ASSET MANAGEMENT HANDBOOK
Fourth Edition, August 2006
By:
John S. Mitchell
Edited: John E. Hickman
Contributors: Professor J. E. Amadi-Echendu
H. Paul Barringer, P.E.
James C. Fitch
Grahame Fogel
Gina A. Lewis
Mark T. Mitchell
Robert J. Motylenski, P.E.
Jack R. Nicholas, Jr., P.E.
William T. Pryor
Table of Contents
Acknowledgements and Preface... v
I. DEFINITION, OBJECTIVES, BENEFITSAND OPPORTUNITIES...1
Background... 1
Physical Asset Optimization...2
The Asset Optimization Program... 3
Primary Benefits... 4
Value Opportunities... 6
II. PROGRAM NECESSITY, EVOLUTIONAND CHARACTERISTICS...13
Physical Asset Optimization...13
Physical Asset Optimization Within a Typical Manufacturing Process...13
Evolution to Physical Asset Optimization...15
The Requirement for Asset Optimization – View of the Boston Consulting Group...19
III. PHYSICAL ASSET OPTIMIZATION FOUNDATION PRINCIPLES...25
Basic Requirements... 25
Optimization Program Principles...26
Program Objective... 30
Strategy Begins at Design... 33
Procurement Directed to Optimizing Lifetime Cost...35
Quality Installation is Essential... 36
Correct Operation must be Assured...36
Optimized Maintenance is a Necessity...36
Reliability — The Basis of Physical Asset Optimization...43
Failure Analysis (RCA)... 47
Technology Integration... 48
Asset Optimization Requirements for Facilities and Structures...48
IV. MAJOR PROGRAM ELEMENTS... 51
Change to an Opportunity Driven, Profit-Centered Organization...51
The Basic Physical Asset Optimization Process...54
Physical Asset Optimization — The Program...58
Roles and Responsibilities... 61
Financial Measures of Performance...64
Barriers to Overcome Gaining Successful Physical Asset Optimization...66
V. CURRENT BEST PRACTICES... 69
Evolution of Equipment Management Practice...69
An Equipment Lifetime Optimization Program...82
Reliability Centered Maintenance (RCM)...82
Failure Analysis... 97
Reliability Modeling, Prediction, Lifetime Analysis...101
Total Productive Maintenance (TPM)...101
Six Sigma... 104
The Balanced Scorecard... 107
VI. AN OVERVIEWOF IMPLEMENTINGA COMPREHENSIVE ASSET MANAGEMENT PROGRAMWITHINTHE POWER GENERATING INDUSTRY... 111
Definition of the Needs of the Project...111
Cultural Context and the Dynamics of Change...111
Understanding the Scope of the Opportunity...113
Creating the Strategy to Address the Opportunity...115
Creating a Methodology to Measure Progress...119
VII. FINANCIAL RESULTS... 125
Introduction... 125
The Imperative for Physical Asset Optimization...126
The Opportunity... 126
Profit Center Mentality... 127
Selecting Financial Measures of Performance...128
Accurate Lifetime Cost Tracking (Activity-Based Accounting / Management)...128
The Producer Value Model... 129
Equipment Effectiveness... 131
Leveraging Conversion Effectiveness...132
VIII. LIFE CYCLE COST ANALYSIS... 135
Introduction... 135
Roles and Responsibilities... 135
Science of Asset Life... 135
Do the Analysis... 145
IX. METRICSAND BENCHMARKING...147
Introduction... 147
Benchmarking... 152
Use of Metrics in the Asset Optimization Process...156
Commonly Used Metrics, Advantages and Limitations...157
Avoided Cost... 174
Application of Metrics... 175
Benefits of Metrics... 176
Measurement Process... 176
X. PROGRAM LEADERSHIP, VALUESAND ORGANIZATION...181
Introduction... 181
Basic Leadership and Organizational Attributes...181
Values, and Institutional Culture...184
Organization... 188
Results Based Compensation (Reward) System...195
Skills Management... 196
XI. EVOLUTIONOF ASSET MANAGEMENTAT EASTMAN CHEMICAL COMPANY...201
The Case for Change... 202
Learnings from the Pilot Phase...204
Status Update: Where is Eastman today?...205
Development of the Reliability Management Model...207
XII. DATAAND INFORMATION... 211
Demonstrate Contribution, Value and Progress to Objectives...211
Information — Requirements and Use...212
Functional Use... 214
Considerations Favor Open Information Systems...217
XIII. EXCELLENCEATTHE BASICS... 219
Documentation... 219
Asset Hierarchy... 219
Asset Lifetime... 221
Prioritizing Systems and Equipment...222
Work Management... 225
Stores (Spare Parts) Inventory Management...232
Outsourcing... 236
XIV. CONDITION ASSESSMENT TECHNOLOGYAND SYSTEMS...241
The Basis of Condition Assessment...241
Application of Condition Assessment...245
XV. FUNDAMENTALSOF FLUID ANALYSISFOR INDUSTRIAL MACHINERY...249
Role of Oil Analysis... 249
Oil Sampling Methods... 251
Oil Sampling Frequency... 255
Selection of Oil Analysis Tests... 256
Monitoring Changing Oil Properties...258
Monitoring Oil Contamination... 263
Wear Particle Detection and Analysis...268
Interpreting Test Results... 270
Importance of Training... 270
XVI. ELECTRICAL ANALYSIS: STATIC (OFF-LINE) AND DYNAMIC (ON-LINE)...273
Condition Monitoring Technologies and Methods...273
Motor Condition Monitoring Technologies...273
Advantages and Disadvantages of Off-line and On-line Electrical Testing...281
Recent Advances in Electrical Analysis Information Availability...281
XVII. MANAGING THE IMPROVEMENT PROCESS...283
Creating the Environment for Transformational Improvement...283
The Transformational Improvement Process...287
Transforming the Institutional Culture...288
The Transformation Process... 290
XVIII. IMPLEMENTING A PHYSICAL ASSET OPTIMIZATION PROGRAM...311
The Asset Optimization Process...311
Define the Program... 316
Analyze — Identify and Analyze Opportunities...319
Prioritize — Benchmark to Prioritize Improvement Opportunities...323
Plan — Develop Detailed Improvement Strategy and Action Plans...329
Do — Implement Improvement Plans...334
Check — Measure and Manage Results...335
Improve — Implement Continuous Improvement, Identify and Strengthen Weaknesses...336
XIX. ESTABLISHINGA SUCCESSFUL ASSET MANAGEMENT PROGRAM ATA GLOBAL PHARMACEUTICAL COMPANY ... 339
Objective... 339
Asset Management Strategy... 342
Additional Elements and Technologies...347
Reliability Centered Maintenance...350
Performance Metrics and Reports...352
Requirements to Reach Next Level of Performance...357
Results to Date (2004)... 358
XX. PHYSICAL ASSET OPTIMIZATIONFOR CAPITAL PROJECTS...361
Building Reliability and Maintenance Expectations into Projects...361
Work Process Overview... 363
Work Process Elements... 363
Management Support... 364
Project R&M Goals... 364
R&M Program... 366
Define R&M Objectives For Critical Equipment And Systems...367
Designing for Reliability... 369
Designing for Maintainability... 371
Plan Implementation Timetable...372
Ensuring Reliability and Maintenance Performance...373
XXI. INDUSTRY BEST PRACTICES, RESULTS, ISSUES, CHALLENGESAND LESSONS...375
Best Practices... 375
Results... 376
Issues... 378
Challenges... 378
