The Lack of Maintenance and not Maintenance which Costs: A Model to Describe and Quantify the Impact of Vibration-based

Maintenance on Company's Business

Basim Al-Najjar Professor of Terotechnology Department of Terotechnology, Vxj University Address: Vxj University, Lckligs plats 1, 351 95 Vxj, Sweden Tel: +46- (0)470-708422 Fax: +46-(0)470-768540 Basim.Al-Najjar@vxu.se

The Lack of Maintenance and not Maintenance which Costs: A Model to Describe and Quantify the Impact of Vibration-based Maintenance on Company's Business

Abstract Maintenance is usually considered as a cost-centre or necessary evil, because (according to this aspect) it costs the company unnecessarily big budget, while it should be treated as a profit-generating centre. The problem addressed in this paper is that if maintenance is a profit contributor how does maintenance technical impact transfer to the plant other activities such as production, quality and tied up capital, and how can this effect ultimately influence company's profit and competitiveness? In this paper, we discuss maintenance role in maintaining the quality of the essential elements contribute in the manufacturing process such as production/operation and quality on the economic basis for achieving the competitive advantages desired. Interactions between maintenance, production and quality, and how simple technical effects of maintenance in the operative level can be transferred to the economic effect in the strategic level influencing companys profitability and competitiveness is discussed. A model describes the mechanisms through which vibration-based maintenance (VBM) impact is transferred to the plant other activities and company's business is developed and verified using real and typical data based on the authors experience in the Swedish paper mills. The main result of this study is developing a model for converting vibration-based maintenance technical to financial impact and assessing it. The model potential and applicability is tested using a combination of real and typical data. The result also demonstrates how the potential of the VBM impact on the production, quality, tied up capital and different relevant expenses can be assessed financially. Furthermore, the model can be utilised for two additional objectives; for examining whether the investment done in maintenance is cost-effective or not, and simulating maintenance financial impact on the relevant working areas in order to assess the investment required before selecting and applying the improvement plan. The major conclusions are; applying the model, VBM policy can be introduced as a profit centre, and identifying the transferring mechanisms of maintenance impact highlights where, why and how much should be invested in order to enhance production and maintenance performance continuously and cost-effectively. Keywords: Vibration-based Maintenance, Maintenance Impact Transferring Mechanisms, Maintenance Savings, Costs and Profits 1 Introduction The increasing competition in the market creates a need to search new ways in which companies can differentiate themselves and gain more profit and better competitive position. Companys internal effectiveness is strongly influenced by the maintenance role and impact on other working areas such as production, quality, production cost, working environment, amount of work in progress and tied up capital. Mathew (2005) proposes an approach for developing effective and practical tools for optimisation of

the maintenance function, which are important for exploring maintenance impact on the companys business. According to the available knowledge and experience, the use of integrated vibration-based maintenance (VBM) policy, i.e. where the data from VBM policy can be integrated with data from relevant working areas such as production and quality, provides possibilities for acquiring early indications of changes in the component/equipment state and product quality, Al-Najjar (2001). Operating and environmental conditions such as machine speed and load, operator, maintenance quality and production method influence machine life, Al-Najjar (2000a). Therefore, the assessment of the machines condition and the impact of improvements in maintenance effectiveness and accuracy on the plant activities would be achieved effectively if the information from relevant and nearly connected working areas such as production, maintenance, quality and accountancy were considered simultaneously, Al-Najjar (1997). Further, improvements in machine productivity and performance, product quality, etc. may, in many cases, be performed effectively when considering the maintenance policy involved, e.g. high vibration levels in the press and drying cylinders of a paper machine can reduce paper surface quality (Ibid). Wenjuan (2004) emphasizes on the need for condition based maintenance (CBM) modeling, which can support maintenance decision making utilising measured condition monitoring information, and reducing unnecessary maintenance. In this paper, we highlight, discuss and model the role of efficient maintenance in the enhancement of the company internal effectiveness for achieving better competitive advantages. A wide range of relevant and high quality data is necessary for mapping the situation with respect to the technical, financial, environmental and managerial aspects. But, achieving improvements in maintenance to maintain and improve the manufacturing process performance cost-effectively demands among others adequate answers of the following questions: 1. How can the impact of the investments in maintenance be transferred to maintenance technical impact? 2. How can maintenance technical impact be transferred to the nearly related working areas such as production, quality and life cycle cost factors? 3. How can maintenance technical impact be transferred to financial impact in the nearly related working areas? 4. How can maintenance financial impact on the nearly related working areas be quantified? 5. Where and how much is it beneficial to invest in maintenance? A particular database for a wider range of information is required for effective maintenance and better control of a machines condition, Al-Najjar (1997). A common database is a direct result of proper integration of the databases of the plant operations for maximising company's profits, because it will ease the identification and elimination of both quality deviations and failure causes at an early stage, AlNajjar (2002). For example, the common database can be utilised to distinguish the actual reasons behind damage initiation and development if it is due to the repair/replacement quality, operators misuse, faulty design, harsh operational conditions or replaced component quality, and to avoid their recurrence. Ljungberg (1998) reported that the overall equipment effectiveness (OEE) in a Swedish car factory is estimated on average about 55%. This means that the company can increase its production capacity without investing in new machinery if it

