Maintenance Organization Value Chain Analysis and

Its Formalization

Tianming Zhang, Ying Wang, and Chao Li

School of Engineering
Air Force Engineering University
Xi’an, China
tianmingzhang@sina.cn

Abstract. In order to achieve Business process improvement (BPI), value chain

analysis is widely utilized in enterprises. In related published researches,
maintenance processes are only discussed as supporting activities in manu-
facturing enterprises. In fact, independent maintenance organization is very
common in some industry, civil aviation for example, and its value chain is
different in many ways from those in manufacturing companies. In this paper,
firstly, value chain for stand-alone maintenance organizations is presented. Then,
a 5-step value chain analysis model is presented. Finally, a continuous improving
process is discussed. Meanwhile, several types of UML diagrams are used as
formalization tools.

Keywords: Business Process Improvement (BPI), Value Chain Analysis,

Formalization, Maintenance Organization, UML Diagrams.

1 Introduction

A. Generic Value Chain

To obtain its financial goal, i.e. to gain necessary profits, an enterprise has to present
its customers with suitable products satisfying the latter’s needs. According to [1], the
value of an enterprise is the amount customers are willing to pay for what the
enterprise provides them. To implement its value, the enterprise will perform lots of
activities, e.g. design, produce, market, deliver, support etc. A generic value chain is
shown as Fig.1. The enterprise is profitable only if the value specified by the
customer exceeds the product’s total cost. Therefore, to be a lean enterprise means the
enterprise should banish the waste activities on the value chain and thus either raise
the value or reduce the cost or both.

B. Maintenance Value Chain Activites In Manufacturing Firms

Value chain analysis plays a key role in understanding the core competitiveness of
an enterprise. Which activities are the critical success factors (CSFs) could be
determined by mapping the value flow in the production chain and separate the value
added activities from the not-value added ones.

J. Zhang (Ed.): ICAIC 2011, Part III, CCIS 226, pp. 289–296, 2011.
© Springer-Verlag Berlin Heidelberg 2011
290 T. Zhang, Y. Wang, and C. Li

Fig. 1. The Generic Value Chain

Maintenance activities are usually considered as supporting activities in manu-

facturing firms [2][3] and thus the value is seldom measured from the view of outside
customers. Instead, it is often measured by some non-financial key performance
indicators (KPIs), for instance, KPIs shown as Fig.2 in a UML composite structure
diagram [4]. Accordingly, the key value added activities are depicted in Fig.3, where
CMMS represents Computer Managed Maintenance System.
But for a stand-alone maintenance organization (SAMO), its value should still be
defined by the outside customers, as for any manufacturing firm which realizes its
value or margin only when the outside customers’ needs are met by its products.
Therefore, the meaning of value and the value chain in a stand-alone maintenance
organization is very different from that in a manufacturing firm. Unfortunately, either
the value chain or the value chain analysis is seldom discussed in the publications
available.

Work Process Productivity

Costs divided by net asset value Materials Management
Total cost per unit produced Stock Out (%)
Overtime hrs. as % of total labor hrs. Inventory Accuracy (%)
Parts Usage

Reliability/Maintainability
MTBF (mean time between failure)
MTTR (mean time to repair) Maintenance KPIs
MTBR (mean time between repairs)

Planning and Scheduling Preventive/Predictive Maintenance (PPM)

Planned/Schedule Compliance PPM labor hrs. divided by Emergency labor hrs.
Planned Work PPM WOs divided by CM WOs

WO: work order

CM: corrective maintenance, planned/scheduled work
Planned/Schedule Compliance : % of labor hrs. completed to schedule
divided by total maintenance labor hrs.
Planned Work: % of total labor planned divided by total labor hrs. scheduled

Fig. 2. UML Composite Diagram for Traditional Maintenance KPIs

 Maintenance Organization Value Chain Analysis and Its Formalization 291

Fig. 3. Value Added Maintenance Activities in Manufacturing Firms

2 Value Chain for Stand-Alone Organizations

C. Value Chain

Instead of supporting the operation in a manufacturing firm, a stand-alone maintenance

organization will realize its value by providing products –or maintenance services – to
its external customers. Therefore, its typical value chain for stand-alone maintenance
organizations (SAMOs) is shown as Fig.4. Some activities are not common in the
maintenance value chain for a manufacturing enterprise, such as subcontracting, the 3rd
party logistics, sales forces, etc.