APPENDIX A. GLOSSARY... 381
APPENDIX B. HANDBOOK REFERENCES...387
APPENDIX C. PRACTICAL ASPECTSOF IMPLEMENTINGA PHYSICAL ASSET OPTIMIZATION PROGRAM...391
Applicability... 391
Establishing the Basis for a Physical Asset Optimization Program...392
Directing the Physical Asset Optimization Program...392
The Mission Statement... 393
Reliability Metrics and Best Practices...393
Begin The Physical Asset Optimization Program from Improvement Opportunities...394
Program Implementation... 394
Personnel Issues... 396
Thoughts about Maintenance... 397
Sustaining and Institutionalizing the Physical Asset Optimization Program...398
APPENDIX D. PRACTICAL THOUGHTS REGARDING RCM IMPLEMENTATION...399
Effectiveness and Value... 399
Elements for Success... 400
Consider Streamlined RCM... 402
APPENDIX .E. SCORECARDS... 405
Scorecard Objective... 405
Reliability Scorecard Overall Description and Content...405
Vibration Condition Monitoring Program Scorecard...407
ACKNOWLEDGEMENTS AND PREFACE
The purpose of writing is to inflate weak ideas, obscure pure reasoning and inhibit clarity. With a little practice, writing can be an intimidating and impenetrable fog.
Calvin; Literature of Calvin and Hobbes
I sincerely hope this book will convey strong, practical ideas, help you develop a plan to increase the effectiveness of your physical assets and add a little clarity to what is quickly becoming an area of great interest and potential value!
In any book of this size and complexity that has developed over so many years there are many to thank. My sincere apologies if any of the many who have contributed are left out.
First of all, thanks to all who made the first edition possible back in 1999: Bill Nickerson; The Pennsylvania State University, Applied Research Laboratory; The Best Manufacturing Practices Center of Excellence; the Office of Naval Research; CSI; now Emerson CSI, and all who were interviewed developing material for the first edition.
To the people and companies who wrote entire sections — your outstanding contribution is invaluable and greatly appreciated. Contributors, in alphabetical order are:
Paul Barringer: Chapter VII, Life Cycle Cost; excellent, thought provoking ideas from a real expert! Grahame Fogel: Chapter VI; a terrific description of the development and implementation of an
Asset Management program in a power generating company.
Gina Lewis and Mark Mitchell: Chapter XI; an excellent summary of the Asset Management program implemented by an industry leader.
Bob Motlyenski: Chapter XX; a thorough description of Asset Optimization for Capital Projects based on long years experience with Exxon.
Jack Nicholas: The excellent, comprehensive description of RCM in Chapter V, Chapter XVI, Electrical Analysis plus your encouragement over the years.
Noria Corporation: Jim Fitch, Drew Troyer and staff: The truly outstanding Chapter XV, one of the best introductions to fluid analysis available, and the check off in Appendix E.
Bill Pryor: The basis for the Vibration Condition Assessment Scorecard in Appendix E
Many thanks to all who contributed to this edition by reading some or all of the material and providing your excellent comments and suggestions for improvement. In alphabetical order: Boyd Beal, Grahame Fogel, Willie Gerrits, Steve Johnson, Jay Padesky. Several discussions with John Wood solidified ideas and expanded areas of particular interest to companies considering Asset Management / Optimization. Professor Joe Amadi-Echendu contributed significantly to the international flavor, greater awareness of cultural and social issues as well as expanding the concept of Asset Optimization into the public sector. Thanks to all the participants in the many Asset Optimization Workshops. Your questions and comments led to the reorganization and most of the added material in this fourth edition. It is fair to say that in every case I learned a great deal as hopefully you did as well. Special thanks to all the participants in the Sasol workshops, especially Willie Gerrits who made the workshops possible and Bram Whittaker who kissed the teacher! The time spent with you was most enjoyable and informative — keep up your excellent work! Thanks also to the many excellent presentations and articles that have been delivered on subjects associated with asset management over the past six years. Many notes, some on paper napkins, are incorporated in this text. If you recognize words that are not credited; I apologize. In all too many cases I failed to list the author / presenter, in most cases even the venue or date, on notes taken during many excellent presentations. Special thanks to Heinz Bloch who has added so much in terms of stimulating discussions and encouragement over the many years we have been friends.
My greatest appreciation to a long-time, wonderful friend John Hickman who volunteered to edit the manuscript and did so magnificently. It has often been said that nothing tests a friendship like writing and editing. We certainly had difficult periods, early in the process seeking the optimum flow and organization for the first few chapters and later reading the same material for the umpteenth time! In the end friendship prevailed — thankfully!
Speaking of editing I must acknowledge the contribution of another great friend, Tom Bond, who co-edited the first edition and contributed so much to the thinking described in the handbook. My prayers for comfort and strength to you and your family.
Finally, a few paragraphs about the organization of the fourth edition handbook:
The first four chapters comprise a basic introduction. They identify objectives, benefits and opportunities, define the program, describe the evolution to Asset Optimization, Asset Optimization principles and major program elements.
The middle of the Handbook, Chapters V through XVI, describe the elements necessary to implement and sustain a successful Asset Optimization program. Woven within these chapters are two chapters describing actual implementation. Chapters VI and XI describe the practical aspects of implementing asset management within a power generating company and a ten year retrospective by an industry leader. Chapter XIX describes a third implementation to complete the user series.
Chapters XVII and XVIII define the elements involved with implementing an Asset Optimization program. Five Appendices, including a Glossary of Terms, Appendix A, and Scorecards, Appendix E, provide some additional information including more detailed best practices.
Hopefully, you will find the information useful, informative and of value in your endeavors. I’ll welcome comments and suggestions for improvements.
John S. Mitchell August 2006
I.
