It’s easy to buy things. Something breaks, or is about to break, you buy a new one. Maybe you get smarter about using and maintaining that thing so that next time, you can go a longer time without having to buy a new one. But you’re still buying a thing, and that’s still, of course, the dominant purchasing model in manufacturing.
That model increasingly is being challenged, however, by manufacturers’ push into servitization—to selling concepts such as uptime and reliability via performance-based contracts that deliver not only the use of the OEM’s hardware and/or software products, but also (depending on the contract) monitoring services and maintenance help.
For end users in industry—users often struggling to meet today’s production and maintenance demands and sometimes with limited appetite for the risk involved in investing in emerging trends—this shift in purchasing models is significant. Questions about the ultimate ROI of a performance-based contract and the disruption to traditional workflows and responsibilities that a contract model could possibly create loom large in many managers’ minds.
But confronted with the manufacturing industry’s urgent realities, including leaner-than-ever staffs and the knowledge gaps created as rising numbers of longtime plant-floor employees retire, more manufacturers are starting to explore how performance contracts could help them meet their needs.
That was the case for Big River Steel, a steel production and scrap recycling company in Osceola, AR. Founded in 2014 and dubbing itself “a technology company that happens to make steel,” Big River focuses on employing advanced technologies to enable nimble production of cleaner, more-formable steels, including niche products such as electrical steels. (“True innovation is rebellious,” the company proclaims on its website.) In 2017, Big River Steel became the country’s first LEED-certified steel production facility.
For as technologically advanced and future-focused as the facility was, though, it still was dealing with the frustrating problems of unplanned downtime and time-pressed maintenance staff having to address urgent issues. So also in 2017, BRS started hammering out a plan with one of its suppliers for a performance-based contract—for bearings and seals.
Why bearings and seals (as well as related engineering and reliability services and tech)? “In our part of the mill, we have so many rolls with bearings that over the course of the years, some of our delays and downtime have been due to bearing failure,” says Tommie Kifer, BRS hot-mill manager.
Plus, “When the bearing stops, it’s the heart of the machine; everything stops,” says Steve Irvine, leader of the metals productivity team at SKF USA, which is providing “service as a solution (SaaS)” for bearings and seals for BRS. “Probably 99.5% of all bearings do not achieve their useful life,” because of problems related to lubrication, seals, maintenance errors, etc., Irvine says.
A lot of those problems come down to gaps in awareness of optimal maintenance procedures or a lack of precision in performing these, which is why training and on-site assistance were built into Big River’s five-year contract with SKF. And it’s why Kifer thinks performance-based contracts can help companies address their skills gaps.
“Even when you talk about people who have experience, they may not have had the correct experience,” Kifer says. “Here, I have some pretty good maintenance guys, but they’ve learned a lot on what to do and what not to do that, the last 15 years, they may have been doing wrong.”
Bearing manufacturers, he adds, should be the ones who have expertise on installing and maintaining their bearings, and he’s glad to have his team receive expert instruction on the specific bearings in use at Big River.
“They’ve learned what to look for,” he says. When it comes to installing bearings, that means how to check clearances, and when it comes to lubrication, that means how to apply lubrication more precisely and at the right times to avoid overlubrication or underlubrication – which had likely contributed to problems in the past, Kifer says.
And the assistance doesn’t only come in the form of workshops or visits from SKF technicians. Says SKF’s Irvine: “We have a person on-site full time (at BRS). He’s an SKF person, but he reports to Big River Steel.”
How has that move been received by the Big River Steel team? “For my group it’s been very receptive on learning more about how to best do their job, best practices,” Kifer says. “We run a pretty lean ship here, so the more tools they have at their disposal, it makes it easier for them.”
One of the biggest goals of the performance-based contract with SKF is “to take an asset in distress to a planned downtime,” Irvine says. Running advanced analytics and modeling applications on asset performance data, and making this data available to all parties via a cloud-based digital platform, allows SKF and BRS to collaborate on maintenance decisions, according to SKF.
“When you consider that 1% of unplanned downtime in this industry costs anywhere between $3 million and $5 million,” says Irvine, the savings of being able to take an asset from an unplanned to a planned downtime for maintenance can be significant.
Year-over-year results aren’t available yet, but Kifer already sees a boost in his team’s effectiveness, bolstered by the use of SKF’s technologies and instruction.
“I think this should be a normal mode of operation,” he says. “We’re both in this together. They want it to perform well because they’ve got skin in the game, and we want it to perform well because it improves our productivity.”