implements an efficient maintenance policy, which allows enhancing availability strongly, quality rate and performance efficiency moderately. OEE is a multiplication of equipment availability, performance efficiency and quality rate, Nakajima (1988). Thus, maintenance has a crucial role in recovering a big part of the losses behind low OEE especially those related to unavailability. In addition, some of the production losses due to lower production speed and bad quality that generated due failures and technical faults can also be recovered by more effective maintenance. The problem addressed in this paper is; how does maintenance technical impact transfer to the plant's other activities such as production, quality and tied up capital, and how can this effect ultimately influence company's profit and competitiveness? In Section 2 a survey of the publications concerning the problem addressed in this study is reported. In Section 3, maintaining the quality of the essential elements contribute in the production process is discussed. Also, the interactions between maintenance on one side, and production and quality on the other side are studied. The operative and strategic level of activities at a plant is introduced and discussed in Section 4. Costeffectiveness due to efficient maintenance is discussed and modelled in Section 5. In Section 6, the mechanisms of transferring maintenance technical impact to the nearly related working areas at a plant and the assessment of the financial impact generated based on the maintenance technical effect is modelled and discussed. An example describes the application of the model using real and typical data from paper mills is also presented. 2 Literature Survey A wide search in the international databases has been performed. The databases have been considered in this survey were Emerald and Science Direct December. In the Emerald database, the search is carried out on the publications done until 2004 using several keywords, such as; economic maintenance impact, technical maintenance impact, links for transferring maintenance impact. The same keywords have been used in the search done in Science Direct database but in three different periods; 1999present, 1986-1998 and prior to 1986. From the search done in the Emerald and Science Direct databases using the keyword maintenance economic impact, we found four papers. Davies (1991) discusses the process overcladding, assessing economic and social factors, and the various physical problems it can remedy. In Akdeniz (2001), the damage tolerance concept, its relation to airplane age and its evolution that is fail-safe to damage tolerance based maintenance certification for jet transport airplanes are discussed. The third paper is written by Al-Najjar (2000a), the author of this paper. It treats the impact of real-time measurements of operating condition on effectiveness and accuracy of vibration-based maintenance policy. Mitev and March (1998) discusses some of the factors contributing to the risks small and medium enterprises take when implementing information technology were investigated in a questionnaire survey of 18 small businesses in the Great Manchester area. But, these papers did not address the mechanisms of transferring the technical impact generated by maintenance to financial results at the plant strategic level. The search in Emerald and Science Direct using the other keywords; maintenance technical impact, and link of transferring maintenance impact have not resulted in any publication. A previous literature survey was made during 2001, see Al-Najjar and Alsyouf (2003), using the databases Emerald, ABI/Inform, and Applied Science and

Technology Index. The search was done on different combinations of key words such as maintenance costs, maintenance savings and maintenance profit. It was found that many researchers have been talking about the savings, gains or profits that could be gained when implementing more efficient maintenance approach, see among others Ahlmann (1984,1998), Maggard and Rhyne (1992), Foelkel (1998), Coetzee (1999), Walsh (1999), Miller (2000), Ralph (2000), Carter (2001), Kutucuoglu et al. (2001), and Swanson (2001). But nothing has been studied about how to assess these cost factors and how the technical impact has been transferred and converted to financial impact. Also, nothing about where to find the information parameters required for these assessments in the available accountancy systems. From everyday experience, when failures occur, it is often easy to show that a lack of or inefficient maintenance was responsible. But, when the production is running smoothly without remarkable disturbances, it is not easy to realise that is thanks to performing efficient maintenance, see Al-Najjar (2000a), Al-Najjar and Alsyouf (2001), and Waeyenbergh and Pintelon (2002). This is why it is important to identify and assess the impact of the maintenance function on the relevant working areas such as production, quality, production logistics, redundancy of spare parts in the storage, tied up capital, etc., and to clarify how the technical impact is transferred and converted to the financial terms. 3 Maintaining the Quality of the Essential Elements Contribute in Production In this study, the following factors are considered significant contributors in creating and maintaining company's competitiveness for surviving the hard international competition: 1. High quality product/service 2. Production of items at a competitive price through applying continuous costeffective improvement and approaching high overall equipment effectiveness (OEE) 3. Delivery on time 4. Environmental friendly production 5. Society acceptance Higher quality production (with narrower variation) at a competitive price that can be delivered on time (with a negligible or very small marginal of delay) and low environment pollution have crucial impact on customer satisfaction, gaining market shares, society acceptance, company's profitability and competitiveness. By examining the debate on markets and resources, we can realise that there are two perspectives of creation and enhancing competitiveness. These are outside-in, i.e. using the external factors, such as emerging of companies, partnership and market structure, and inside out, i.e. better usage of the internal factors, such as companys unique resources, competence and differentiation, see for example Porter (1985) and Barney (1991). Regardless of which perspective, i.e. outside-in or inside-out, is adopted by the companys management, the company should utilise its valuable and rare resources efficiently and effectively to achieve the long-term high profitability. This demands dealing with companys problems related to the internal efficiency, effectiveness and productivity, Al-Najjar (2003). In other words, it is significant to focus on the interactions and integration of the relevant and essential disciplines (working areas) such as production, quality, personnel competence, maintenance, life cycle cost (LCC) management and analysis and their synergic effects.