DEFINITION, OBJECTIVES, BENEFITS AND OPPORTUNITIES
“Companies that refuse to renew themselves, that fail to cast off the old and embrace new ways could well find themselves in serious decline. Those who hang on to weaknesses for whatever reason — tradition, sentiment, or their own unwillingness to address the necessity for real improvement, won’t be around to see what the best have achieved.”
Jack Welsh, former CEO General Electric
Physical Asset Management (PAM) is directed to a single objective — increasing the value and return delivered by the physical assets (Return On Assets) that are the source of revenue generation and profitability within process, production and manufacturing industries. The principles are extensible to include all the physical assets that make up the built environment.
This Handbook is directed primarily to heavy industry; oil production and refining, chemicals, minerals, metals, paper and automobile manufacturing, electrical generation, transmission and distribution. It is equally applicable to the pharmaceutical, food, resources, transportation, telecommunication and other industries as well as public and private organizations — any entity that relies on a built infrastructure of physical assets as the principal means for operations and / or to meet mission and service obligations. BACKGROUND
Physical assets utilized as the means of revenue generation and service delivery are expensive, usually represent the major percentage of an organization’s capital investment in productive resources and are subject to unprecedented operational demands. Virtually all production and operating companies must achieve significantly improved productivity from physical assets to meet business and mission requirements. In many industries demand is creeping ever closer to capacity. In others excess capacity is becoming financially unsustainable. In all, the tempo and intensity of operations are continuously being elevated. Physical assets that form the production process must operate uninterrupted for longer periods at higher rates than ever before.
Asset Management
Asset Management is a general term that is commonly utilized in finance, real estate, building space, resource allocation and a host of other areas to mean maximizing utilization and return on assets, primarily financial. The term has been adopted by process, manufacturing, production, operating and service organizations to describe a concept of managing the lifetime utilization, operation, performance and effectiveness of physical assets.
“Asset Management has become the Holy Grail to manufacturing,”
ARC Automation News, August 27,1999
There are at least four published definitions for Asset Management:
Plant Asset Management (PAM): The integration of on-line, real-time Condition Monitoring and analysis, combined with a predictive maintenance strategy such as Reliability Centered
Maintenance (RCM). Automation Research Corporation
The set of disciplines, methods procedures and tools to optimize the Whole Life Business Impact of costs, performance and risk exposures (associated with the availability, efficiency, quality, longevity and regulatory / safety / environmental compliance) of the company’s physical assets.
Institute of Asset Management (UK)
The systematic and coordinated activities and procedures through which an organization optimally manages its physical assets and their associated performance risks.
British Standards
To provide agreed level of service in the most cost effective manner for present and future
customers. International Infrastructure Management Manual 2006 Edition
Published by NAMS NZ; contact and ordering info-www.nams.org.nz
Some consider the term Asset Management to be too generic when applied to physical assets in an industrial or operating environment. Physical Asset Management (PAM) may offer a more specific
description of the concept, process, and applicability. However, as stated above the acronym PAM defines a system architecture in the control automation and information fields and is thus a bit different than the methods and objectives most are attempting to convey with the term Asset Management. Perhaps Physical Asset Optimization may be better yet. Physical Asset Optimization identifies both target (physical assets) and objective (optimized utilization, effectiveness and performance).
From this point on Asset Management will be used as a general concept, Physical Asset Optimization refers to the specific program and aggregation of processes advocated and described in the Handbook.
PHYSICAL ASSET OPTIMIZATION
The more detailed definition of the Physical Asset Optimization program described in this handbook is: A comprehensive, fully integrated strategic program directed to safely gaining and sustaining greatest lifetime value, utilization, productivity, effectiveness, value, profitability and return (ROA) from physical manufacturing, production, operating and infrastructure assets.
Note that the preceding is a results definition, specifying what is expected and the target. Physical Asset Optimization is accomplished by:
Deploying and institutionalizing a strategic, fully integrated, array of comprehensive transformational improvements to: organizational values, behavior and culture; the functional organization; process, practice and technology. These improvements are applied to business, management, organization, engineering, operating, control, work and logistics processes.
Unlike many sequential or linear processes, the implementing sequence utilized by the Physical Asset Optimization program is determined by opportunities to create greatest value in areas such as improved availability and reduced spending.
Physical Asset Optimization is applied to:
Physical assets and systems such as machinery, heat exchange equipment, electrical transmission and distribution components, valves, controls, piping, structures, civil infrastructure, etc.
Many organizations correctly consider their personnel, organizational culture, information and institutional knowledge as major assets. There is undoubtedly a great deal of value resident in these areas; however, asset optimization described in this Handbook is directed to physical assets. Personnel, organizational culture, information and institutional knowledge are considered from the standpoint of their major contribution to value rather than their value as physical assets.
A Physical Asset Optimization program is directed to:
Establishing / maintaining full compliance with all safety, social and environmental best practices.
Gaining greatest business value through optimum availability, technical integrity, operating
performance, capital effectiveness and least sustainable cost for specific market, operating and business conditions.
Applying systematic, value driven prioritization and opportunistic implementation of optimized
improvements to the processes, practices and technology that determine the utilization, effectiveness and reliability of physical assets.
It must be emphasized that Physical Asset Optimization is a business initiative. It requires a close partnership between Maintenance and Production and is directed to increasing value produced, minimizing waste in all forms.
Asset Lifetime
Physical Asset Optimization addresses the definition, acquisition, installation and operation of physical assets to ensure they operate safely, reliably, effectively and within performance expectations throughout lifetime.
Asset lifetime: Span of time over which the asset is designed, acquired and utilized to fulfill its intended purpose, including end-of-life disposal.
Asset lifetime is conventionally divided into four stages: 1. Specification, design and procurement
2. Construction, installation and commissioning 3. Operation
4. Disposal
The total cost of ownership over the expected lifetime of an asset from specification to disposal is the lifetime cost.
Within most production and manufacturing companies the design and procurement of capital assets may take a year or two. Construction, installation and commissioning may take another year or two. In most applications the typical production asset operates for several decades during which time it is expected to provide the efficient and reliable performance necessary to meet service delivery and revenue expectations. Decommissioning and disposal rarely lasts more than a year and except for some nuclear power plant assets, insulation, electrical and control system components, rarely involves anything more than tearing out and hauling away.
It is important to recognize that the first two and the last stages of life are totally cost. The third stage is the longest and most important for this is the productive, revenue generating stage of asset lifetime. For this reason, substantial engineering attention is required during the first two stages to assure the asset is specified, designed, procured and installed for optimum productive lifetime.
