Spend Matters welcomes this guest article by Joel Johnson of GEP.
Manufacturing companies, particularly those in commodity industries, are continually seeking step-change cost reduction strategies. The standard procurement contribution of 5%-10% savings from an RFP or supplier negotiation is often deficient in the face of more aggressive targets. Such conditions have led to close scrutiny of plant fixed costs, of which maintenance supplies and services are a major contributor. This has left both plant leadership and procurement teams with the question, “Can an area as operationally critical as maintenance be an opportunity for major cost reductions?” The answer is almost always yes. A few simple questions can help point us in that direction.
- When are we fixing this? The first opportunity involves a shift away from emergency, unplanned maintenance and toward preventative maintenance. If the majority of maintenance is planned, this allows for better work scheduling, resource allocation and drives down cost related to parts expediting.
- Who is fixing this? Many organization have outsourced all or a portion of the non-core maintenance work to a third party. Enlisting the support of a third-party expert in this area can drive significant efficiencies, but it also comes with a set of risk factors. There is a high degree of coordination required to ensure the appropriate division of labor between internal and external teams. Performance metrics must be clearly established up front and carefully tracked on an ongoing basis to ensure that contractors have an appropriate stake in plant performance.
Periodic productivity assessments and wrench time tests can reveal substantial roadblocks. A contractor’s scheduled work can be substantially delayed by a locked out area or a backup at the tool crib. Regardless of whether the workforce is internal or external, strong operational discipline in the work management and planning process can drastically improve labor productivity and reduce ongoing costs
- Why are we fixing this? In order to unlock the greatest areas of opportunity, some philosophical questions regarding what is repaired and why must first be addressed. These questions must be answered taking into account plant-specific circumstances such as uptime and government regulations. Preventative maintenance (PM) optimization, if applied appropriately, can drive substantial costs out of the maintenance area. Detailed historic performance information is an important component of assessing current PM cycles and identifying opportunities to extend maintenance schedules. Downstream, these PM-related decisions can have an impact on stock levels, thus driving working capital improvements.
The establishment of highly competitive maintenance services and supplies agreements is a worthy procurement endeavor. However, without the appropriate performance metrics and demand controls at the plant level, the benefits of these agreements can quickly erode. A pragmatic decision to skip a PM cycle can save 100% of parts and labors. The magnitude of such demand-oriented decisions should encourage procurement teams to partner with plant representatives to understand what is driving requirements and where the opportunities for improvement exist.
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