Proper investment can yield significant income streams
Business venture capitalists and speculators constantly keep an eye on the next big cutting-edge technology. The problem is, it often takes losses of millions of dollars before the bleeding edge evolves to the cutting edge.
Meanwhile, many businesses often take for granted their older, yet functioning technology. The “rusty edge” of the product lifecycle might not yield as high a payback as the newer technology, but with the proper investment, asset-care businesses can still generate significant income streams. Also, many products have additional applications that haven’t been fully marketed or optimized for performance. With upgrades in maintenance performance, the rusty edge can elevate profitability without the danger of high-risk investments in the alluring bio-tech, nanotech and other bleeding-edge sectors.
Maintenance:
When all goes well, nobody acknowledges its existence.
When it all goes badly, they say it doesn't exist.
When money is involved, they say it's not necessary.
But, when it doesn’t exist, everybody agrees that it should exist.
We’re in the midst of a maintenance crisis. The biggest contributor to this crisis is lack of knowledge of maintenance’s true purpose. To clarify our function, Joel Levitt of Springfield Resources allowed me to share the following story.
You should pass it on to business leaders, accountants, maintenance personnel, and even students, so they can more appreciate and better support our role. After all, maintenance development is economic development.
The purpose of a maintenance department
I had the wonderful opportunity to work in a gold mine in South Africa. Deep (10,000 ft.), hard-rock mining is a tough, dangerous proposition as is maintaining the equipment. Even in that tough environment, the basic lessons are important. For example, I asked, “What is the mine’s product?” Of course, they would answer, “The mine's product is gold” (with ‘dummy’ added under their breath).
Then I asked, “What was the maintenance department’s product?” The universal answer was repairs to broken equipment. Superficially, that makes sense. When I think about a car dealer’s service department, I think in terms of, “My car is broken, they fix it. I pay for the repair. Therefore, they are in the repair business.”
Is the mine’s maintenance department any different from a car dealer’s service department? The answer is the core difference between struggling maintenance departments and great ones. It also explains the focus of management.
The maintenance department's product is capacity: the capacity to dig up the ore and turn it into gold. It is the capacity maintenance produces that is valuable, not the ability to repair equipment.
What difference does this make? If capacity is the product, then management should focus on optimizing capacity. If capacity is so valuable, maintenance resources are just a small part of the calculation. If repairs are the product, then the focus is on cutting repair costs by reducing parts inventory and department personnel.
Let’s get back to mining. If nothing breaks, we might be able to mine enough ore to make 600,000 Troy ounces of gold a year. But with breakdowns and downtime, we only actually get 420,000 Troy oucnes. The maintenance budget to achieve that production might be around $15 million. The gap between the ideal and actual output is 180,000 Troy ounces annually. That might not sound like a lot, but a Troy ounce of gold is worth $460, so the gap is worth $84 million every year.
With proactive maintenance and other good maintenance practices we might be able to close 15% to 20% of the gap with modest percentage increases in maintenance. Maintenance budget increases, which would be temporary, might amount to $1 million to $2 million per year for a few years. The extra investment might be in systems, increased inventory, additional training or some combination.
There is much more money to be made annually in increasing capacity then there is in a decade of maintenance budget cuts. The economics of good maintenance can make significant return on investment for companies willing to change their attitudes.
Contact Joel Leonard at [email protected]