Addressed in more detail in Chapters VIII and XX, engineering for optimum operating lifetime includes assuring the design has optimum intrinsic reliability; robust and adequate margins for the service including correct materials for the service. Operability, provisions for efficient maintainability including common parts, ease of access and disassembly are other areas that must be considered and optimized during design. Industry leaders form an experienced team of Engineering, Production and Maintenance personnel to audit the entire design, construction and installation phases to make certain that maintenance and reliability considerations are designed and constructed in to the assets.
A company commented that manufacturing facilities they had benchmarked outside of North America where the cost of capital was significantly lower had much greater design margins, more robust equipment, greater intrinsic reliability and operating availability than similarly sized facilities located in North America.
With that stated, it must be emphasized that this handbook focuses primarily on the operating stage of asset lifetime where availability and effective performance are essential to meet mission and production commitments. Design, procurement and installation are covered in Chapters VIII and XX; disposal is not addressed in the handbook.
THE ASSET OPTIMIZATION PROGRAM
Organizations who observe and understand what is happening within their business environment recognize that business performance has been optimized to a large degree with the greatest performance improvements already accomplished. Market conditions are driving including competition, minimum excess capacity and ever shrinking profit margins. An asset optimization process holds the key to reaching the next, essential level of corporate effectiveness. Technical audit assessments of the operations of a variety of organizations has indicated that a set of “first principles” is emerging and being refined to optimize the acquisition, utilization, control and effectiveness of physical assets. The processes, practices, technology and methods to gain maximum return from physical assets are widely known and readily available. The goal of tailoring an optimum, prioritized mix to create maximum value within specific business and operating conditions is a safety, economic, environmental and technological imperative for global competitiveness.
A successful Physical Asset Optimization program depends upon two essential ingredients:
1. Senior management visibly committed to the program and energetically driving for its success. 2. Transformational improvement programs linked to strategic objectives and developed by the
people who will be carrying out the activities — the only way to establish the initiative, institutional culture and values, ownership, enthusiasm and commitment necessary for success.
The Physical Asset Optimization program is directed to ensuring that the physical asset infrastructure has the required availability, effectiveness, technical integrity and performance needed to meet mission, schedule, service, yield and quality commitments at cost, profit and delivery objectives. It ensures full compliance with safety and environmental requirements.
From this point on the concept of Physical Asset Optimization and the implementing program may be abbreviated “asset optimization” — the meanings are identical.
The Asset Optimization program employs proven processes and methods to convert the philosophy into a sound business practice. The asset owner and its stakeholders receive full value and return on their investment in capital equipment, while ensuring that the physical asset’s capabilities and features are fully exploited to safely manufacture a product and / or provide a service meeting environmental and quality standards at a competitive price.
The comprehensive mix of improved processes, systems, practices, and technologies assembled within the Physical Asset Optimization program are implemented strategically and opportunistically. (Opportunistically defined as systematic implementation in prioritized order of value gain to achieve specific business and / or mission / service objectives.) Fully and properly implemented, a Physical Asset Optimization program leads to:
Safety, environmental and social excellence
Organizational, process and equipment effectiveness Operating excellence and efficiency
Effective work and logistics (supply chain) management Optimized spending and capital effectiveness.
The Physical Asset Optimization program begins with the recognition that every organization and facility has a specific purpose, business and mission objectives; unique strengths, weaknesses and barriers to full success. This is the starting point — the initial state on which to build to greater effectiveness. Unlike many linear improvement programs that require beginning with a specific process or practice regardless of actual conditions, an asset optimization program begins at the point that creates greatest value fastest! Applied within a strategic, comprehensive program, the principles of Physical Asset Optimization are applied by facilitated teams that identify, formulate and implement the most effective strategy and plans for improvement. The improvement strategy considers current market, business and operating conditions, related opportunities and the site-specific environment including institutional values and culture, organizational structure and material condition.
The Physical Asset Optimization program described in this handbook has two essential elements: 1. Identification and prioritization of improvement opportunities based on business objectives,
organizational and site-specific conditions value generating potential and risk. Initial objectives are to move forward by implementing the most obvious opportunities for improvement as rapidly as possible, employ resources most effectively and demonstrate commitment to real
improvement — all while building support, ownership and enthusiasm for the program.
2. Transformational plans for improving the institutional culture, organizational structure, processes and practice are formulated and implemented opportunistically by site personnel to gain greatest value quickly. This reinforces the commitment, enthusiasm and ownership necessary to achieve rapid gains and sustain the results for the longer-term.
As a closing comment, it should be pointed out that the Physical Asset Optimization program is directed inward within an organization to assure physical assets have the availability and effectiveness necessary to meet all requirements for mission, product and / or service delivery in full compliance with schedule and cost objectives. To assure success there must be a parallel, outward looking, business, product and quality strategy, not addressed in this Handbook, to assure the products and services delivered to the customer meet all the customers’ expectations for performance and quality.
PRIMARY BENEFITS
Asset optimization is an essential enabler for Lean Manufacturing. Improved asset reliability, performance, utilization and effectiveness; predictable lifetime, defect and work elimination are crucial
elements of minimizing variation, redundancy and waste demanded within the Lean process, see Chapter II for more detail.
In addition to an essential contribution to lean manufacturing, asset optimization has numerous specific benefits including:
Greatest value, return and effectiveness derived from physical assets for mission, business conditions, and objectives.
Maximized reliability and production availability of systems that are critical to operation, at
minimum sustainable lifetime costs.
Optimized, sustainable spending on asset maintenance, minimum unnecessary maintenance activities.
Methodical problem analysis and elimination of defects that limit operation and cause spending. Optimized capital requirements for a given production output or delivery of service.
Attention continually directed to highest value and priority opportunities for improvement.
Progressively increased effectiveness through continuous improvement.
Awareness, participatory ownership, and accountability promoted to meet objectives.
Improve Production Availability
Optimum production availability requires effective capacity management; assuring that capacity is available to meet future requirements. Essentials of capacity management include:
Meet Production expectations for output and time of delivery.
Meet, preferably exceed, business expectations for return on assets. Achieved by optimum
production availability, minimum sustainable costs, operations at or greater than design efficiency.
Increase average production to as close as possible to maximum sustainable production;
minimize the hidden plant. The hidden plant is discussed in more detail later in this chapter with additional information located in Chapter IX.
In addition to increased output, additional requirements include higher quality, reduced tolerances, greater agility to meet delivery requirements, conformance within an increasingly restrictive regulatory environment and demands for increased profitability. In this operating and production environment, physical assets and systems must perform at unprecedented levels of availability, technical integrity and cost effectiveness that were not thought possible a decade ago.
