Managing on a shoestring

The status of asset managers within process operations has risen steadily over recent years, driven by skills shortages, as well as pressure on companies to meet rising health, safety and environmental standards. Their star has risen even higher over the past 18 months, as the downturn has ramped up the pressure to maximise returns and minimise costs associated with every piece of kit at their disposal.

Despite today’s increasing focus on asset management, many companies are severely restricting the amount of money available for current programmes. Today’s ‘cash is king’ mantra, therefore, demands a careful balancing act between long-term planning and short-term returns - a challenge favouring companies with established shopfloor-to-boardroom strategies for managing their assets.

Setting the scene, Wouter Hendriks, product manager, software solutions with Yokogawa Europe BV, said that demand for the company’s asset management solutions has been impacted by the economic decline, with customers now investing only in systems that bring clear, measurable revenues to them. On the other hand, he adds, process companies are paying much more attention to asset management than they did before the downturn started.

“There are two main reasons for this,” explained Hendriks. “In the recent past, a lot of firms have outsourced their maintenance work to contracting companies. For cost-saving reasons, this trend is now being reversed. Now the maintenance work has to be done with fewer, often highly qualified, personnel. But to do the same work with fewer people requires automated asset management solutions.

“Customers simply have more time left for other things now their production capacity isn’t pushed to the limit. Less time is being spent on ‘fire-fighting’ maintenance activities and more on investigating and developing new strategies.”

Similarly, Andy Bates, director at predictive maintenance specialist Artesis, reports: “Our customers say they are under greater pressure now than at any time they can remember. Orders for their products are scarcer, so the pressure to deliver on-time and on-cost is extreme. Unexpected breakdowns and unoptimised operations can have a greater impact than in normal times, even to the extent of tipping the balance between profit and loss.”

Additionally, maintenance and operations staffs have been cut back to small teams that insist on getting actionable information rather than just more data, continued Bates. These trends, he said, combined with the high cost of energy and increasing environmental regulation, mean managers now need more imaginative and cost-effective approaches to plant efficiency.

“We’re finding that an approach that combines intelligent systems with concise user interfaces that focus on delivering just the most important information to the people who can act on it is seen as a valuable contribution to succeeding, despite the current downturn,” said the Artesis director.

For Dirk Frame, managing partner at management consultancy TA Cook, while time on plant is now much less of a luxury, unfortunately, capital for traditional-style interventions is scarce. Asset managers who are now “cash-poor but time-rich” should use the opportunity to get ready for the upturn. This includes, identifying the “real performance killers” and focusing in on those.

“Asset managers, who might be more used to throwing money at things reactively, now have to think hard about how to use available maintenance labour,” said Frame. “For many, this is the first time they have had the space to analyse, calculate, consider and communicate. Some will use the opportunity wisely, others will rush into even bigger short- and mid-term fixes.”

Frame’s advice here is to think hard about the efficacy of interventions to-date and develop processes and style of working that reflect available competencies. One pitfall to avoid, though, is cutting maintenance hours without understanding the impact on performance and stability.

“First, use the opportunity to learn about the plant, the routines, identify the non-value added and low-return activities, highlight the work that could be done by in-house personnel. Train, coach and support for the upturn and create a true, zero-based budget founded on “must-have” and not “nice-to-have” requirements,” said Frame.

“Asset criticality and performance history form the backbone of the (new) planned predictive and preventive routines,” continued Frame. Meanwhile, he added, the downturn can provide opportunities “to reduce redundancy and hence permanently take out plant and equipment that’s become a convenient prop and not really needed. Looking after it costs time and money that could be better spent elsewhere.”

Peter Gagg of MCP Consulting & Training concurs that asset managers are today now being required to deliver at least the same with less. New corporate manslaughter legislation, he adds, has intensified the need to ensure all physical assets are safe to operate and that the risk of failure and consequential damage to the public is minimised or eliminated.

Before spending

Before any new capital expenditure, Gagg said there must be a clear understanding of what is required from each asset in terms of reliability, availability and performance, which needs to be measured and acted on on a monthly basis. This should cover the current state of each asset in terms of its replacement needs, condition and performance, as well as its planned and actual life.

