2010-asset-manager

Raise the bar on asset management

Oct. 12, 2020
David Berger says this 5-step approach will help you connect the dots from high-level strategy to individual performance.

All companies constantly struggle to find new opportunities to cut costs and/or increase revenue without sacrificing quality and service.  This is especially pronounced during these turbulent times (eg, trade wars, COVID).  Automation opportunities abound, such as artificial intelligence (AI) and the Industrial Internet of Things (IIoT), but they are sometimes complex, time-consuming and expensive solutions.  So where to begin?

Start simple, by providing clearer direction and motivation to the vast majority of employees who work on, or in support of the front line.  Imagine a job where on any given morning you have no idea what work you will be doing, that day or on subsequent days.  Imagine not knowing whether what you do end up doing, has been done well or poorly according to your supervisor and others.

About the Author: David Berger

Working in this constant fog can be very disconcerting even when you invariably grow accustomed to it.  However, these are the realities of asset management for many front-line maintainers and even their supervisors.  Clearly, the morale and productivity of the department suffer over the long term as a result.

The solution is easy to articulate, but very difficult to implement. More planning is required, from long-term strategic planning, to annual and monthly planning, to better day-to-day scheduling and control. This creates a level of expectation about what and how work should be done. Furthermore, performance and remuneration should be based, at least in part, on how well those expectations are met. The result will be greater focus, which in turn, leads to more output with less input. These five steps describe a programmatic approach to bridging the higher-level strategic planning process, with the grass-roots motivation and performance evaluation of individuals:

1. Set performance targets for the department. The first step is for Maintenance to partner with Operations and go through the strategic planning process, setting goals and objectives for the long term. Then, establish measures or indices that will reflect the level of performance regarding each goal and objective. The current value of each measure is then determined.

Targets must be set which exhibit a graduated improvement over the long term. Take care to obtain ideas and commitment from all levels, from worker to management, in Maintenance and Operations. Performance will be judged based on how aggressive the targets are, and how well the targets are met. Support groups such as Engineering, IT, and any project teams should share accountability for achieving relevant targets.

2. Prepare action plan to meet targets. To prevent targets from becoming simply numbers pulled out of the air, action items are created in light of strategic goals and objectives. The action plan describes how targets will be met. For example, if one target for this year is to reduce downtime by 2%, action items include setting up a more comprehensive work program, introducing a condition-based maintenance program for the more critical pieces of equipment, initiating a training program for key equipment operators, and implementing an automated downtime monitoring system.

3. Determine tasks, skills, and occupations required to implement the action plan. The action plan may change the quantity and type of maintenance work that is required, which in turn, may demand different skill sets. As well, new skills may be required to maintain new or modified equipment. Thus, it may be beneficial to take an inventory of all the tasks that are currently done and will be done by the maintenance department.

Then, classify each task as to skills required to perform the task, and the level of difficulty. Next is the monstrous task of regrouping the tasks into logical jobs and occupations. This exercise should be accomplished jointly by workers and management, to achieve a buy-in at all levels.

Note that multi-skilling can easily be an outgrowth of this process. For example, suppose there are many job categories such as setup person, electrical helper, weigh scale mechanic, and cleaner. After studying the basket of skill requirements, you may be able to regroup the tasks into a single occupation called Maintenance Mechanic, with three job categories MM1 through MM3.

4. Establish quality and performance standards. For each task defined above, quality standards must be set. The subjective nature of responses to questions such as “how clean is clean?” can make this step difficult, but certainly possible. Where applicable, time standards should then be established. For example, performance standards for certain repair/replace tasks or condition-based inspections can be set in consultation with the maintainers.

5. Measure performance using CMMS. Once tasks are defined and standards established, a CMMS can be used to help track how well individuals, groups of individuals, and the whole department are meeting those standards. The danger, of course, is to use the CMMS performance reports to discipline an individual, as this will surely mark the end of accurate recording of labor hours.

It is far better to reward above-standard performance than to punish substandard effort. In my experience, you do not need a CMMS to recognize that an individual is not performing. As well, if you concentrate on the performance of teams, trades, geographic areas, departments, etc., peer pressure will ensure that an individual’s performance is kept in line.

