3 Maintenance Myths that are Eating Your Cake

Who said, “Let them eat cake?” Marie Antoinette, many people will assuredly reply.

This idea was first espoused in 1766, when Jean Jacques Rousseau wrote of an incident he recalled from some 25 years earlier, in which an unnamed “great princess” was told that the country people had no bread. “Then let them eat cake,” she replied. When Rousseau wrote of this, Marie Antoinette was an 11-year-old child in Austria (the French Revolution would not begin for another 23 years!) The myth that she spoke these infamous words was probably spread by revolutionary propagandists, to illustrate her cold indifference to the plight of the French people. Yet the myth persists over 250 years later, a piece of common wisdom that resists evidence to the contrary.

It’s no surprise that myths are common in politics, but they invade every field of thought, including business, even when they have been shown to be false. They spread at lightning speed in these days of social media, 24-hour television news, and instant global communications. Some alternative facts, like the cake enthusiast Marie Antoinette, are ingrained from years of well-intentioned repetition.

In an operations setting, maintenance managers often succumb to this weakness for hearing a good yarn.

Think about the routine act of budgeting for plant maintenance. It is a mix of what you did last year, what the volume expectations are to be, and the big end-of-life moves you expect. But there is a misconception in most executive suites that maintenance is just a cost of doing business; the equivalent of a corporate ball and chain.

Maintenance should be a business to the business itself. In other words, it should always be providing value to the organization. If the maintenance practices are not adding value, they should be eliminated.

Heresy, you say? In cement, concrete and aggregates, maintenance activities consistently comprise over 9% of the business’s overall costs, according to 2012-2016 benchmarking data provided by the Portland Cement Association.  Maintenance is the highest individual component cost, exceeding spend in direct labor costs, salaries, purchased materials, and depreciation.  Does your company increase headcount or invest in capital unless there is multiple payback of the outlay?  Maintenance should be no different.

The first step in taking back control is recognizing there’s a problem. Below are three maintenance myths that are costing cement and aggregates companies millions every year.

 

Myth 1: A stich in time always saves nine.

In most maintenance handbooks, a low frequency of failure is touted as a key performance indicator of a well-oiled maintenance program.  From this paradigm a belief has manifested than if some preventive maintenance is good, more is better- a better way to flush money down the toilet. What maintenance departments and some accountants typically don’t consider is the overall cost of an equipment’s failure to the business. This includes the repair costs, lost sales (assuming a sold-out situation) and costs of customer defections. Because this data is difficult to obtain it’s easier to give equal attention to all equipment despite the very different overall failure costs.  Take a look at what your plants are preventively maintaining: odds are that 70% of those tasks are a waste of time.

 

Myth 2:  Operate to Failure is not a maintenance strategy.

On the surface, most intuitively don’t look at machine failure as a success. But that’s fertile soil for another myth.  It’s critical to analyze each plant item to ensure that you get the right maintenance policy. Ask questions like: what is the cost to the business if this piece of equipment fails? If it is small, then consider “Operate to Failure” as the strategy.  Most businesses always talk about “Planned” vs “Unplanned” maintenance and think that this means they must have planned maintenance for every item – which is just plain wrong.  Running certain pieces of equipment to failure is a legitimate strategy.

Myth 3: High OEE is a measure of smart maintenance

Overall Equipment Effectiveness (OEE) seeks to obtain a combined measure of a plant’s availability, performance and quality and track how close the plant is running to its “ideal.”  There are many ways to game the OEE calculations and this metric can become very political, especially when its being used to compare several operations around the globe. And when evaluating how maintenance dollars are spent, it’s a dangerous metric to use. There is little correlation between machines that are always available and business profitability. Expenses for improving (or maintaining) OEE should face scrutiny in the form of questions to the impact on cash flow, profitability and payback.  Managing to a target OEE number doesn’t take into account the degree of the cost of failure.  Be wary of frequent maintenance tasks on equipment where failure is not catastrophic.

 

When times are good, practices are usually far less scrutinized, and this is where some of the most powerful myths and misconceptions can be turned into standards. But don’t despair if you can identify with high maintenance costs; with some clear thinking you can have your cake and eat it, too.  Just like Marie Antoinette.

Customer Satisfaction Begins and Ends with Your Supply Chain

Prime Advantage, a leading group purchasing organization for mid-sized manufacturers, recently conducted a survey revealing the financial projections and top concerns of manufacturing executives.

