Reducing the Total Cost of Ownership

By R. Keith Mobley, Life Cycle Engineering

Total cost of ownership is simply all cost incurred at the asset level from its conception through disposal at the end of its useful life. While many of these costs are determined during the design and procurement phase, this article focuses on steps to reduce the incurred cost of operations and maintenance. 

If one assumes a sound design and installation, the steps necessary to minimize operating and asset care cost are quite straightforward. One must simply adhere to best practices. Best practices for operating and asset care include the following:

Operating Best Practices

The first and most critical requirement of operating best practices is to adhere absolutely to operations within the asset’s designed operating envelope. Each asset or class of assets is designed to perform a specific range of work and bound by a specific range of inputs and outputs. This envelope includes the best way to start, change speeds and shut down the asset and its associated production or manufacturing system.

Statistical data shows that violations of this fundamental best practice account for 27% of all asset-related reliability problems; increase energy consumption by as much as 15%; and reduce useful life by 20% to 30%. The combined impact of this single deviation from best practices significantly affects the total cost of ownership and the cost of goods sold.

Reversing this deficit is not difficult. First, you need standard operating procedures that define systematic compliance to best practices. With these procedures in place, retraining operations personnel and universal compliance will eliminate most, if not all, of the unnecessary cost, as well as significantly extend the useful life and reduce the asset care cost.

A second critical requirement is effective operator care. Best practice operation of a production or manufacturing asset requires more than simply turning it on and ensuring that adequate in-feed materials are available. The operator and machine tenders have a vital role in controlling total cost of ownership and cost of goods sold. These responsibilities include frequently inspecting, cleaning, adjusting and calibrating their machine. Properly maintained, assets require less energy, can consistently maintain rated speeds and generate near perfect product quality. Conversely, failure to meet any of the criteria results in higher costs and lower reliability.

Asset Care Best Practices

Effective asset care, in conjunction with proper operation, is essential and has a direct impact on total cost of ownership. In addition to the cleaning, adjustments and calibrations performed by the operators, asset care requires:

  • Sustaining maintenance: Also called preventive, these tasks provide the basic lubrication, alignment and wear parts replacements needed to sustain designed reliability and operating condition. Best practices assure proper execution of value-added tasks that provide the required level of sustaining maintenance. Failure to follow best practices results in increased energy consumption, reduced operating speed and loss of product quality — all of which increase operating costs and, over time, drives total cost of ownership higher.
  • Periodic rebuilds: All assets, whether dynamic or static, require periodic reconditioning or rebuilding to maintain safe, reliable operation. Best practices include systematic guidance that assures proper disassembly, replacement and reassembly of critical assets, as well as adherence to materials best practices.
  • Periodic replacements: Most critical assets contain components that have finite useful lives. Components such as solenoids, belts and elastomeric seals require periodic replacement to ensure reliability. 

Failing to apply consistently best practices has the immediate impact of increasing operating costs and decreasing operating profit. The degree of impact varies depending on industry and the level of deviation and may appear to be within acceptable levels—it may only be a fraction of a percent. However, when viewed from a total cost of ownership perspective, that fraction of a percent per year is substantial. Even fractional losses accumulate over the 20 or more year useful life of production assets.

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