Finding and quantifying productivity improvement opportunities


Suppose, as part of the 5-step approach described above, Maintenance and Operations are encouraged by senior management to set a target to improve productivity by 25% over the next two years. This would send folks scrambling to conduct the necessary cost/benefit analysis to ensure the target is met.

You have two simple choices: find a means to increase output and/or reduce inputs. This affects productivity, defined as “output” divided by “input.” Although this might sound like a straightforward approach, experienced managers understand the difficulties in measuring and harvesting the expected outcomes.

Many managers have asked me over the years for a simple checklist to use when looking for productivity improvement opportunities or when preparing a cost/benefit analysis.  Listed below are some sample measures useful in identifying and quantifying cost, quality, and service improvement potential.  Additional measures such as revenue/sq ft of floor space or volume output/manhour can be established by combining outputs and inputs.

Managers must rely on sensitivity analysis for some measures, in order to give a sense of savings potential, but without committing to hard savings. For example, a given company may have $2 million worth of returns each year, including additional labor, facilities, and lost revenue. If it is determined that this is partially due to old equipment, which can be offset by purchasing new equipment, then savings can be quoted as “$20,000 for every 1% reduction in returns.” Assuming this is a very conservative impact with a reasonable return on investment, top management will feel quite comfortable in approving the purchase of new equipment to handle forecasted volumes.

1. Labor savings opportunities

  • labor rate (dollars/hour)
  • turnover (people/year)
  • absenteeism (hours/year)
  • lateness (hours/year)
  • utilization (productive vs idle time)
  • % time spent on non-value-added activities (eg, travel, material handling, inspections, verification, excessive approvals, customer service, ie, do it right the first time)
  • training cost/employee
  • efficiency (variance to standard time)
  • indirect (support) hours/direct labor hours
  • strike activity (dollar losses due to strikes)
  • number and impact of suggestions (ie, points to employee morale)

2. Material savings opportunities

  • scrap (can be sold)
  • waste (no resale value)
  • re-feed (item put back through process)
  • re-work (item repaired off-line)
  • give-away (revenue leakage)
  • yield (% finished product that can be sold for premium dollars)
  • shrinkage (eg. product sold by weight dries out during process)
  • gain (eg. product sold by weight absorbs water during process)
  • losses (eg. fraud, pilferage)
  • returns (customer brings product back for refund)
  • repairs (customer brings product back for re-work)
  • % defective (% off-spec at various stages of operation)
  • material handling costs (mail, courier)
  • inventory level (dollar or volume of raw material, work in process, finished goods, indirect materials, general consumables, spare parts)
  • inventory turns (number of times per year that the inventory rolls over)
  • storage costs (cost of warehousing inventory)
  • stockout % (service level)   
  • fulfillment response time (speed of completing an order)
  • throughput time (average time to produce a given product)
  • quality measures (variances used to highlight extent of deviations from quality spec)

4. Savings opportunities regarding material suppliers

  • late shipments
  • damaged goods
  • over and under-shipments
  • delays
  • back orders
  • wrong orders
  • expediting cost
  • % of revenue

5. Capital savings opportunities

  • equipment cost (initial capital, installation, operating costs, maintenance, labor, investment recovery, etc.)
  • reliability
  • downtime (availability)
  • capacity utilization
  • performance (eg, widgets/hour)
  • cost of poor quality (ie, cost of material problems in #2. above caused by equipment)
  • total cost of ownership

6. Facilities savings opportunities

  • cost/sq ft (eg, lease)
  • volume (cube)
  • capacity utilization of space

7. Energy savings opportunities

  • total energy consumption
  • peak consumption
  • efficiency
  • cost/unit

8. Land savings opportunities

  • cost/acre
  • capacity utilization
Asset Manager

This article is part of our monthly Asset Manager column. Read more from David Berger.

About the Author

David Berger | P.Eng. (AB), MBA, president of The Lamus Group Inc.

David Berger, P.Eng. (AB), MBA, is president of The Lamus Group Inc., a consulting firm that provides advice and training to extract maximum performance, quality and value from your physical assets, processes, information systems and organizational design. Based in Toronto, Berger has held senior positions in industry, including for two large manufacturers, and senior roles in consulting. He has written more than 450 articles on a variety of topics such as asset management, operations management, information technology, e-commerce, organizational design, and strategy. Contact him at [email protected].

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