D. An Instance Process of the Value Chain

For a given external customer, it will be served by a specific workflow or business

process, which is actually an instance of the value chain. For instance, an instance p is
shown in Fig.5 using a UML activity diagram [4].
An instance process is a business process by which the maintenance service is
provided to an external customer. The exact process for each customer might be
somewhat different but Fig.5 presents a general one. The brief process in Fig.5 is as
following.
1) Request Service. An external customer has some devices or equipments to be
fixed or maintained according to scheduled preventive maintenance.
2) Inbound Logistics. The 3rd party logistics will take the devices or equipments to
the location of the maintenance organization.
3) Release WO. The maintenance manager will create a work order and assign
some engineers to it.
4) Repair. The engineers will fulfill the WO.
5) Check & Accept. The customer will confirm whether the devices or equipments
are at the expected status.
292 T. Zhang, Y. Wang, and C. Li

6) Pay, Outbound Shipping. The customer will pay for the service.
Simultaneously, the 3rd party logistics ships the devices or equipments back to the
location of the customer.

Fig. 4. Value Chain for SAMOs

Fig. 5. An Instance Process of Value Chain for SAMOs

3 5-Step Process Model for Value Chain Analysis

To create and keep its core competitiveness, value chain analysis would be done
continuously so that the opportunities or threats to an enterprise could be identified. A
5-step process is given below.
7) Specify customer value. Recognize the things that the external customers of the
enterprise value.
8) Itendify value chain activities. Brainstorm on activities that are required for
realizing the value .
 Maintenance Organization Value Chain Analysis and Its Formalization 293

9) Analyze activity value. Measure the influence on the whole chain value of
individual activities.
10) Analyze activity cost. Allocate costs to value chain activities and identify the
cost drivers respectively.
11) Relate activities to competitive abilities. Build a correlation between each
activity to the coure competitiveness of the organization. For each activity, the amout
of its value surpasses its cost could be used as an index for this correlation.

To improve the value chain in a stand-alone maintenance organization, there are 3

questions to be answered.
z While keeping the costs in the value chain activities unchanged, is it possible to
increase the value of the chain?
z While keeping the value of the chain unchanged, is it possible to reduce the costs
in the value chain activities?
z Is it possible to increase the value and reduce the costs in the value chain at the
same time, i.e. combine the two items above?

Therefore, the steps 4 and 5 are the key steps and will be discussed in detail.

A Analyze Activity Value

From the view of customer, the process p in Fig.5 is valuable.
12) Value of the whole chain
The value of the whole chain could be measured by the mean profits earned by the
multiple executions of the value chain activities, i.e. business processes. If the cycle
time of the business process is rather long, e.g. more than one year, the earned profit
should be adjusted to its present value (PV) using a proper discount rate. Usually the
expected return on investment or the weighted average capital cost is used as the
discount rate.
Suppose V is the average margin earned by the value chain executions, the discount
rate is int and the average cycle time of the business process it t, then the present value
of V, Vc will be
V (1)
V c = PV (V ) =
(1 + int) t

13) Value of the chain activities

The value of the whole chain will be influenced by the efficiency of activities a1,
a2, …an. Usually the contributions of these activities to the total value of p are
different. Let ri (i = 1, 2, …, n) be the coefficient of activity ai to the value of p, which
means the contribution rate of activity ai to the total value of p if ai is performed in an
efficiency of 100%. Thus

V p = (r1 , r2 , L , rn ) (2)

is called the activity value vector (AVV) [5] of process p, where

n
1 ≥ ri ≥ 0 (i = 1, 2, L, n) and ∑r =1.
i =1
i (3)
294 T. Zhang, Y. Wang, and C. Li

To get the AVV, based on historical business data from ERP or other information
systems, statistics methods (e.g. regression analysis, Monte Carlo method, etc.) could
be used.
If the value of the whole chain is Vc, the values of individual activities or Va will be
Va = V p • Vc = (r1Vc , r2Vc , L , rnVc ) (4)

E. Analyze Activity Cost

1) Trace Costs to Activities

While each value activity generates value for the whole chain, it will incur cost as
well. The enterprise’s accounting system should be designed to accomplish this work,
but there is a big challenge that the traditional accounting systems are usually not
competent because in these systems the apportionment of cost is not related to
activities.
Activity-based costing (ABC) [6][7] is a suitable technique to trace cost to
individual value chain activities. The total cost of the value chain is just the sum of
the activity costs.Because the cost (or investment) of activities such as that on labor
hours, materials, spare parts, etc. will happen more often much earlier before the
finish of value chain executing, the present value of the cost should not be discounted.
2) Identify Activity Cost Drivers
To reduce the activity costs, firstly the cost drivers should be well understood.
Some sample activity drivers for the instance process of a value chain in Fig.5 are
listed in Table 1.