Collacott (1977), Al-Najjar (1997 and 1998) and DeBotton et al. (2000) highlight the reliable possibilities offered by applying VBM in detecting deviations in the condition of rotating machines at an early stage. Furthermore, these indications can be of great importance in the early detection of deviations in product quality and therefore in identifying problems before they show on quality control charts, as discussed by Al-Najjar (1997 and 2001) and Olney and Swanson (2002). Applying effective maintenance aims to enhance company's profitability and competitiveness through continuous cost-effective improvement of production process efficiency, effectiveness and productivity, which can be achieved via maintaining and improving the quality of all the elements contribute in the production process continuously and cost-effectively. The role of effective maintenance is defined in this paper as: A means for detecting and controlling the deviations in the condition of a production process, such as damage causes and initiation, damage developing mechanisms and potential failures, production costs, working environment and product quality in order to interfere when it is possible to arrest or reduce equipment/component deterioration rate before the process condition and product characteristics are intolerably affected and to perform the required action to restore the equipment/process or a particular part of it to as good as new. All these should be performed at a continuously reducing cost per unit of good quality product. 3.1 Interactions between Quality, Production and Maintenance Changes in any working area such as production, quality or maintenance influence the other closely related working areas due to their internal interactions, Al-Najjar (2002). Product quality, production cost, machine condition and its life length are usually influenced by the quality of the input elements in the production process, such as raw material, production tools, methods and procedures, operating and maintenance staff competence and operating conditions, and not just by the type of production machinery and maintenance policy. Bad raw material or not well-trained operating staff in many cases lay behind initiation (or development) of damage in the component/equipment or cutting tool, which in turns results into production/financial losses, Al-Najjar (1997). The quality of the essential elements contribute in the production is a key factor influencing the overall equipment effectiveness (OEE). Negligence of maintenance and its role in the production process allows rapid degradation of machine and product quality, because as it is known that a process/machine in bad condition can't, in general, be expected to be capable of massproducing items of high quality at a competitive price and delivered on time. An effective maintenance is responsible of maintaining the quality of the elements contribute in the production process, but it still not occupying its real status in the company's culture yet, because among others, there is a shortage of the researches highlighting maintenance impact on the company's business. This shortage is due to many causes such as; 1. Maintenance has, in general, been considered as a cost- and not profit-centre. 2. Maintenance has complex interactions with (and impact on) other working areas such as production, quality, personnel competence, operating environment and LCC management. Therefore, it is not an easy task to identify, quantify and follow up maintenance impact on the companys business. A machine that is not well maintained often fails and suffers of speed losses and lack of precision, which in turn results in a partial reduction of the personnel

effectiveness and working moral. Associated with failures, machine often produces defective items, Ahlmann (1994) and Al-Najjar and Alsyouf (2004). Producing defective items combined with delivery delay due to production disturbances increases production cost, reduces profit and increases the risk of losing market shares, which endangers the survival of the organisation in the long term. Reducing production losses and enhancing product quality always yield more profit and improvement in the company's competitiveness, Al-Najjar and Alsyouf (2003). Production responsible of making goods, but an efficient maintenance policy influences the capacity of production and capability of the machine. Production personnel technical competence concerning machine construction and function influences production and maintenance costs, and machine performance efficiency because this competence influences the way of operating and maintaining the machine. Mckone and Weiss (1998) cited that the amount of money spent companywide on maintenance by du Pont in 1991 was roughly equal to its net income. In general, maintenance role has not been highlighted effectively because, the major part of the profit that an effective maintenance generates demands a big amount of effort to assess, but it is often easier to only measure maintenance costs, Al-Najjar and Alsyouf (2004). 4 Interactions between the Operative and Strategic Levels Activities The activities performed at a producing company, does not matter whether it produces goods or services, can roughly be divided into two categories that are performed at two levels; operative and strategic levels. In this section the interactions between the activities performed at the operative and strategic level are discussed. I. In the operative level, see Fig. 1, the planning, performance, control, improvement, interactions and integration of the core-activities of the plant working areas such as production, quality, maintenance, production logistics and LCC management and analysis, and their results are mainly considered. At this level, we can easily recognise that the condition of the machines and maintenance performance quality affect product and machine quality, because well-maintained equipment acquire higher reliability and effectiveness. On the other hand bad quality (or lack of) maintenance has appreciable negative financial consequences due to its technical impact on machinery, product quality, delivery schedule, production cost factors and customer satisfaction, Al-Najjar. (2002a). Products of bad quality influence company's reputation and generate additional cost due to, among others, warranties. Selection of the most cost-effective maintenance strategy and policy affects the mean effective life length of the equipment and its failure patterns, which in turn affects production, quality, time of delivery, production cost (and product price) and consequently customer satisfaction, see the competitive advantages in Section 3. Rao (1993) claims that savings of up to 20% on total energy consumption in the UK could be achieved by employing efficient monitoring and management strategies. Both, the production process and quality of the maintenance work affect equipment condition, which in turn affects final product quality (technical specifications).

