CMMS cuts maintenance costs, increases profits

The connection between lowering maintenance costs and enhancing profitability may not always be obvious to senior management.

By Paul Lachance, Smartware Group August 22, 2011

In the world of plant operations, CMMS normally stands for “Computerized Maintenance Management Software.” Those letters, however, could also be the acronym for “Cutting More Maintenance Spending” because CMMS does, in fact, reduce maintenance costs.

By playing a role in reducing expenditures by increasing the capacity of critical equipment through automated maintenance, CMMS can contribute as a profit center. The connection between lowering maintenance costs and enhancing profitability may not always be obvious to senior management, but the equation that demonstrates this connection could not be simpler:

– Reducing downtime = Increasing uptime
– Increasing uptime = Greater productivity
– Greater productivity = Increased profits

But how exactly does CMMS achieve the cost savings that lead to higher profitability? The answers to that question can vary from company to company, but fundamentally, there are five basic ways to shore up maintenance costs and gain the benefits CMMS has to offer.

Preventing equipment failures

When machinery or plant systems go down, it means lost production time for manufacturers, resulting in additional labor/overtime, potentially late deliveries, and increased costs in replacement parts. By using CMMS to identify, in advance, the equipment that needs parts replaced more frequently, and setting up a preventive maintenance schedule, repairs can be made before the machine malfunctions.

To prevent equipment failures, start with a strong preventive maintenance plan as the best “offense” strategy to minimize unplanned failures and cut costs. When inevitable breakdowns occur, CMMS will capture accurate, timely information from work orders, which show the real-life needs during equipment failures. CMMS can aggregate that work order data in summary report form, drive PM schedules, and ensure assets get checked before failures occur.

Operations personnel can look up an asset and check the history of repairs. Maintenance data may show that a spare part wears out every five months, for example, and routine maintenance can be scheduled every four months, in advance of a potential malfunction to eliminate equipment downtime.

PMs can be scheduled on a calendar basis, “meter readings,” or a combination of both. