Trying to benchmark maintenance cost is a very common practice among many plants or companies. The maintenance cost/ton or maintenance cost/unit is usually considered the most important benchmark.
However, only focusing on the maintenance cost/unit benchmarking is not useful. Why not? First, comparing maintenance cost between plants is very difficult because of variables such as the organization’s definition of maintenance cost, local tax laws, currency exchange rate variations (if comparing internationally), company practices (and ethics), maintenance debt, difference Should Maintenance Cost be Benchmarked? TOR IDHAMMAR in production flow, difference in equipment selection and engineering before startup, and age of equipment.
Second, the maintenance cost alone is not very relevant. It can maybe be compared to pitching in baseball, or slap shots in hockey, which have roughly the same speeds (a bit over 100 mph). Sports fanatics like to measure the speed, but is it truly relevant? What does the speed matter if the game is lost in the end? The main goal is to win. Similarly, the main goal for any company in the world is one thing: profit.
When it comes down to it, benchmarking the maintenance cost on its own is not very useful, and in some cases it is completely misleading for business decision-making. Suboptimization through performing a maintenance cost analysis alone is a mistake that can cause top management to make poor decisions. It is important to understand that, if the product is sold at a profit, reduced downtime (allowing for increased production time) will be more important than simply cutting maintenance cost.
SHOULD ERV BE USED AS A BENCHMARK?
One popular benchmark is the Maintenance Cost/Estimated Replacement Value (MC/ERV). Many consultants believe strongly that this is a great number to use when comparing plants. Some go as far as to claim that two percent is “best practice” or “world class.” Often, the two percent figure is used regardless of the industry being benchmarked. Due to variance in the numerator (if a/b=c, then a is the numerator, or the maintenance cost) we know that maintenance costs vary. Therefore, it really is entirely useless to benchmark the MC/ERV between different industries.
For example, consider a conveyor belt used to transport iron ore under hot and humid outdoor conditions compared with a similar belt that instead transports wood chips indoors. The belt carrying ore in the hot sun will wear more quickly than the one indoors transporting wood chips. Therefore, the maintenance cost will be higher for the belt used for iron ore. A pump for room temperature water will wear differently compared with one pumping bitumen in oil sands.
The ERV itself adds to the uncertainty of MC/ERV. If actual asset depreciation hasn’t been properly handled, the plant won’t have the correct number for estimated replacement value.
IS BENCHMARKING POINTLESS?
The answer is no. It is not pointless to benchmark maintenance cost. Maintenance cost is a very important performance indicator, but it should be put in perspective with all the different factors described here. Maintenance managers need to analyze age, past maintenance completed, initial investment quality (Life Cycle Cost) and all other factors. It is impossible to produce an analysis that incorporates all key factors that include maintenance cost, so the number should not be analyzed as a standalone number.
What can and should be analyzed is maintenance cost performance over time within a specific plant—not comparing it with other plants. The cost should be analyzed together with a set of additional “balancing” KPIs such as Overall Production Efficiency (OPE), total cost, revenue, etc.
What should the main goal be for maintenance management if it isn’t simply to reduce maintenance cost? Let’s look at maintenance cost from one more angle.
If reducing maintenance cost is the key goal for a maintenance department, it is very easy to achieve. Just stop doing maintenance work and your cost will be zero. Goal achieved! Some may say that idea is silly—no mine, plant, or paper mill would do that. Of course not, but why wouldn’t they?
If you stop doing maintenance work, the equipment and plant will stop running, and your revenue will disappear into thin air. Plants should define what the outcome of the maintenance department should be. This is a vital discussion to have because it entirely changes the approach to maintenance in an organization. The product of maintenance work should not be service. It is not repair and it is not cost. The outcome of maintenance work is equipment reliability.
If the goal for maintenance is equipment reliability instead of maintenance cost reduction, high reliability will reduce the cost over time, and you will get the best of both worlds.