When combined with risk and regulatory considerations that continually reduce the envelope in which most production enterprises can operate acceptably, increased reliability — the basis for production availability and cost effectiveness — is essential to meet delivery commitments and financial expectations. Thus, as unreliability drives cost and risk, optimum reliability is a cornerstone of asset optimization. Predictable capacity, the ability to accurately forecast the availability of production (asset) capacity to deliver on time, cost and quality at the time of order derives from reliability and is likewise essential to the delivery of a product or service. These elements plus value are the focus of the comprehensive program of asset optimization described in this handbook.
Reduce Operating Costs, Increase Capital Effectiveness
Simultaneous with demands to improve operating effectiveness and revenue, are equivalent demands to reduce operating costs and increase capital effectiveness. The latter drives demands to reduce equipment design and operating margins, redundancy, production buffers and spare parts inventories. With all these demands, operating and manufacturing organizations must achieve new levels of “industry best” performance and safely extend the life and effectiveness of new and / or aging equipment — all with minimum expenditures.(41)
Efficiency improvements are another large potential source of cost reduction. With an overall efficiency improvement of just 5 percent, a facility operating 50,000 HP (37.5 MW) of electrical power consumers can save more than $400,000 per year in utility costs (at $.025/kWh). At the bottom line, this is equivalent to $4,100,000 in added production (at 10 percent net profit).
Meet Increasing Expectations for Quality, Reliability and Technical Integrity
There probably would not be sufficient mechanics or repair space available if today’s population of automobiles adhered to the service requirements that existed 30 years ago. Who remembers the spark plug cleaning equipment that used to be a fixture in every service station? Today, 100,000-mile power train and 50,000-mile tire warranties are expected on many models. Furthermore these warranties are required under stringent fail-safe conditions!
The same applies to industry. Equipment and systems are expected to operate longer between repairs. For example, industry-best Mean Time Between Failure (MTBF) for certain categories of process pumping equipment is pushing 70 months. Overhaul intervals have increased from approximately two years to six years and are being extended even further. Plants must operate for three to four years between major shutdowns in order to gain the availability, service delivery capability and production output necessary to meet profit objectives.
Twenty years ago, today’s best practice for asset reliability and availability would have been considered totally unrealistic, wishful thinking.
Move to Minimum Lead, Make to Order, “Demand Pull” Operation
Meeting customer expectations in today’s climate of instant gratification requires innovative, agile, flexible, and reliable processes. Dell can deliver a custom configured computer in three to five days from receipt of order. The Toyota production process is capable of delivering cars to order in five days. The supply chain management system Toyota devised to fulfill this ambitious commitment stunned the industry. No one mentioned the imperative for maximum reliability of production equipment.
The necessity to maintain — and often increase — operational effectiveness, revenue, and customer satisfaction, while simultaneously reducing capital, operating, and support costs is the greatest challenge facing operating and production enterprises. Success demands radical change from earlier organizational culture, functional organization, process and management concepts.
Leading production and operating organizations recognize the essential nature of increasing the effectiveness of physical assets in the new operating environment.
“…business is on the verge of an essential ‘next wave’ of asset productivity improvement — one that must go further and will be more difficult to achieve than past initiatives.”
The Boston Consulting Group
VALUE OPPORTUNITIES
For a profit-oriented industrial corporation, the potential value that can be created by asset optimization represents a significant improvement in gross profit and in capital based financial measures such as Return On Net Assets (RONA) and Return On Capital Employed (ROCE).
Companies that have implemented improvement programs similar to asset optimization have reported simultaneously increasing production uptime by as much as 30 percent, improving safety performance and reducing spending by as much as 40 percent.
To expand on the latter, authoritative sources report that North American industry collectively spends between $700 million and $1 trillion annually on production equipment maintenance, at least a third of which is unnecessary.(121) There is a big return by eliminating all forms of waste.
The U.S. Department of Commerce reports that 40 percent of manufacturing revenues are spent on maintenance (asset care).
For the average process and manufacturing company, maintenance costs may be larger than gross profit. Reports indicate that approximately 20 percent of industrial production losses, including the cost of lost opportunity, poor product quality, waste, scrap, downtime and slow time (diminished production) are caused by equipment malfunctions.
As much as 50 percent of environmental incidents are reportedly caused by equipment (physical asset) failures. Collectively, the cost of production losses and environmental and safety incidents caused by equipment malfunctions is likely to be several times greater than spending on maintenance and repair costs.(129)
Within asset optimization reliability is optimized for production / mission requirements, maintenance moves from spending to maintain operations to strategic capacity assurance. The first is reactive, the latter proactive.
The ability to predict future capacity and deliver on time and cost is real value provided by an asset optimization process that reduces the necessity for buffer inventory and its adverse impact on capital utilization.
In the manufacturing industries, unreliability necessitates costly inventory buffers that reduce capital effectiveness.(129)
Capturing the Value
Within many enterprises, the potential reward from asset optimization is in the tens, even hundreds, of millions of dollars — equivalent to 25 to 40 percent, perhaps as much as 50 percent of non-raw-material Operating and Maintenance (O&M) costs. For entities such as non-profit state and municipal organizations, the savings realized by implementing an asset optimization program will increase operating effectiveness, service delivery, budgetary flexibility and customer satisfaction.
Industry leaders are developing comprehensive processes for asset optimization designed to increase their lead over competitors. Production and operating entities who may not yet recognize the need for anything beyond cost reductions, or the differences between short-term and permanent, sustainable reductions, are or will be at a major disadvantage. The concept and implementation of improved asset optimization described in this handbook is essential for gaining full operating effectiveness, return, and stakeholder value.
With business, manufacturing, administrative, and logistics (supply chain) activities improving, asset optimization is the “final frontier” for achieving major gains in operating effectiveness, corporate profitability, and stakeholder value. Organizations that pursue this path will be winners in the years ahead. As the solution, many have and are proposing practices outlined in this handbook. Facts have demonstrated that alone, none are capable of achieving the full objectives. Only a comprehensive asset optimization program consisting of a mixture of best practices specifically tailored for a facility’s unique business, organizational culture, asset condition and organizational structure can create the necessary results from the existing conditions and environment. As the program progresses, specific elements from a combination of practices, methods and technology, together with organizational and cultural improvement are implemented opportunistically in a value-prioritized sequence. By employing best practices sequenced to create maximum value, asset optimization is capable of delivering the necessary level of business, financial and operating effectiveness for competitive success.
Increase Production Utilization and Effectiveness
Improving operating effectiveness enables production and manufacturing enterprises to meet commitments at less cost or deliver more at the same cost. Currently many manufacturing plants have an overall operating effectiveness around 50 percent. Industry best performers have an overall effectiveness above 80 percent and, in many cases, greater than 95 percent. Depending on the industry and process, most have significant opportunities for improvement.
Within industry, the gap between current and potential performance represents “hidden” capacity and return that often represents a large opportunity for profit. (The hidden plant and Overall Equipment Effectiveness (OEE) are discussed in more detail in Chapter IX.) Increased production with constant fixed costs and high profit spot market sales are two additional opportunities — provided assured capacity is available.
For many operating companies, the gap between current and industry “best practice” measured by OEE may be as much as 40 percent. Few may realize that asset availability and utilization that are less than industry best benchmarks mean they are actually operating a smaller than nameplate facility. Under these conditions, benchmarks such as cost per unit (pound, barrel, etc.) must either be adjusted downward, or availability must be raised to near industry best.
A unit within a large facility was operating nearly 25% below internal benchmarks for the specific process. The message that they were operating a smaller than nameplate facility was not well received. They either had to get availability up to the world-class value or reduce expenditures to gain alignment with actual production output.
This simplified example does not consider additional costs incurred by underperforming assets such as scheduling disruptions, missed deliveries and diminished capital effectiveness.
The discovery of a “hidden” plant, nearly as large as the operating plant, surprises most corporations who can no longer afford this effectiveness deficit. Recognizing the capacity of the “hidden” plant drives initiatives to increase production from the existing asset base, while simultaneously reducing cost. Initiatives must address increased availability and / or production rate at equivalent or higher quality.
A major automobile manufacturing facility operates two shifts, six days a week (equivalent to 13 regular time shifts), at about 50 percent effectiveness. One of the facility’s objectives is to produce an equal output in two shifts, five days a week. Meeting the objective will reduce manufacturing costs by nearly 25 percent. (129)
Facilities significantly below industry best should be able to increase production and reduce costs by eliminating losses. Referring again to Chapter IX, losses that make up the “hidden plant” include downtime (scheduled and unscheduled) and slow time (reduced throughput), startup and transition losses, poor quality, waste in all forms, and scrap caused by equipment malfunctions.
One unit in a large production facility significantly reduced startup losses and time to attain on-specification production by implementing relatively simple changes to the control system software.
The value of increased output depends on many variables. These include market capacity, i.e., the ability to sell out production at a higher rate, quality assurance, and potential reductions in unit selling price as more production becomes available. A financial model, introduced in Chapter VII, is necessary to evaluate opportunities and value gained from increased production.
Increase Stability and Reliability of the Manufacturing Process
Producer facilities that seriously measure production effectiveness, and map steps to close the gap between average and best performance recognize the necessity, value, and benefits of process stability and quality gained by reducing variables and variation. Early identification of anomalies that could impact availability and quality has substantial value and benefits, including greater operating flexibility, more time to arrange alternative sources of supply and improved work and spare parts management. Industry leaders recognize that equipment reliability is an essential contributor to stability and minimum variation. A stable, reliable manufacturing process requires an adaptable organization as well as stable, reliable infrastructure and equipment.
Meet Delivery Commitments
An article in the August 6, 1999 edition of The Wall Street Journal described how a large power generating corporation was forced to declare force majeure and default on contractual delivery obligations during a heat wave. Within the power generating industry there are many incidents of this type where power, sold at $25 to $30 per megawatt-hour, must be purchased at $3,000 per megawatt-hour or more to meet delivery commitments.
One power company reported that in June 1998, 50MW traded for 16 hours at $5,000 per megawatt hour (MW-hr.). A power marketer obligated to deliver power at $33.25 MW-hr. had to purchase energy at $1,300 MW-hr to meet contractual commitments.(7)
As cited above, penalty provisions in many production contracts have major short- and long-term financial impact in the event of defaults caused by the inability to deliver. Several facilities describe operating conditions where there is virtually no margin between the normal operating value of a process variable and quality degradation. Under these constraints systems, equipment and infrastructure must be maintained and operated at peak performance to gain full profit.
Industry leaders typically have a comprehensive strategy in place that links reliability of systems, equipment and infrastructure with market conditions, capacity management, facility and mission objectives. The strategy includes risk assessment and management (addressed in Chapter XIII) and utilizes layered measures of performance. This promotes optimized process, system, and component effectiveness and continuous improvement.
One process company anticipates that 75 percent of the increased value objective will be gained by increased first-run quality and yield, cost reductions will gain the remaining 25 percent. A Vice President stated that companies cannot starve themselves to prosperity.(129)
Reduce Spending
Within the current economic environment and focus on bottom line financial results, all operating and production enterprises are faced with the challenge of reducing operating and support costs. Direct benefits of cost reductions are easier to determine as value recovered is directly reflected in bottom line profit.
As organizations are pressured to reduce costs, they must produce the same or improved results (manufacturing productivity, utilization and throughput) with significantly diminished resources including fewer — often less experienced — people. In addition, increasingly restrictive regulatory and social constraints are consuming an ever-greater portion of management attention and capital improvement funds. All this contributes to reduced flexibility and greater pressure on operating margins.
Maintaining the technical integrity and reliability of physical assets has traditionally been viewed as budgeted business costs, with spending details largely below the horizon of senior corporate and financial executives. Today’s climate of heavy pressures on profitability have caused operating, process, and manufacturing enterprises to reduce costs through measures such as workforce reductions, deferment of “non-essential” work, and outsourcing. All gain results, but are the results sustainable and is there a path forward for the continuing improvement that will be necessary to maintain prosperity?
Many corporate executives order cost reductions without recognizing that unlike a business process, spending requirements to sustain physical assets are largely dictated by asset lifetime and the necessity for maintenance to retain the condition necessary for production. Unless asset lifetime is extended and the need for maintenance and repairs reduced, cost reductions achieved by command are temporary and illusory.
Participants in asset optimization workshops throughout the world continually bring up management’s conviction that spending on physical assets can be reduced by command as a significant barrier to real improvement in their organizations. Many cite the difficulty of convincing management that reduced spending can only be achieved as a result of a solid strategic and tactical improvement program directed to improving reliability, eliminating defects and requirements for work.
Optimum asset effectiveness can only be achieved through a well-implemented improvement program. Optimum asset effectiveness is a result, not a command!
Industry leaders pursue cost reductions from a differentiating perspective. They recognize that increased effectiveness — driven by improved reliability — is a profit producer. And they view optimized asset lifetime as an integral, inseparable part of the manufacturing process where cost is only one measure of performance. In terms of effectiveness and value, considerations such as identifying, prioritizing and exploiting opportunities to improve availability, yield, first-run quality and on-time delivery are often more important than cost.