Market, customer, competitors, suppliers

Profit generating factors (Operative level) Overall equipment effectiveness (OEE)

Factors for Creation competitiveness

Inside-out Quality rate

Availability

Performance efficiency

High quality product/ service Product at a competitive price Delivery on time Environmental friendly production Society acceptance
Outside -in

Profitability

Production system LCC Competence

1.1.1.1.1 Operation

Operative level
Maintenance policy Maintenance Performance quality Cost-effective continuous improvement

Quality system

Production logistic

Profit generating factors (strategic)

Strategic level

Strategies at other working areas

Production strategy

Quality strategy

Business management strategy

Maintenance strategy

Company strategy

Emerging Collaboration Organisation Innovations New producing technology New product Better economic control Integrating companies' business Partnership Market structure Etc

Fig.1. A model describes qualitatively the roles of operative & strategic level activities in building company's competitiveness

II. Considering the strategic level, we mean that all the activities related to developing, performing and following companys strategy, which in turn, however, is translated into the strategies of all the working areas considered in the plant such as maintenance, production and quality in order to achieve company's technical and financial objectives. The latter objectives cannot be achieved without effectively fulfilling the strategies of the related working areas. This is why it is necessary to effectively integrate maintenance strategy with the strategies of other working areas. The impact of maintenance strategy can be realised through implementing wellselected maintenance strategy (and consequently policy) for maintaining the quality of all essential elements contribute in the production process necessary for fulfilling company's objectives. Maintenance deals with the internal operative part of the process for creating company's competitiveness, i.e. it can, however, be classified as the means for applying inside-out perspective. This is because it is simply trying to create and enhance company's competitiveness with respect to the company's internal resources, assets and potentials, see Fig. 1. Researchers who are adopting the Outside-in perspective try to achieve, approximately, the same results, but with respect to other factors that lay in the strategic level through focusing on organisational structure, relationships between companies, emerging or integrating companies' business, partnership, market structure, etc. These factors are also of interest for improving company's competitiveness and profitability, but with respect to a different perspective. This means that these two perspectives are complementary elements for creating and enhancing competitiveness, but at two different levels. In many cases, the activities at these two levels are unrealistically assumed completely isolated from each other. But, we claim that company's competitiveness and profitability can be influenced and improved from different directions simultaneously. In Figures 1, 2 and 3, a reasonable, innovative and reliable model is developed and verified in real environments to describe the role of the inside-out perspective on the creation of and maintaining companys competitiveness. 5 Cost-Effectiveness with respect to Maintenance Maintenance strategies, methodologies and philosophies such as breakdown, preventive maintenance, condition-based maintenance, reliability-centred maintenance and total productive maintenance use different sources of data in their decision making processes, see Al-Najjar (1997 and 2000b), Moubray (1991), Andersson and Rasmussen (1999), Martorell et al. (1999), Wang and Hayfield (1999) and Al-Najjar and Alsyouf (2003). These data sources can be failure data, practical experience, technical analysis results, condition-monitoring measurements, operating data and data from surroundings, or any combination of these data resources. The most relevant, accurate and better data coverage the more probable that the maintenance actions can be performed in the right time preventing failures, which in turn means the more efficient maintenance policy, Al-Najjar and Alsyouf (2003). In other words, the data collected should enable linking the operative and strategic levels activities and results clearly and easily for highlighting maintenance impact on companys business. The major benefit of the output of improvements in maintenance is usually noticed at the other working areas such as production, quality, tied up capital, LCC management, etc, but hardly in maintenance as long as it shows more costs. Identifying and relating the benefits generated, e.g. by more efficient VBM is not the