Items topping the priority list for 2016 have shifted from 2015, with 68% of respondents mentioning the importance of growth in existing markets (up 8 points from 2015.) 63% said success is likely to come from new products and services. And cutting operational costs rounds out the top three at 54%. Yet cost cutting is down 5 points from 2015. And upon further review, the focus on cost cutting has been in steady decline since 2013 when it peaked at 68%.


Twenty years ago, when the term “supply chain excellence” first hit mainstream vernacular, the function was more or less linked to the cost of getting the company’s product into the customer’s hands. Most thought of the logistics and supply chain functions interchangeably. However, as commerce has become more competitive following the Great Recession, an organization’s supply chain is arguably its biggest secret weapon. But not for the usual reasons.

Ultimately, it is the supply chain that keeps or loses customers. CEOs are baking this truism into their corporate strategies by taking a broader definition of the supply chain—one that includes planning, decision analysis, and value-adding activities from end to end, rather than just logistics.

A different point of view

However, there are a few inherent reasons that real supply chain excellence remains elusive in most manufacturing industries. For one, the term “manufacturing” by itself implies a high intensity of fixed costs, which encourages high volumes and inhibits production flexibility. Secondly, some chains are part of a global supply network with complicated communication channels that tend to mask the root causes of hiccups and impede coordination activities. Thirdly, pressure is growing from an increasingly impatient customer base that wants its products faster and cheaper- with diminishing lead times granted to the manufacturer.

Despite these obstacles, the business case for improving the supply chain’s reach is an attractive one. Exhibit 1 below contrasts the customer experience between a low and high performing manufacturing supply chain. Based on client experience in the building materials industry, improvement in customer service levels can lead to increases in revenue by up to 10%. Examples of improved service include a) new order confirmations within a few hours, b) trackable order status, c) differentiated delivery options depending on criticality of supply need, or d) early warnings of potential delivery delays coupled with mitigating suggestions.

On the cost side, some producers with integrated visibility can toggle between product formulations based on the fluctuating cost of received materials. And from a working capital perspective, some market leaders in the U.S. have reported 20% reductions in inventory holding costs resulting from better forecasting processes. In the Exhibit 2 example, an integrated fulfillment schedule utilizes economic order quantity intelligence which results in the on-hand reduction of slow-moving products. Not only does this help on turning the inventory, but the freed-up schedule can be allocated to the production of more urgent or growing demand. It’s not hard to imagine what sort of strategic opportunities this creates for a business competing in a low margin, highly fragmented competitive environment.

Exhibit 1.

dec-2016_nle_blog-graph1

So why don’t more producers reap these rewards? The status quo exists, in part, because of how most measure supply chain effectiveness. In the past, cost leadership was a legitimate lever to pull; now technology has most everyone running pretty lean. Does it still make sense to continually view cost reductions as THE benchmark in supply chain excellence when there is real market-moving potential to be had? Measuring supply chain success purely on cost-per-ton-mile or on-time delivery might leave your business exposed to three deadly issues:

  1. Over-generalized customer segmentations impair the ability to uncover disparities in value/work ratio and which customer types would pay premiums for specific add on services.
  2. Guessing on what’s best. What impact would closing a distribution center or supplying a customer from a different source have on the rest of your network? When is the best time to switch transport modes on which route? Who should be favored in times of allocation and what inventory levels should the plants be run to prior to annual shutdowns? These decisions should and can all be optimized.
  3. Low forecasting accuracy is a symptom of insufficient customer collaboration, disconnected processes and incenting volume over credible estimates. The results can mean whip-saw inventories and customer defections.

Exhibit 2.

dec-2016_nle_blog-graph2

Separating Excellence vs. Merely Good

Improved performance in these three categories is the surest way for companies to redefine their customers’ expectations of service and preserve working capital cash, thereby turning their excellence in supply-chain execution into a powerful source of competitive advantage. But the well-known business axiom states that you can’t improve what you can’t measure. In the event your operation’s metrics aren’t aligned to achieving market growth, consider harvesting these best practice measures from the supply chain champions:

  • Product mix forecast accuracy (3-month window)
  • Stability of supply for “A” products and key customer SKUs
  • Distribution excellence for new products
  • Agility in scaling up or down in market volatility without bullwhip effects or disrupting key customer segments
  • Differentiated service levels with targeted upgrade options

If you are an executive exploring whether or not supply chain excellence will help your company raise its level of competitive play, there’s no need to sign up for a crash course in supply chain management. Begin by asking a few qualifying questions, such as:

  • For which specific customers, segments, and products do you reserve the best services?
  • Where do you optimize for cost rather than service?
  • How does a customer’s experience with your order process differ from that of your biggest competitor?
  • Is your network agile enough to respond to or take advantage of changes in demand? How sensitive are your costs to rail car availability or variability in trucking companies?
  • When and how are you forecasting? How accurate are the forecasts?
  • How would your competitors answer these? Where do your customers wish you would answer differently? Market share is in play.