The clear trend toward placing value on optimized maintenance is as close as the television. When Ford, Cadillac, and BMW began advertising automobiles that are essentially maintenance free — everyone followed. Why have power train warranties increased to 100,000 miles, engine checks to 20,000 miles or more; both well over an order of magnitude improvement in less than ten years? The simple answer is the investment in design to eliminate failure modes and the need for associated maintenance, e.g., electronic ignition, computer controlled timing, and the use of more robust parts, returns value to the purchaser and profit to the manufacturer. The lesson is clear. With vision, commitment, willingness to change, and modern technology, maintenance can be controlled and converted to a profit contributor.
With these substantial opportunities for optimizing the utilization, performance and effectiveness of physical assets, a typical industrial facility can reduce annual maintenance expenditures by 30 to 40 percent or more throughout operating life; gain large increases in production and free substantial capital. As an example, General Motors reported that in 1994 its worldwide maintenance spending on production machinery and equipment totaled $4.7 billion — approximately 13 percent of the capital invested in the physical asset manufacturing infrastructure. The same report stated that a benchmarking survey disclosed that Japanese automobile manufacturers were spending approximately 3 percent of capital investment to sustain their physical asset infrastructures. (As a comparison, maintenance spending by the best in the petrochemical industry is approximately 2 to 2.3 percent of Replacement Asset Value (RAV) — a comparable metric.) Eliminating the gap between GM’s expenditures and the Japanese average would
have improved GM’s annual profit by $3.6 billion — a move that unquestionably would have been welcomed by shareholders and perhaps avoided the problems they are experiencing in 2006.
A supervisor in an automobile manufacturing facility neatly summed up these conditions:
Until the early 1970s North American automobile manufacturers didn’t worry much about manufacturing failures or the cost of failures. The competition all had the same labor contracts, used the same manufacturing processes and equipment, had about the same operating effectiveness, and experienced similar failure rates. On this level playing field, costs were passed on to the customer. Then the Japanese arrived with a better product, and higher quality manufactured at substantially lower cost. To be competitive, North American automobile manufacturers were forced to simultaneously increase quality and reduce manufacturing costs and model cycle time. Everything had to change.
The basic problem continues to this day! The difficulty of committing to and implementing real transformational improvements is demonstrated by constant stories of the continuing travails at General Motors and Ford.
As another example of a comprehensive, enterprise-wide approach to asset productivity, a large chemical company had experienced an alarming seven-year decline in return on investment -due primarily to decreasing asset productivity. Consistently poor asset performance (nearly 4 percent below the cost of capital) led the company to conduct an extensive analysis of opportunities for asset productivity improvements across most of its divisions.
One part of the review was a “top-down” exercise in which senior managers and project teams benchmarked each business unit against the performance of relevant industry peers. On the basis of this analysis the teams estimated that given competitors’ typical levels of asset productivity, the company would be able to improve its performance by about 25 percent — freeing up some $5.5 billion in assets. Assuming cash-flow margins held constant, this improvement in asset productivity could potentially produce a one-time increase in returns of roughly 50 percent and increase shareholder value by 20 percent, creating almost $6 billion in new value!
Another study disclosed that the difference in refining industry profitability between the highest and lowest performing quartiles had increased from about 5 percent to 12 percent over 6 years. The divergence was not merely an industry average, but rather a difference in performance unrelated to industry average performance.(109)
Industry leaders recognize that achieving a sustainable reduction in equipment O&M costs must be part of a larger strategic process.
Reducing failures demands eliminating the underlying defects that cause failures!
As defects are eliminated, large segments of the organization, along with idle capital tied up in redundancy, work-in-process, and spare parts, can be safely and permanently reduced. Negative cash flow resulting from failure events is minimized. Perhaps more important, eliminating defects increases operating availability and thereby gains additional — potentially greater — benefits of increased production effectiveness.
The asset optimization process begins with the understanding that reducing failures, and therefore the need for and cost of work, is an essential step toward gaining full benefits, value and return. Many leading firms have plans in place to achieve these objectives; some are well on their way to fulfillment.
Increase Effectiveness by Performing the Right Tasks Efficiently
Throughout this handbook there are references to efficiency and effectiveness. It is important to establish the difference between the two. Efficiency is activity oriented, performing a given task well. A given task may well be performed efficiently, but the task itself may or may not be appropriate to the results required. Effectiveness, illustrated in Figure 1.1 is results oriented — performing the right task well. Asset optimization is directed to results — effectiveness!
The path to maximum effectiveness The path to maximum effectiveness
Poor prioritization:
excellence in Planning and Scheduling with
many failures
Poor prioritization:
excellence in Planning and Scheduling with
many failures
Correct tasks performed poorly Correct tasks performed poorly
Performing the right tasks
P er fo rm in g ta sk s w el l
The path to maximum effectiveness The path to maximum effectiveness
Poor prioritization:
excellence in Planning and Scheduling with
many failures
Poor prioritization:
excellence in Planning and Scheduling with
many failures
Correct tasks performed poorly Correct tasks performed poorly
Performing the right tasks Performing the right tasks
P er fo rm in g ta sk s w el l P er fo rm in g ta sk s w el l
Figure 1.1 Effectiveness Requires the Right Tasks Performed Well
Industry-leading organizations are the most effective and experience fewer failures. Thus, not only can they accomplish more work with fewer people than their less effective peers, but they also have less work to do!
Recognize Increased Consequences and Cost of Operating Variation and Failures
Production interruption, safety (personnel hazard and property damage), and environmental incidents all cost more with continuing increases anticipated. Several process companies report that more than 50 percent of capital expenditures are required to meet regulatory and environmental requirements. Burning gas by flaring and operating the remainder of a hydrocarbon processing facility on inventory used to be an accepted practice while failures were repaired. Today’s reduced inventory, environmental regulations that prohibit flaring and obvious waste would quickly force a plant shutdown. This combination significantly increases the cost of a given failure.
Improve Maintenance and Reliability
Organizations are under pressure to improve the effectiveness and return on capital assets. Industry leaders are quickly recognizing the necessity, value and benefits of optimizing the return from physical assets — as demonstrated by the deregulated power generating industry. In this industry, managing a portfolio of mixed cost and efficiency generators to gain greatest return requires accurate lifetime prediction, optimized reliability management and an accurate assessment of risk. All are necessary to ensure availability (predictable capacity) capable of meeting commitments for power delivery.