easiest task to do if the mechanisms of transferring maintenance impact is not well identified, and if the technical and economic performance measures of the manufacturing process were not identified and monitored properly. In general, improvements in the performance of a maintenance policy aim to reduce production cost and increase company's profit and competitiveness through enhancing process availability, performance efficiency and quality rate. In order to justify investments in maintenance, the cost-effectiveness (Ce) of each investment (and consequently the improvement generated) can be examined by using the proportion of the difference between the average cost per unit time before (Bb), and that after the improvement (Ba), to the Bb, i.e. B (1) Ce = 1 a Bb This means that all the savings (and may be increments) in the expenses of production, tied up capital, assurance premium, etc. including maintenance cost achieved by more efficient maintenance policy should be counted, for more details about these cost factors see Al-Najjar and Alsyouf (2004). At the beginning it can be that Ce 0, i.e. Bb Ba, due to the extra expenses incurred by the learning period. This period can be defined based on the nature of each improvement. But beyond this learning period Ce should be bigger than zero, i.e. Bb>Ba in order to consider the improvement as a cost-effective action. The ideal case yields, Ce = 1 (2) In other words it means that Ba= 0, which is more or less impossible, because there should always be some costs that are greater than zero. Ce indicates the reduction percentage in the total cost due maintenance impact, thus it can be used as a measure of the cost-effectiveness of the improvements. The cost-effectiveness (Ce) of investments in maintenance is a general model for judging the cost-effectiveness of the maintenance technique implemented and justifying the investments done. It is, in principle, applicable for all maintenance techniques. In Section 6, a general model describes and quantifies the financial impact of maintenance, independent of the maintenance technique being used, is developed. An example quantifies the financial impact of vibration-based maintenance on companys business for testing the model using a combination of real and typical data is also introduced. 6 Model Describes and Quantifies the Impact of Maintenance In the operative level there are many working areas, such as production, management, maintenance, personnel and competence development, working environment and quality, which demand additional investments for enhancing the technical results and consequently financial benefits at the strategic level. In this study, only maintenance technical impact and the mechanism transfer it to the strategic level is illustrated, modelled and discussed. This means that when considering additional working areas, equivalent descriptions of their transferring mechanisms are required. In many cases, plant value-adding activities are monitored by technical measures such as overall equipment effectiveness (OEE), i.e. monitoring availability, performance efficiency and quality rate. If the behaviour of OEE is monitored in conjunction with total production cost and production process profits, the company can also assess how to reduce the production cost while still satisfying customers, shareholders and society, and consequently increase sales and market share, Al-Najjar et al (2004).
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In order to survive rough competition, companies need to improve their manufacturing and maintenance processes and profitability continuously. Costeffective continuous improvement in production and maintenance performance demands first of all effective tools for monitoring and analysing technical and economic data, and identification of the mechanisms converting the investments in maintenance into technical actions and back to economic terms. Quantification of the impact of investments in maintenance on the companys business enables the user to achieve reasonable optimisation (and sub-optimisations) and reliable decisionmaking procedures. 6.1 Model Development and Description The mechanisms of transferring the impact of improvements in (or of efficient) maintenance policy to the plant other activities are qualitatively illustrated in Fig.2. Quantifying of maintenance impact that is transferred to plant activities is discussed in Section 6.2. The transferring mechanisms of maintenance impact are divided into five parallel lanes equivalent to the possible investment areas for enhancing maintenance. Each lane represents a particular chain of links through which the investment in maintenance is logically converted from finance (investment) - to technical to finance and finally to - market terms. At the start of each chain, the investment is allocated to a particular improvement area that is denoted by (*). Every investment aims to achieve specific enhancement in the maintenance policy being used. In this paper, we focus on the areas when a big potential of enhancing maintenance policy is possible, such as to achieve: 1. Better use of the available maintenance technologies through offering better training to improve personnel knowledge, experience and competence. This is because, among other causes condition-monitoring systems are, in general, not reliably, effectively and fully utilised, such as the case when applying RCM, TPM and partly CBM see Al-Najjar et al (2001). 2. Better prediction of the time to maintenance action, which can be achieved by better fault identification & localisation, and modelling of time to failure, AlNajjar and Wang (2001). 3. Better diagnostic techniques, e.g. utilising edge condition monitoring technology, Al-Najjar (1998, 2000a&b and 2001) 4. Less failure related accidents. When maintenance is applied for monitoring and eliminating the causes behind deviations in the quality of the essential elements contribute in the production process, such as personnel, machine and environment it would lead to reduce the risk of failure related accidents 5. Higher faith in the maintenance system, which is usually developed based on successful applications The technical and financial impact done by every investment area is denoted by special bullet in a particular lane denoting the impact of the investment area that has a similar bullet. The links through which the impact is transferred are all the columns following the fifth investment area (Higher faith in maintenance system). The links starts and ends by columns entitled by (Less failures) and (Higher stake value) respectively. The last two columns in the model, see Fig.2, are for specifying where the data required for quantifying the impact of maintenance technically, such as failures and defective items, and financially, such as maintenance savings and economic losses, can be found. Furthermore, some of the impact transferred to the

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strategic level is generated by the impact of several mechanisms (lanes). This is why some columns in Fig. 2 include bullets belongs to different mechanisms. From everyday experience, reliable maintenance actions such as lubrication, tightening lose screws, cleaning, replacement of deteriorated components, adjustments, repair, etc. reduce the probability of damage initiation in the machine. Better diagnosis and prognosis result in shortened time of (and reduce cost of) repair, adjustment and other maintenance actions and consequently leads to longer production time and lower production cost. For example solving the problem of high vibration level due to resonance enables the operator to increase machine production speed to its maximum capacity. Also, cyclic improvements of the maintenance policy utilising available knowledge, experience and machines database, Al-Najjar (1998), influence the costs incurred by production, maintenance, tied up capital and other expenses, such as insurance and compensations for accidents, Al-Najjar and Alsyouf (2001). The possibility of detecting damage causes and initiation, following damage development, better estimation of the time to action and detection of deviations in the product quality at an early stage yields better chance of failure prevention, less maintenance actions and low vibration level and in turn leads to longer production time, less maintenance and production costs and better product quality. For example detecting high operating or ambient temperature, which reduces lubricant viscosity and results in rapid wear, helps to avoid damage initiation and reduce financial losses. Keeping the machine operating at high quality through maintaining its technical specifications (quality) reduces operating costs. When failures and other unplanned stoppages and production of bad quality are reduced the capital tied up in the buffer between production stations and final production storage can consequently be reduced. Prolonging the mean effective life length of component/equipment means a direct reduction in the number of conditionbased replacement (CBR) and failures. Therefore, the machine availability increases and the production losses decrease. Less CBR and failures reduces the number of spare parts consumed, which leads to smaller spare part storage and less storage cost. Fewer failures lead to increase the faith in the condition monitoring (CM) system and maintenance policy. This would result in additional reduction in the redundancies of spare parts, equipment and personnel, i.e. less capital tied in the spare part storage. A better working environment can be achieved by more efficient maintenance through reducing vibration, noise and pollution in the working environment, which in turn improves operators moral and consequently leads to more production and better product quality. Lower vibration level results into lower energy losses, because the generated vibration energy due deterioration is a lost energy, which in turn leads to less energy consumption, i.e. less operating cost, and consequently better global environment. When using vibration-based maintenance (VBM), more accurate diagnosis and prognosis, and lower vibration level are direct results of better vibration spectral analysis, which can be improved continuously using cyclic improvement of VBM policy, Al-Najjar (1998). Using the most informative condition monitoring parameters and system, it is possible to control equipment condition and product quality, and to reduce equipment vibration level. Using integrated VBM on the basis of the maintenance role presented in Section 3, provides well documented observations and evidences would allow the user to convince the manufacturer to modify the next generation of the machine according to the user's inquiries, Al-Najjar (1997 and 2002).

