Much like the game of football, when it comes to maintenance everyone thinks they are an expert, but only a few get to play in the Champions League. Because of this, companies often fall short. If we take a closer look at manufacturing companies, there are several reasons why their underperforming maintenance has a significant impact on EBITDA.

Most of these correlations are hidden, and only the effect of indirect labor and maintenance, repair and operations (MRO) costs are obvious. A short-term action to cut these costs can have an immediate and positive impact on the profit and loss (P&L) statement; however, if we take a mid- to long-term view the story will be very different.

Maintenance enables the operation of a manufacturer's machine assets; however, it's often deemed as a non-value-adding topic. While this may be true, it is an essential non-value-adding subject. Why? To answer that question, we need to understand some of its correlations to EBITDA.

Let's take a simple example:

  • Recently, one of our clients' critical departments was performing low on a three-shift pattern. We implemented the typical productivity and maintenance key performance indicators (KPIs): overall equipment effectiveness (OEE), mean time between failures (MTBF), mean time to repair (MTTR) and the preventative maintenance (PM) rate. These metrics gave us a solid baseline and understanding of the losses. We realized that the OEE was 37.5%, meaning that our client did not utilise almost two-thirds of the installed machine capacity.
  • Our baseline identified a potential 37.5% OEE uplift.
  • To deliver this OEE uplift, we improved the condition of the plant's machines by implementing a seven-step asset care approach and worked closely with the maintenance teams to improve their value-added tasks, using reliability-centered maintenance analytics.
  • The immediate result was that we experienced an improved and stabilized OEE at 75% in six weeks.
  • So, the big question is how does this improvement impact the P&L and EBITDA?
    • The answer is simple: As customer demand for the product stayed the same, the increase in OEE to 75% allowed us to restructure the client's manufacturing shift patterns, reducing from a three-shift pattern to a two-shift pattern and giving immediate savings on the headcount numbers of 15 direct full-time equivalent (FTE) workers.
    • If our customer then experienced an increased demand for the product, they could continue production with the same number of FTEs in the same shift pattern with double the production output over the same time due to better utilisation of installed machine capacity.
    • A further, but less obvious, improvement was that the increase in OEE supported the optimization of the "man-to-machine ratio" from 1:3 to 1:5, which then enabled us to reduce the headcount by a further 12 direct FTEs.

We could have taken the easy route to find savings by analyzing the classical indirect and MRO spend, but that would have only delivered a small saving of three indirect FTEs. It would have also carried the risk of leading to a further loss of OEE and an increase in production overtime.

We have learnt throughout many of our interactions with our clients across the globe that maintenance maturity ranks low and is not viewed on a strategic level, nor is it viewed as a lever for cost reduction. Coupled with inadequate KPI tracking, a low PM rate, limited computerized maintenance management system capability and no understanding of the complete total productive maintenance model, the maintenance culture mindset is not a strategic one but rather a "firefighting mindset." Clients on this course typically have an outdated maintenance organization, which causes a high-cost, low-efficiency environment, negatively affecting the retention of skilled labor.

Any turnaround in the maintenance and engineering sectors requires understanding, commitment, expertise and time. Our short example above demonstrates that a maintenance turnaround program will quickly produce first results.

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