suffer from poor reliability).

What might be the financial impact on your business?

Impact Model of NOT Practicing Preventive Maintenance.

Assumptions:

1. Materials cost is 40% of sales.
2. Base profit margin is 10%

Evaluation:

1. 1-5% Negative Price Impact
2. -10% Negative Sales Volume Effect
3. The 2 effects may happen concurrently but are evaluated separately.

The impact of price pressure (that we cannot resist against) on profits is enormous – in our model 1o times the relative impact on price. Clearly giving in on price can be very costly for our business. However, if we do not give in on price at least some customers my move to competitors – especially if these have a better reputation than we do. Our sales people have a tremendous conflict – resist price reductions vs. risk losing a customer’s business. Lost business also has an impact on the bottom line (see below). The pressure to resist on price is severely compromised by the threat of losing a client!

Maybe the best strategy is to ensure near 100% reliability! 

Management needs to decide whether it wants to save the expense of preventive maintenance or not. Management should, however, look at the impact of their decision based on the impact on cost and sales revenue and the consequences of the impacts. The decision whether or not to implement preventive maintenance is not just a local decision of the production or maintenance manager – it is a business decision that should be evaluated for its global impact.

 

Hold Down Two Jobs with Ease!

I am not really suggesting you actually do this, but evidence shows that in today’s business environment it is entirely possible to hold down 2 (maybe more) jobs at the same time. This may not be true in all situations, but I claim it is (very) often possible. A better way might be to use your capability to get more done and get ahead in your current job.

Low management expectations and bad practice make it possible. Management expectations are based on their reality; based on what they experience and not on what could be. Organizations’ have simply never delivered to their potential.

Managers are at Fault

Every manager’s personal objective is to demonstrate his high workload, many important tasks and projects he plans to deliver for the company. Managers want to show their value to the company. Such managers overload their organisation with jobs or projects that ‘must’ be worked on and should be achieved. Both managers and their employees are so loaded with work they hardly ever have a spare minute. Not only are they 100% occupied, but at the same time the multi-tasking that goes on is the premium capacity killer for both individuals and organisations. We all know it and yet we continue to insist on (over) full loads - a long list of tasks and projects (all with priority 1!).

Employees are at Fault too

Most employees feel pressure to be constantly busy. If they are not they worry about longevity in their job or the diminishing likelihood of promotion. No work and our job may be cut and cost reduced or we are not visible to those that may help us get a promotion. Not wrong if many, as most people believe, “a resource standing idle is a major waste”. Employees therefore go out of their way to find more work to make sure they are always busy (many stay late in the hope management sees). They effectively aggravate managers’ behaviour. Multitasking in organisations increases even more.

The Damage of Multitasking

Our brains are wired to focus on one thing at a time. Hopping around among or between projects (or tasks) cost every project buckets of time. Every idle project must wait for the person to return to it. Everything takes much longer. Benefits are delayed. A person loses time whenever they return to a task or project. They must recall all that was done before – at the very least read their job notes; that hopefully are complete. (Just think about reading a book. You put your book down to sleep or do something else. When you come back to the book, how quickly are you back in the flow of the story?) Hopping between tasks not only costs time; it also has a detrimental effect on quality and as a consequence more time, repairing poor quality, is lost that should have been available for something else.

How can you hold down 2 Jobs?

Follow some simple rules:

1. Avoid multi-tasking like the plague – avoid it as much as you can. With more than one task or project, make sure you always complete a job before starting a new one.
2. Minimise the number of things you are working on to 3 or so. Prioritize your jobs clearly.
3. Deliver your tasks quickly … by staying focused on just a few tasks and completing them one after another.
4. Make sure your boss knows you have completed a task or project. Don’t let him give you more than the small number you can handle effectively.
5. If you follow these simple rules your boss will see a greater flow of projects coming from you than from anyone else.
6. You need much less (multi-tasking) effort to create this flow and will therefore have the capacity for your second job!
7. Your colleagues will wonder how the hell you do this.
8. If you manage a group … the same rules apply.

Strategic Inventory Placement(Pharmaceutical, Agrichemicals…)

In many B-to-B industries suppliers produce the same basic product for several to many customers. The product may be the same, but often the packaging and (or) the labelling will be different. Labelling and packaging is often different from customer to customer, but also within a single customer packaging and labelling might well be different from country to country. Agrichemicals and generic pharmaceuticals are examples.
This variation in packaging causes inventory and availability problems that endanger suppliers’ business since clients can get the same or very similar product from another supplier. Switching does not solve the problem for a client it simply transfers it to another company. Performance is unlikely to improve in any sustainable way.
Suppliers need a solution that makes it possible to guarantee availability, with, at the same time, reducing the amount of stock in the supply chain. A robust effective solution would most probably also take some of the pressure off price.

Are Suppliers & Customers Partners, Competitors or Enemies?