For example, said Gagg, a company recently decided to replace a set of chillers at a cost of £500,000, as they were reaching the end of their expected life - according to a desktop review by its projects department. A separate physical asset condition survey by MCP for the maintenance department found that the chillers had at least another three years of life. The project was cancelled, saving the £500,000.

Managers must also identify the assets that are of the highest importance from a criticality angle, considering a mixture of impact and risk to the business in terms of HSE, quality, delivery of customer needs, etc. This enables the company to reassess how it is managing its assets, according to Gagg.

“Invariably this will lead to a cut in preventive maintenance tasks and hours of anything up to 20 %. More importantly, it will focus attention on the assets that are needed to make the company profitable and thus ensure that these are well maintained in the best possible and cost-effective way,” he commented.

Gagg also echoed Frame’s caution against companies cutting costs without considering the impact: “If the manager has a good understanding and facts to back up his expenditure it is much easier to focus cuts. If these are not available, then it is generally the case that cuts are made in the biggest area without thinking of the impact.

Companies, therefore, need data that shows where cost is incurred in terms of labour, materials and contract costs, Gagg noting: “It is a common bad practice not to record in-house labour, focusing only on recording materials costs. This gives, at best, half of the picture and does not give a true reflection of full cost.”

Managers must also understand where cost is incurred by type of activity, such as breakdowns, preventive maintenance, projects and shutdowns, and establish the root cause of each failure so that it can be eliminated. For shutdowns it is important that a good project plan is prepared and that lessons learned from similar previous shutdowns are incorporated, said Gagg.

Also, the amount of work to be completed should be balanced against the resources and finance available. This requires that each activity be assigned an estimated task duration time, concluded Gagg. “The principles of Lean can then be applied to identify how the shutdown programme can be optimised,” he explained. “But perhaps, more importantly, ask the question, how can we incorporate the shutdown tasks into normal operation time, thereby removing or heavily reducing the need for a shutdown in the first place?”

Rapid payback

In a typical process plant, costs can be reduced by up to 20-25 % by improving the approach to maintenance and to the utilisation of the workforce, according to Peter Gagg of the MCP consultancy. Better control of contractors will also leverage savings, but it is also important to tap into the knowledge and ideas of the workforce to understand how they think costs can be saved. If the company’s maintenance costs are greater than 3-5% of the replacement cost of the assets, then there is significant scope for savings. MCP, noted Gagg, has helped a large number of process-related companies to deliver cost reductions in maintenance and production by following a structured improvement process that focuses on delivering rapid improvements, typically within six to ten weeks.

Uwe Nickel, associate director at consultancy Arthur D Little’s chemical practice, says the downturn should have little impact on the asset management practices and strategies being adopted by process plant operators. Asset management ‘excellence’, he argues, is something that is carried out independently from temporary market developments.

The solution to avoiding huge uncovered fixed costs in a downturn, said Nickel, involves three things: a capacity utilisation of 90% or more; continuous process improvements and a strict economy of scale approach; and, finally, permanent product portfolio management with a clear capital approval process.

In cases where this “preventative approach” has not been taken, companies have to make significant cuts, continued the ADL expert: “The more common approach of incremental cost-cutting is successful, however mothballing or even shutting down complete sites is the ultimate answer. This cuts plant, infrastructure and overhead costs in all areas and speeds up the process of reducing costs as quickly as possible.

“To do this quickly a global asset and production network has to be in place. For all those cases where such a structure is not in place, it is still possible to take comprehensive actions, but takes more time, requires stricter and quicker decision-making by top management, and sometimes needs an independent outsider’s perspective.”

At ADL, Nickel cited a recent analysis by the company that highlighted how leading chemicals players are merging margin improvement with the long-term undertaking of fixed asset optimisation. However, like most chemical companies, two basic businesses and processes were conducted in isolation from one another, leading to inefficient investment planning and reduced margins.

The study found that many chemicals companies have difficulty addressing the fundamental disconnect between improving margins and optimising their fixed assets for lasting organisational improvements. However, it added, those companies with processes in place to effectively manage both margins and fixed assets have entered the recession with positive bank balances.