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Finance (Maintenance investment areas: to invest in one or more of these areas) Better use of the available technologies (more training, experience and knowledge)
(*)

Technical impact of investments at the operative level

Better prediction of the time to the maintenance action (better fault identification & localisation, and modelling of time)

(*)

Better diagnostic techniques

(*)

Less failurerelated accidents (when maintenance covers personnel, machine and environment safety)

(*)

Higher faith in maintenan ce system

(*)

Less failures and unplanned stoppages

Shorter time to repair

Less short stoppag es

Better working environm ent

Higher performan ce efficiency

Higher availabilit y

Higher quality rate (more stable production process, less variation in quality and less defective items)

---------------------

----------------

----- -----------

---------- ------

------

-----------

-------

----------

------

----------Data sources

------

-----Quantification of the impact

Financial impact at the operative level

Impact of investments at the strategic level (market)

Less expenses of personnel & environme nt damage

Low insuranc e premiu m

Lower direct mainten ance cost

Lower production cost (longer

production time, more production & less economic losses)

Less tied up capital (due to less redundancie s)

More saving s

More profit

Less delivery delay and penalties

Satisfied customer

Bigger marke t share

Higher stake value

Required data can be found in the company's database

Part of data can not be found in the database and should be estimated

Formulas See Fig. 3

See Fig. 3

------

------

Fig.2. Mechanisms of maintenance impact on the plant other activities.

6.2 Example; Quantifying VBM Financial Impact and Results Analysis In this Section, we investigate the possibility of quantifying VBM economic impact on the production costs of a paper mill machine through considering the impact of only one investment area (Better use of the available maintenance technologies), i.e. one lane of the model described in Fig.2. From this lane we focus on just nine links (columns or call it savings accounts), which is started by the saving account/column less failures per year and finished by the saving account less delivery delay penalties. We select the saving accounts that have the major impact on the companys business, such as the first three columns, which constitute availability, and the quality rate, see Fig. 3. Some of the expenses, i.e. the last five saving accounts/columns, that have interesting impact and can be found easily in the companys database are also included. The main aim of the investments in training programs is to enhance maintenance personnel ability in utilising the available techniques and tools, such as condition monitoring tools and systems for analysis and diagnosis. The better use of these systems and tools the bigger chance of avoiding failures and other disturbances, which in turn prolongs production time, increases production and improves quality. Other expenses, such as those related to environment and personnel damage, insurance premium, tied up capital in unnecessary redundancies of spare parts and equipment and delivery delay can consequently be reduced. The number of the saving accounts can be different for different companies and branches. The shares of these accounts in the total savings can also be different. For example paper mills producing paper especially for newspapers usually have moderate production losses due to bad paper quality that is generated because of inefficient (or lack of) maintenance, Al-Najjar and Alsyouf (2004). When quantifying the saving accounts in the model shown in Fig. 2, the investment areas may have internal interactions that influence their impacts. In this primarily phase of application, the impact of just one investment area is considered, and the interactions between investment areas are neglected. Furthermore, we ignore the improvement that cannot easily be quantified, because it demands special investigation. For example, we neglect the effect of the enhancement in the working environment achieved by applying more effective maintenance, which improves operating and environmental conditions through reducing the levels of vibration, noise, temperature and pollution in the surrounding. These enhancements influence the working moral positively and usually result into more and better production quality. But, it is not easy to quantify it in terms of production units or in SEK without special investigation, which is outside the scope of this paper. For the same reasons, it is difficult to quantify how the customer satisfaction influences the market share of a company. In general, a bigger market share is a result of acquiring better reputation and sells more goods or services, which are direct results of, among other factors, maintaining and enhancing the competitive advantages. Higher stake value can contribute in generating higher financial resources for the company, but its effect on the companys profitability is also outside the scope of this paper. Some of the saving accounts (columns) mentioned in Fig.2 such as availability, performance efficiency and more savings are eliminated in this application, because their values are described in other variables. For example, the availability is per definition increased when all different unplanned stoppages are reduced and performance efficiency can be expressed by more production in time see Fig. 3. Also, the saving account called more savings shown in Fig. 2 is the direct sum of all the