Businesses in a supply chain are really only paid when the final customer, the consumer, has paid for the product – everything else is an advance payment. Every company along the supply chain is competing for that consumer’s dollar. In the B-to-B part of the supply chain a supplier and his customer negotiate price that will, to a large extent, determine profits and return on investment of the B-to-B pair. It is clearly a conflict situation since both the purchasing agent and the salesman concerned are charged with maximizing profit for their company … at least usually. Companies within a supply chain are certainly competitors.
Supply chain collaboration is a buzzword that sounds and real collaboration could be great. Whatever level of cooperation or collaboration is actually achieved, the fact remains that two parties within a chain compete. A level of mistrust is likely to remain.
In many supply chains customers throw orders to their suppliers over a wall– many times as a surprise (in terms of volume or timing). Orders can arrive at really inconvenient times. The supplier may suggest a way to solve the problem – for instance by sharing demand information. A supplier might offer a significant discount for much earlier commitments from clients. Can these proposals work?
Sharing demand information is often problematic because it seems to give away proprietary information that may get into competitors’ hands. On top of that, even if demand forecasts are shared, we all know that these tend to be quite inaccurate. Actual orders are often significantly different. Demand forecasts are inadequate and usually not so useful for suppliers.
A firm order placed well in advance sounds very attractive for a supplier (and for the client if he gets a nice discount). However reality will almost certainly catch up with the client. Close to delivery time he needs a different mix of products. He will request last minute changes to his orders. The supplier loses the discount and gains no stability benefit for his production unit.
Our problem is to find the robust, simple solution to get the best information about near term demand to the supplier’s production unit and to his suppliers. The criteria for such a solution must be something like:

1. Visible, transparent information about current demand for all stocked items (those not made to order).
2. Visibility must be such that all nodes in the supply chain have absolute clarity about the priorities to ensure correct replenishment of stocks in the supply chain.
3. The system must have a simple and dynamic way to adjust target stock levels to current demand as it changes over time.
4. A supply chain must carry stock at the most appropriate strategic locations with the following two targets: a. Minimize stock levels within the supply chain. b. Guarantee near 100% product availability.
5. A monitoring system to provide early warning of an arising capacity problem.
6. The key performance indicators that show the supplier and his customers what their respective performance levels are.

Make for Availability is a process and system that meets the above criteria. If a part of the business is Make to Order, then the two processes can be easily integrated into one mixed mode solution.
In addition to the basic criteria above, the process needs to be able to cope with:

1. Seasonality (Agrichemicals have very seasonal demand).
2. Promotions – especially in retail situations.
3. Sudden peaks in demand – for instance when the supplier gains a new large customer.
4. Sudden loss of a significant account.
5. The need to forecast longer-term demand remains – in order to support decisions about capacity changes.

In today’s business environment the technical challenges to support such a process can easily be overcome.

Selling the Concept

That companies compete for the profit of a supply chain makes the sale (of such a concept) a difficult one. In addition most purchasing personnel and their counterparts from the supplier’s sales organisation do not normally negotiate about inventory, information and availability. They are used to discuss price, product quality, product features and benefits. These people will need to master the core of Make for Availability and the corresponding business offer being made.
Before purchasers and salesmen can even talk about the solution the process must be absolutely clear for a sales or purchasing person to make a coherent offer. The solution may well be a paradigm shift for clients (or suppliers). The process may well indicate that a better location for stocks exists and should be used. There are considerable implications in the way the process must function; who will do what; where will inventories be stored etc. Not too difficult a process to understand, but a purchasing organisation must be in a position to sell the benefits in such a way that will almost certainly gain the clients’ cooperation.

Where should Inventory be located?
Do we need so much?

Roni's Thinking Games

TOC (Theory of Constraints for Education) has developed this short (less than 90 secs) video to help teach kids cause and effect thinking. This is what they have said:

"Hi Everyone, this clip is the first chapter out of 14, where we aim to improve our children's cause effect thinking. The approach is based on the Thinking Tools of TOC by Dr. Goldratt. HOPE YOUR KIDS ENJOY IT!!!

http://www.youtube.com/watch?v=w8ZVNuDp5H0

Learning cause and effect thinking may be helpful for all of us, from business to politics!

http://www.youtube.com/watch?v=w8ZVNuDp5H0

Should I Invest In “CCPM”?

CPPM is an example to explain how you can, should you wish to do so, look at any decision to change (or not). CCPM (Critical Chain Project Management) is a project management methodology that claims to bring very significant benefits to those that choose to use it. The benefits claimed are so high that they must look like marketing hype to those just discovering it. The paragraphs below look at the decision for or against CCPM from 4 perspectives:
1. The potential positives of an investment in CCPM (“The Pot of Gold”).
2. The potential negatives of the investment (“The Crutches”).
3. The positives of NOT investing (“The Mermaid” you want to keep”).
4. The negatives of NOT investing (“The Crocodile” that is already snapping at your heels).
To learn more about the 4 aspects of a decision and resistance to change please click here.