Table 1. Sample Activity Cost Drivers for instance in Fig.5

Activities Cost drivers

Request Service Travelling, telephone, fax, postage, etc.
Inbound Logistics Freightage, insurance, loading & unloading, etc.
Release WO Overhead expenses, allocated cost of CMMS, etc.
Repair Labor hours, spare parts, energy sources consumed, depreciation of fixed assets, etc.
Check & Accept Labor hours, working over, etc.
Pay Labor hours, credit period, cash discount, bad debts charged off, etc.
Outbound Shipping Freightage, insurance, packing, loading & unloading, etc.

4 Countinuous Improvement of Value Chain for Stand-Alone

Maintenance Organizations
A value chain in a stand-alone maintenance organization has a lifecycle of its own.
For example, Fig.6 shows a value chain’s lifecycle in UML state-chart diagram [4] of
a stand-alone maintenance enterprise which uses Reliability Centered Maintenance
(RCM) [2] to determine its customer’s maintenance requirements of physical assets in
their present operating context. The value chain’s performance will be routinely
assessed and while the performance is unacceptable, a series of continuous improving
events will be triggered.
 Maintenance Organization Value Chain Analysis and Its Formalization 295

z Building. The value chain is under constructing or redesigning. The 5-step value
chain analysis process model is the major tool. The theoretical acceptance
criterion of a value chain is that its net present value (NPV) is positive, i.e. The
present value of the chain is greater than the total cost of the chain. Meanwhile,
some testing will be undertaken in the real working environment.

test run Start routine assess[ performance acceptable ]

Building freeze and release In Use disuse Obsolete

continuous assess[ reliability decreased ]

BPI / BPR End

RCM
Optimization Evaluating revalidate
Planned
continuous assess[ profitability decreases ]
brainstorm for symptoms
Efficiency
prioritize causes & solutions Evaluating revalidate
analyze route-cause
brainstorm for symptoms
Route-cause Diagnosed
Analyzed

Fig. 6. State-chart for Continuous Value Chain Improvement in a Stand-alone Maintenance

Organization

z In Use. When a new value chain, its activities and its instances (business
processes) have been built up and successfully tested, it will be released and
frozen for a relative long period of time. The organization will operate with the
released value chain. After that, the value chain performance will be routinely
monitored. If the performance is acceptable according to the expected results, the
value chain will keep unchanged. Otherwise, the value chain will be evaluated.
z RCM / Efficiency Evaluation. The dysfunction of the value chain will be
classified into 2 categories: reliability dysfunction and value-adding dysfunction.
In either of these states, an evaluation will be done to confirm whether the
dysfunction is occasional or inevitable. If latter is the case, an improving process
will start or in other words, the value chain is unfrozen for change, otherwise the
value chain will keep unchanged.
z Diagnosed. Brainstorming will be used to widely collect the dysfunction
symptoms of the value chain. The symptoms will be sorted by their severity which
is commonly also determined by brainstorming. In continuous improvement cycle,
only a small step forward will be realized in order to obtain a quick progress.
Therefore, only couple of the most severe symptoms will be discussed in later
stages and others will be deliberately ignored.
z Root-cause analyzed. In order to completely solve a problem, firstly the root-
cause analysis of the problem should be undertaken. Usually there are more than
one problems will be analyzed in this stage and on the other hand, there might be
multiple root causes for a single problem. When all the root causes and
corresponding possible solutions have been found out, they will be prioritized
with specific criteria, e.g. return on invest or ROI, which will differ for different
enterprises or different time of improving.
296 T. Zhang, Y. Wang, and C. Li

z Optimization Planned. The solutions of top priority will be scheduled and

budgeted. BPI represents business process improvement [8] while BPR for
business process reengineering [9]. Both are business process centered
organization change, but BPI is gradual while BPR is radical. Furthermore, each
has its own, unique tool set. The tools of BPI are often referred as ESIAB because
there are 5 frequently used BPI tools, i.e. Eliminating, Simplifying, Integrating,
Automating and Balancing.

5 Conclusion
The use of value chain analysis facilitates the strategic management of an organization
and this is also true for stand-alone maintenance organizations. The 5-step value chain
analysis process model could be used as a guideline for enterprises seeking to know the
correlation between its value chain activities and its core competitive advantages.
After the value of external customer being specified, the metrics of value chain
could be considered from 2 economic viewpoints, i.e. activity costs and relative
activity values. But due to some existing challenges, such as the traditional
accounting systems do not support activity-based costing, there are still lots of works
to do to make the process model more practical. Meanwhile, the value of the value
chain to external customers is not only measured in monetary way but in other ways
as well, such as customer loyalty or satisfaction degree, etc.
Meanwhile, value chain analysis could be used as the basis of continuous
improving process for enterprises. The state machine view of a value chain for stand-
alone maintenance organizations presented in this paper depicts the drivers and
suggested activities to improve the chain.

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