Better use of the available technologies (more training, experience and knowledge)

(*)

Less failures per year

Shorter average stoppage time Average stoppage time L1 (l1 =5) L1- l1 (1 hr) (L1- l1)=1 (1) (L1- l1)* y (15 hr) [0] (L1- l1)*y* 23,5*PM = 634 500 SEK X

Less short stoppages per year

Higher quality production per hr Production P (p=23.45 tons) p-P (0.1 tons)

Less expenses of personnel & environment damage Expenses D (d=800000 SEK) Dd (60 000 SEK)

Low insurance premium

Lower direct maintenance cost

Less tied up capital expenses due to redundancies & WIP) Capital expenses C (c=1 000 000 SEK) C- c (50 000 SEK)

Less delivery delay penalties Penalty E (e=500 000 SEK) Ee

Total savings [PM: profit margin per ton = 1800 SEK]

Failures Y Before (Current) Difference (Example) Average stoppage time (Example) Reduction Y-y (5) L1 (6 hr) [(Y-y)*L1]*23,5 (705 tons) [0] [Y-y)*L1]*23,5 *PM= 1 269 000 SEK X (y=15)

Short stoppages B (b=350) B-b (50) L2 (5 min) (B-b)*L2 250 min (4.17 hr) [0] (B-b)*L2* 23,5*PM= 176 391 SEK X

Insurance I (i=1 000 000 SEK) Ii (60 000 SEK)

Maintenance M (m=1 000 000 SEK) Mm (50 000 SEK)

(30 000 SEK)

0 [0,1* 24*360] [ 0,1*24* 360]*PM = 1 555 200 SEK X

60 000 SEK

60 000 SEK

50 000 SEK

50 000 SEK

30 000 SEK

[Increment] Saving Data can be found in the machine's operating database Data can be found in other databases Data should be estimated

[0] 60 000 SEK

[0] 60 000 SEK

[0] 50 000 SEK Partly X

[0] 50 000 SEK

[0] 30 000 SEK 3 885 091 SEK

Partly X

Partly X

X Partly X

Partly X Partly X

X Partly X

Fig.3. Example describes qualitative and quantitative maintenance impact on the plant activities (during one year)

savings that have been done annually in all the links/accounts of the transferring mechanism. Formulas for assessing of the impact of maintenance; simple mathematical formulas to assess the financial impact of maintenance (savings) at each of the abovementioned saving accounts, i.e. to assess the savings achieved due to better usage of the available maintenance technologies, are developed below. These formulas can be applied independent of the maintenance technique being used. Denote the saving at any of these nine saving accounts by Si, for i = 1, ., 9. The total savings can simply be expressed as Total saving =

S
i =1

i =9

(3)

The saving accounts, i.e. S1, S2, , S9, presented in Fig. 3 are assessed using the following formulas: 1. Less failures; the saving in the production cost has been achieved due to less failure (S1) can be expressed by; S1 = Number of failures avoided * average stoppage time* production rate* profit margin (PM) S1 = [(Y y ) L1 ] Pr* PM (4) Where Y and y are the numbers of failures during the previous and current year, respectively, L1 is the failure average stoppage time and Pr is the production rate of high quality production. 2. Shorter average stoppage time; the saving that has been achieved due to shorter stoppages (S2), i.e. longer production time, is expressed as S2 = Difference in failure average stoppage time*number of failures * production rate * profit margin S2 = [( L1 l1 ) y ] * Pr PM (5) Where L1 and l1 are failure average stoppage times during the pervious and current year, respectively 3. Less short stoppages; the saving in the production cost has been achieved by less short stoppages (S3) can be expressed by; S3 = [Previous year short stoppages (B) current year short stoppages (b)] * average stoppage time (L2) * production rate * profit margin (6) S3 = [( B b) L2 ] * Pr PM 4. Higher quality production. The saving achieved due to higher production quality (S4) is expressed by: S4 = [Current year high quality production per hour Previous year high quality production per hour] * 24 hours * 360 days * profit margin S4 = ( p P ) 24 360 PM (7) Where P and p are tons of high quality paper produced per hour in the previous and current year, respectively 5. Less expenses paid by the company to cover, for instant, personnel compensation due to accidents, environmental damage penalty, insurance premium, direct maintenance costs (that includes labour, spare parts and overheads), tied up capital in spare parts and equipment and penalty expenses of delivery delay. Denote the expenses before and after the improvement, i.e. previous and current year, by Eb and Ea, respectively. Then, the sum of the reduction or increment in these expenses can be expressed by (8) (E b E a ) j
j

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where j =1, 2, 3, 4, 5 denotes the 5 types of the expenses that are incurred by the paper mill machine considered in this paper, see above. By substituting (4), (5), (6), (7) and (8) in Eq. (3) yields: Total saving = PM *{Pr *[ (Y y ) L 1+ ( L1 l1 ) y + ( B b) L2 ]+

