Don't let a down economy ruin your maintenance
Contributing Editor David Berger, P.Eng., says these techniques can help you avoid getting hurt by a sharp budget cut.
By David Berger, P.Eng., Contributing Editor
Maintenance departments learned many things during the economic downturns of 1982 and 1989. For one thing, corporate executives are quick to cut costs they deem unnecessary, and, invariably, maintenance expenditures are placed high on the target list. Intellectually, most senior managers would acknowledge the long-term pain associated with the short-term gain of deeply cutting maintenance activity. However, North American executives are judged on bottom-line results, and thus, maintenance is perceived as expendable over the short term. After all, if you hold off on changing the oil in your car for a few additional months, you still can operate the car, or so the thinking goes.
The other observation senior management has made over the years is that by squeezing the organization for short-term savings, most departments, including maintenance, seem quite capable of reducing costs without an appreciable drop in productivity, despite the doom and gloom warnings that emerge.
To some extent, these assumptions are true, but how do you know how deeply to cut costs? When do you risk cutting into bone instead of fat — a 5% cost reduction? At 10% or 20%? Should the percent reduction be mandated equally to all departments across the organization, or should it be based on some analysis based on what is fair and reasonable for each department?
No doubt, these are difficult decisions. In most cases, top management feels there’s insufficient time to do any in-depth analysis, and it’s virtually impossible to define “fair and reasonable” in a manner that all departments would accept. Therefore, it’s easier and faster simply to mandate a corporate-wide percent reduction in budgets and deal with the fallout on a department-by-department basis.
One of the greatest expenses in any maintenance operation is labor. Some of the easier budget cuts to consider include:
- A hiring freeze on new employees into new positions
- Not filling (or back-filling) vacant positions
- Providing an incentive to take early retirement
- Exhausting unused vacation time
- Scaling back on overtime through scheduling changes
- Reducing the hours for contractors (where possible) because there are no severance issues.
Any staff reductions must be accompanied by changes in how work gets done for those who remain. With fewer people saddled with the same old processes, there will be more fires, a growing work backlog, increased errors and a lot of employee dissatisfaction. To translate the staff reduction into productivity gains requires a change in strategy, processes, technology and organizational design. For example, try moving to a more planned environment, finding ways to reduce non-value-added activities such as travel time or searching for parts, training production operators to do minor adjustments and inspections on their equipment, and experimenting with different shift/crew structures.
But, you should avoid certain tempting cost-cutting measures. These include:
- Reduction in training — This can backfire in the short or longer term because it might result in substandard work quality, safety issues, lack of innovation and motivation, and other very costly consequences.
- Reduction in reward/recognition — This is a time when celebrations are most critical to keeping people motivated during tough times. Rewards don’t have to be monetary, and recognition can be as simple as thanking people for a job well done.
- Reduction in communication — During bad times, people are stressed, morale is low and everyone is worried about their own financial futures. Communication should be frequent, open and honest to better manage expectations and avoid surprises.
- Workforce reduction having serious long-term consequences — Layoffs must be analyzed carefully to balance short-term benefits in reduced costs against long-term consequences such as inadequate maintenance of assets leading to product-quality problems, increased equipment downtime, premature asset deterioration and replacement, increased training costs, and so on.
When the economy slows, production volumes drop and assets are used less. Sometimes this translates into less maintenance required, but only if you take proactive steps. For example, examine your PM routines and asset history on your CMMS to determine if condition-based or meter-based maintenance might be able to reduce the frequency and cost of routine maintenance compared to time-based or failure-based maintenance.
Another useful technique for reducing workload and fixed costs is mothballing equipment, facilities or a shift that isn’t needed for a shrinking production output. This lets maintenance focus on fewer assets with fewer staff. Any assets not in use might be sold, leased or rented for additional income, although this might present a costly long-term problem when production volumes begin to grow again.
Spare parts inventory
An economic downturn is a good time for careful review of your spare parts inventory and supply-chain management practices. Consider the following:
- Remove obsolete parts that are wasting shelf space and increasing the time to find parts.
- Examine usage history using your CMMS to determine if costs will be reduced by adjusting lead times, safety stock, min/max levels and order quantities.
- Classify or reclassify inventory levels on the CMMS and determine appropriate service levels for each class (e.g., “A” class items are high value or experience high-volume usage, and should therefore have higher service levels or fewer stockouts).
- Examine the supplier history on your CMMS and determine if you can consolidate and reduce the number of vendors to improve leverage in negotiating prices and terms.
- Conduct Pareto analysis on work history to determine if the root cause of the more expensive plant problems correlate with a given vendor, brand, type, size or other characteristic of parts used (e.g., Brand XYZ light bulbs seem to cause expensive electrical problems).
The work plan
Flexibility and agility are key attributes for surviving a recession. Be willing to try different things. If firefighting is today’s culture, establish process-improvement teams and ask them to recommend ways to change it. If they suggest the need for a maintenance planner role or establishing a well-trained PM crew for reducing a burgeoning backlog, run a proof of concept or pilot for a limited time to see if the improvement idea really works.
One of the most useful features on a CMMS during tough times is the ability to perform a “what-if” analysis on your budget and work plan. Unfortunately, only a few CMMS vendors offer this functionality. The feature allows users to play with the frequency and standard times (staffing) of planned work in simulation mode, and determine the effect on your budget. For example, suppose management requests a 10% reduction in your maintenance budget. What would you cut? Should you mow the lawn or shovel snow less often? Can you inspect certain equipment less rigorously? With the simulation feature, you can try adjusting, say, the frequency of a given PM routine, or change the actual steps and, therefore, the time required to complete a routine, to see the effect on your budget.
Once you’ve finalized the new work plan that supports the imposed budget cut, you can exit simulation mode and save the plan onto the CMMS. A key benefit of this feature is that you can present alternative work plans to management with the corresponding budget consequences. This might help you and your management understand the consequences of budget cuts in the short term. It also ensures that there are no surprises in future years for senior management, when assets deteriorate prematurely or undergo catastrophic failure. Pay me now or pay me later.
E-mail Contributing Editor David Berger, P.Eng., partner, Western Management Consultants, at email@example.com.