The Pot of Gold

Critical Chain Project Management promises some significant benefits to you, your business and the community.

1. Projects, especially in multi-project environments, take much less time (25 -50% shorter) to complete.
2. Projects can meet their due dates much more often (>90% on time). Those that are late are much less late than current experience.
3. The project organisation can complete many more projects (without adding resources) than is currently possible (25 to 50% and sometimes even more).
4. People’s motivation and harmony in the workplace increases dramatically. This is the benefit that Japanese organisations apparently value the most - they certainly value this a lot.
5. Your business can (should management wish) take advantage of speed, reliability and capacity to transform these benefits into a winning strategy and greater sales. Throughput can grow much faster than operating expenses.
6. …

The “Pot of Gold” does not explain how and why CCPM works. To learn more please attend a CCPM workshop (More Projects in Less Time OR The 2-Day Critical Chain Workshop)

The Crutches

To adopt the CCPM methodology requires paradigm shifts. Each of these paradigm shifts is based on common sense, but they are diametrically opposed to common practice. This will of course cause people in project environments (team-members and management) to worry about the consequences and dangers of the change.
While the methodology deals with the potential negatives and practitioners have learned the ways to deal with others, you must evaluate the risk for yourself. A significant thing to think about is that the work to be done remains the same. CCPM does not change the work, only the way it is organised, sequenced and synchronised. Situations and risks that may worry you include

1. Projects are supposed to take less time, workload does not change and I know from experience there is never enough time. Our (my) performance levels will be at risk.
2. Tasks are cut by 50% - what will that do to my performance?
3. If we can do more with the same resources, then management might decide to do the same with fewer resources. My job is at risk!
4. To invest in Critical Chain will mean a lot time and money to make the change. We need to invest in software, consultants and a lot of time to learn.
5. Project team members may not behave, as they should.
6. …

If you want to learn more about Critical Chain and the risks involved please follow this link or attend one of our workshops.

Your Mermaid

The current environment is fine. We (I) know what we are doing and are comfortable in our current process. Our clients and we are comfortable with the current process (they and we do not know anything else). Expectations are being met. If this is so and the results you achieve are good enough, then you have less reason to change. You need to evaluate whether or not the Pot of Gold is as big as promised, whether the risks of change (Crutches) are too big and the risks of not changing (the Crocodile) are small enough and whether your current environment (your Mermaid) is nice enough. You know your Mermaid the best! You know how well your current situation meets the requirements of your business. If there is no need, then do not invest!

But maybe you should watch what your competitors (crocodiles) are doing.

The Crocodile

The way your projects are managed today might already cause you and your business to suffer from crocodiles:

1. Customers threaten to go to competitors because your lead-times are too long or too unreliable.
2. Investment projects may be unattractive because project costs are too high and lead-times too long. Potentially attractive projects are not pursued.
3. New product developments take too long and consume too much of your capacity. Competitors are gaining on you.
4. If the Critical Chain promises are valid, then you will have a new crocodile from those competitors that have adopted it.
5. Margins are under huge pressure from clients.
6. …

You need to understand your crocodiles currently threatening you and your business. As crocodiles grow and become more aggressive something will have to be done.

What is the Right Solution for YOU?

CCPM might be the solution, although Agile, Scrum, Reliable Scrum, Kanban and Spider project management are all methods you probably should evaluate. They all are ways to address the problems of current common practice and the problems most businesses have with late, over budget and missing content in their projects. To learn more see Speed4Projects.
Join us in workshops to look at ways to combine ideas from all of these so that you can guarantee reliability and speed. Click on the Workshop to follow the link.

1. More Projects in Less Time; Simplified Resource Management;
2. The basics of Critical Chain;
3. 2-Day Critical Chain Workshop (A); The Path to Success for Project Organisations (B)
4. Practical Project Control
5. Evaluate your Risks and Benefits with Critical Chain
6. Critical Chain as a Business Strategy
7. Software to Support Critical Chain
8. Comparison of Project Management Methodologies

The workshops are in German. If you prefer these workshops can be presented as private events in both German and English.

Echoes of Theory of Constraints (TOC)

Rajeev Athavale has published a collection of articles (including some of mine) in an eBook. There are 40 articles in volume 1 and looking at the authors they are a group of TOC experts with many years of experience. Should be a worthwhile book to get.

The proceeds go to the Goldratt Foundation to support its activities in extending TOC knowledge.

I want to thank Rajeev (and his helpers!)for the huge amount of effort he put in to create this first volume. I hope he will have the energy to keep up the good work and that TOC practitioners around the World support his efforts.

Echoes of TOC