Sustaining growth in existing markets is the number one concern among manufacturing companies, with new services and products leading the way. A company that improves the reach of its supply chain can certainly deliver superior performance and capture this growth. What are you doing today to turn your supply chain into a powerful source of competitive advantage?

Don’t Be Afraid of the Dark

I chided my eleven-year-old son last week on his insistence that the lights in his room be left on at bedtime (ever since seeing the “Ghostbusters” remake this summer.) “Nothing’s going to get you,” I teased him. “Don’t be afraid of the dark.”

“I’m not afraid of the dark … but leave it on anyway.” he urged me.

I will say his twin sister has no problem sleeping in pitch black so it’s obviously got nothing to do with nurture!

Kidding aside, being afraid of the “dark” or the unknown is not just an issue kids grapple with.  When I eschewed a highly-paid respectable career to pursue my dream of starting a consultancy a few years back, I was treated to a virtual smorgasbord of other people’s fears. Friends and strangers helpfully volunteered:

“I would never be able to start my own business. The stress would kill me.”

“Can’t believe you did that. What happens if everybody hates you and money runs out?”

“The problem with me is that I like to see way out into the horizon. You can’t see 2 feet in front of your face in your situation.”

“I would hate to have to scale down my lifestyle at this point.”

And on.

And on.

A lot of people know where they want to go or what they ultimately want to do but are put off by the ambiguous zone in-between their current and future states.  It’s a scary place because we don’t know what’s going to happen on the way. Because it’s dark.

So the question becomes, “How do we navigate this dark zone between where we are and where we want to be?” The answer? “Leave the lights on!”

We need to expose the issues to daylight before we decide they are indeed too big and hairy to contend with.

There are four strategies for assessing the boogeymen that reside in our psyches:

1.      Conduct triage-  I once worked on an improvement project for a large medical provider. Part of the issue was the crazy wait time in their urgent care unit. They were set up with 3 triage areas to process incoming patients. However, the triage process varied greatly depending on the provider manning the desk! The triage wasn’t working as it should. Ask yourself, is what I’m worried about really going to bring ruin to my career or family? Will it potentially cause some short term pain but worth the upside? Or maybe nobody will mock me at all? Are the risks less likely to occur than the benefits are to manifest?

2.      Ask “What’s really the worst that can happen?”– I used to hate giving presentations. But I realized (eventually) that while the audience might indeed disagree everything I had to say, if I provoked thought it was a success. The worst that would happen is a question would be asked that I didn’t know the answer to or that they were bored silly. That’s it. The human mind is second to none in its creativity. What are the specific disasters your brain has concocted for you? Take those, figure out the probability and seriousness of each, and plan preventive actions for the hairiest ones. For extra credit, plan a contingent action for the one you are most worried about in case your mitigating plan falls flat.

3.      Recognize the horizon problem–  I’ve always loved the ocean, having grown up not far from the beaches of South Carolina. As a kid, I always marveled at how far I thought I could see into the vastness of the sea. I later learned the average adult standing at sea level looking at the ocean horizon can only see 3 miles before the curvature of the earth interferes with seeing further.  Thus, the horizon problem: you can only see so far.  Those that take risks in life are faced with low visibility- that’s just part of the deal. But just because you can’t see very far out doesn’t mean there aren’t good things just around the bend. It’s just that you don’t see them yet.

4.      Resist natural inclinations– I had a person who once worked for me admit a during a performance review: “When I get scared, I get very defensive and I WILL lash out.” What’s your tendency when faced with adversity or darkness? Realize that most issues are merely actions to be properly categorized. They are usually:

a.      A problem that just needs to be solved

b.      A decision that just needs to be made

c.      An implementation that needs to be carried out

d.      Priorities that should be clarified and managed

The list above offers personal examples of how to make needed change happen. Your examples will differ but the fundamental questions are the same:

What are you afraid of in the dark?

Is it really there?

That being said, my eleven year-old still keeps the light on.