Every chemical, oil and gas company is beset by assets that fail to attain full production potential due to downtime. If a particular asset’s availability is 97 percent, that remaining 3 percent is stranded cash.
For companies to achieve the highest return on investment, the goal is to extract as much production potential as possible from an asset—running a plant, for example, at the rate of demand for the product. This requires identifying the causes of “dead money” and then taking actions to revive it.
Top-Quartile Performance companies are doing just that, generating dramatic asset performance gains of an additional 350 hours of operations per year on average. These additional two weeks of productivity goes right to the bottom line in the form of bigger profits.
In today’s highly challenging industrial operating environment, characterized by low crude oil prices and historically high refining costs, dead money that adversely affects corporate profitability and shareholder value cannot be tolerated. Squeezing more productivity out of existing assets is often the only short-term means of returning more value to investors.
For most companies, the best place to start is an assessment of the three most common sources of dead money —stranded technology, unproductive labor and overstocked spare parts. “You need to understand where there are pockets of opportunity to optimize asset performance,” said Will Goetz, vice president of business development and marketing for reliability consulting at Emerson Process Management. “Then, you must develop a roadmap to optimize this performance.”
Making this journey is well worth the effort. Top-Quartile Performance companies have less than 3 percent total downtime, whereas those performing below average will often see 5 to 14 percent total downtime, according to a recent Solomon Reliability and Maintenance Study. The study also indicates that maintenance costs of top-quartile performers are less than 2 percent of plant replacement value, while poor performers can spend two to four times more than that.
These percentages add up to serious money. A $1 billion top-performing oil refinery, for instance, spends an average of $12 million to $20 million per year on maintenance annually, whereas one at the bottom, performance-wise, spends two to four times this amount. “Globally, we estimate the improvement opportunity in maintenance and reliability practices to be about $50 billion annually,” Goetz said.
That is a lot of profitleft on the table. Goetz noted that as much as 60 percent of maintenance labor is unproductive or unnecessary. Other sources of dead money include underutilization of investments in equipment monitoring technology and overinvestment in spare parts, areas that can be improved to free cash for more strategic purposes.
By benchmarking plant operations against peers, companies can identify which of the three sources of dead money presents the biggest opportunity for significant gains. Let’s explore each of these sources respectively, starting with stranded technology.
Many plants have incorporated smart technologies to manage the production process. Embedded sensors measure temperature, flow pressure, vibration, friction, valve openings and closings, and other factors that may indicateequipment breakdown or failure, leading to downtime. Companies have also spent substantial money on protection systems to shut down machines, vastly reducing the possibility of catastrophic failure and longer downtimes. What if these same tools could provide even earlier notice of developing problems?
According to Goetz, they can. “There are process management and information capabilities in these multi-million dollar condition monitoring systems for detecting failures that are not being realized,” he says. “More information can be extracted from these investments to fix equipment earlier and plan repairs at times when the output of an asset is least valuable. Even more importantly, this information can be used to evaluate when continuing operation of an asset could pose a safety risk.”
Equipment condition information can be leveraged to revive another source of dead money—overstocked spare parts. By better understanding when a problem might arise, a plant can stock only those parts needed for when a situation requires action, freeing capital for more immediate needs.
Unproductive labor—the difference between planned and unplanned maintenance work—is the third source of dead money. The more time actually spent by maintenance staff on planned maintenance of equipment, the less time they are being paid to scramble to keep up with unplanned repairs.
“Planned work is twice as productive as unplanned work,” said Goetz. By having earlier insight into when machines will require maintenance, work crews can be managed more efficiently from a time utilization standpoint. “Asset condition drives the planned work,” he explained.
Some companies might be dubious about the gains that can be achieved by taking actions to revive sources of dead money. To relieve these concerns, start small by identifying dead money sources at a single plant. Measure the effectiveness of the actions taken to validate the improvements, and then benchmark the results against peers. Once assured of the benefits, confidently extend these actions enterprise-wide.
With the ability to respond to market conditions limited by production constraints, recovering dead money from existing operations can be a surefire profit booster.
Russ Banham is a Pulitzer-nominated business journalist and author. His new book, “Higher: 100 Years of Boeing,” is in bookstores now.