( p P ) 24 360 } + ( Eb E a )
j =1

(9)

In this example, the model is applied using partly real data, such as the profit margin, production rate and production losses due to bad paper quality, and partly typical data, such as the numbers of failures, average stoppage times and short stoppages, based on the author practical experience in paper mills to describe the models applicability and potential, see Al-Najjar et al (2001). In order to determine the profit margin, we need to subtract all the cost (fixed and variable) from the turnover. Companies have usually an approximate final figure of the profit margin assessed per ton, which is the case in paper mills, hour or item. For simplicity, all the assessments done in Fig.3, the profit margin per ton of high quality production (PM) is assumed 1800 SEK. The data required for performing these assessments are classified in Fig. 3 into three categories based on where these data can found in the companys databases. These data can either be found in the machine operating database or/and in other databases, such as quality and accountancy, or the data should be estimated based on some available information in consultation with the companys personnel. In this example we assume that the numbers of failures and short stoppages, average stoppage time required to restore the machine and the rate of production of high quality products to be 20 failures, 400 short stoppages, 6 hours and 23.45 tons high quality production, respectively. The changes in these variables, i.e. reductions or increments, that have been achieved when VBM systems and tools are better used during a period of time of one year are assumed to be 5 failures less, 50 less short stoppages, one hour shorter average stoppage time and more 0.1 tons high quality production per hour. The average of the production rate of high quality production during the year of assessment is 23.5 tons. Applying the formulas developed above in this example, the major result that can be highlighted is that the total saving (3 885 091 SEK) accumulated from nine different accounts by which maintenance technical impact is converted to financial. The saving accounts of the biggest results are those representing the savings generated due to less failure, shorter stoppages, better production quality rate and finally less short stoppages. The reason behind that is the high profit margin per one-ton high quality production, which is, in general, the case in paper mills. The losses in production due to bad quality are, sometimes, generated by technical problems, which could be avoided by more efficient maintenance and better usage of maintenance techniques. The cost incurred in this saving account is assessed assuming that the defective amount of paper produced is recycled, i.e. we loss just the profit margin, which is the case in paper mills. The sum of the three saving accounts constituting availability, i.e. failures, short stoppages and failure average stoppage time, is 2 079 891 SEK and represents about 54% of the total savings. In general, maintenance major impact is on the number of stoppages and average stoppage time. The lowest saving is achieved due to less short stoppages, because we preferred to be conservative in our assumption, but much more

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saving is possible to be done, see Al-Najjar and Alsyouf (2004). The same thing can be said about the saving achieved in the last five accounts, i.e.

(E
j =1

Ea ) .

Conclusions The model applied in Fig. 3 can be used to assess the real savings have been achieved by applying more efficient maintenance, and also can be used to anticipate the potential savings that can be achieved when investing for achieving better utilisation of maintenance techniques. The latter can be done when the knowledge and experience required to decide how maintenance techniques can be utilised for enhancing the production and maintenance processes performance, i.e. the knowledge and experience required to identify and eliminated the root causes behind production losses, disturbances, higher production cost and inefficient maintenance. The model in Fig. 1 describes schematically the interactions between maintenance and competitive advantages, and maintenance role in creating and enhancing companys competitiveness based on companys internal resources. Fig.2 illustrates qualitatively how the impact of more efficient maintenance policy can be transferred from maintenance working area to the other disciplines within the plant. The impact is, in principle, transferred to disciplines independent if they are closely related to maintenance or not. Also, this imply that the maintenance impact does not restricted to the technical area, such as more production, safer operation and better quality rather than it influences other essential attributes of a production process such as personnel competence, environment and assurance premium. Applying the model described in Fig.2, it will be possible to capture the most dominating factors controlling cost and profits factors when considering maintenance as a profit-centre. Also, it can be used to describe, motivate and monitor maintenance behaviour and economic importance and role in the company's business. The possible payback of the investments in VBM according to the Swedish and the international scale is about 5 to 10 times the investment, Al-Najjar and Alsyouf (2004). This means that the investment in this example can be assessed to be about 800 000 to 400 000 SEK, respectively. Furthermore, The model can be utilised for two additional objective; the first is to examine whether the investment done in maintenance is costeffective or not, and the second is for simulating maintenance financial impact on the relevant working areas in order to assess the investment required before performing the improvements. References Ahlmann, H. (1984). Maintenance Effectiveness and Economic Models in the Terotechnology Concept, Maintenance Management International 4, 131-139. Ahlmann, H. (1998). The Economic Significance of Maintenance in Industrial Enterprises. Lund University, Lund Institute of Technology, Sweden. Akdeniz Aydin (2001). The impact of mandated aging airplane programs on jet transport airplane scheduled inspection programs. International Journal of Aircraft Engineering and Aerospace Technology, Vol. 73, number 1, page 4-16. Al-Najjar, B. (1997). Condition-based maintenance: Selection and improvement of a cost-effective vibration-based policy in rolling element bearings. Doctoral thesis, ISSN 0280-722X, ISRN LUTMDN/TMIO1006SE, ISBN 91-628-2545-X, Lund University, Inst. of Industrial Engineering, Sweden, 1997.

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