One power generating company developed 44 initiatives to improve performance. Boilers and boiler tube defects were high on the list of reliability problems. Condition Based Maintenance ranked in the top ten.(7)
A manufacturing company implemented 25 quality improvement projects to eliminate manufacturing process limitations and constraints.(129)
Accommodate more Complex and Expensive Manufacturing Equipment and Systems
Physically challenging, semi-skilled manufacturing tasks are being replaced by automation, resulting in fewer people being required. Those employees who remain are no longer operating the production process, but are managing equipment and systems that operate the process. Automation demands higher skill levels for both Operations and Maintenance.
Systems to manage a manufacturing process are co-evolving and becoming ever more interdependent. Real-time control systems and strategic supply chain management (Enterprise Resource Planning — ERP) systems must be linked with Computerized Maintenance Management Systems (CMMS) and other management and information systems. Full interoperability is essential for accurate current and predicted status of physical assets — the predictable capacity mentioned earlier (for more detailed information see Chapter XII and Chapter XIII).
Maintenance is becoming more expensive — increased variation from organizational and reliability norms is very costly.(129) As stated earlier, many enterprises are finding that the gap between themselves and world-class performers may be as high as 30 to 50 percent of the total maintenance budget.(109)
Improve Capital Effectiveness, Increase Return on Capital
In many commonly used capital- and asset-based measures of effectiveness such as ROA, RONA and ROCE, profit is the numerator and capital the denominator. Thus, reducing capital employed (the denominator) has the same positive effect on measured performance as increasing profit (the numerator). It should be noted that in terms of ROA, RONA and ROCE capital reduction has the same leverage as spending reduction, and about ten times the leverage compared to increasing production (based on typical after tax profit). Within the asset care (maintenance) area, demands to reduce capital appear as pressure to reduce stocked spare parts (inventory).
Many operating organizations have reduced owned maintenance, repair, and overhaul (MRO) spares by as much as 50 percent through outsourcing and supplier held consignment spares, see Chapter XIII for greater details. Achieving this major reduction, without affecting availability and production output, demands improved reliability, a capability to predict requirements well outside normal delivery time and a solid logistics management process. All must be gained within a comprehensive asset optimization strategy.
In addition to the cost of non-performing capital assets, companies who have calculated actual costs estimate that spare parts inventory consumes between 30 and 40 percent of inventory valuation for storage, management, damage, loss, and obsolescence. Thus, a company with $5 million in spares inventory is paying a minimum of $1.5 million per year above usage costs for administration, handling, warehousing and loss. For companies seeking to maximize effectiveness, this cost must be reduced. Extending the service life of capital equipment is another important issue. Prudent asset optimization practices ensure that the equipment has a full and effective service life. Well maintained equipment often lasts far beyond the normal expected service life, thereby reducing the capital requirements for acquiring new (and expensive) equipment.
Demands to purchase least cost (low intrinsic reliability) capital equipment is another area in which there are pressures to minimize capital. This leads to less redundancy, diminished design margin and reduced technical integrity in new facilities and requires older facilities to operate closer to design limits.
Two corporations stated that investment in new construction, on a unit output basis, had been forced to 50 percent of prior levels by requirements for return on capital. The same companies are investing both time and capital to increase output from older facilities and to ensure that the reliability and effectiveness of new investments meet requirements for return on capital.(129)
Although two 100-percent redundant pumps have been the standard for many industries, required return on capital may well lead to the construction of large, new facilities with single pumps in many applications. Enlightened companies will recognize that the unspared pump now has the same impact on production as other traditionally unspared equipment. They will also recognize the need to invest resources and funds to ensure that single-unit reliability does not compromise overall availability.(129)
This philosophy requires a different design approach and investment to ensure the resulting reliability meets mission requirements. Equipment purchased may be slightly more expensive than a single unit in a redundant pair, but less expensive than the pair.(129)
Under the circumstances described an asset optimization strategy, program and process are essential to ensure objective profitability.
II. PROGRAM NECESSITY, EVOLUTION AND CHARACTERISTICS
“Innovative practices combined with true empowerment produce phenomenal results.”Commander D. Michael Abrashoff, Former Commanding Officer, USS Benfold (DDG 65) (96)
Industry leaders are following similar, generic paths toward optimizing the utilization and effectiveness of physical assets. Although the program names, implementation details and some measures of performance vary across industry groups and companies (primarily overall costs and some specifics such as MTBF, Chapter IX), there are striking similarities, indicating the emergence of a consistent optimizing process. The process is quickly translating into substantial competitive advantages for enterprises that recognize and exploit its benefits.
PHYSICAL ASSET OPTIMIZATION
Physical Asset Optimization implemented using the program described by this handbook, is an essential contributor to business success for process, production, manufacturing, power generating and service enterprises that are dependent on a physical asset infrastructure to meet revenue, mission and delivery requirements. Within these enterprises, optimum equipment availability, reliability, utilization and lifetime cost effectiveness are essential.
Asset optimization is vital for accurate business and production planning. It assures that production capacity is, and will be, available to meet delivery commitments in full compliance with schedule, cost, and quality objectives.
PHYSICAL ASSET OPTIMIZATION WITHIN A TYPICAL MANUFACTURING PROCESS
Asset optimization is a strategic, fully integrated, comprehensive program, institutional culture, organizational structure, optimized processes and procedures all directed to gaining greatest lifetime utilization, effectiveness and value from production and operating equipment and infrastructure. The asset optimization program ensures the resources that have been invested in plant and equipment assets achieve the maximum sustainable value in terms of safety, business and financial return, operating results, production, productivity and profit.
The asset optimization program is based on a comprehensive strategy linking market conditions, business, facility, and mission objectives to availability, capacity management, reliability, risk and cost. A business initiative, the program begins by identifying opportunities to increase effectiveness and value, prioritizing these opportunities by value, return and risk. The prioritized opportunities are then used to develop and implement transformational improvements in organizational culture, organizational structure, processes and practices. In this way asset optimization builds from actual conditions, utilizes current strengths to greatest advantage, creates maximum ownership and assures results are gained as rapidly as possible.
Within a manufacturing / production process asset optimization provides assurance that equipment and infrastructure assets are in effective, serviceable condition with the capacity / throughput necessary to meet delivery and business objectives at an optimum sustainable cost. Asset optimization must be a part of the information infrastructure defining asset condition, current and future delivery capabilities to business, management, production and process control and information systems, Chapter XII. Asset optimization is the essential unifying element between Operations / Production and Maintenance and a major contributor to the partnership that must flourish for maximum success.
A typical production / manufacturing process is illustrated in Figure 2.1. The process is directed long-term by production management and controlled short-term by process control.
Production Management — including Enterprise Resource Planning (ERP) and Manufacturing Execution System (MES), manage the supply chain, production schedules, flow into and out of the process.
Process Control (Automation) — manages the content and performance of production processes and controls operating variables to meet rate and quality requirements.
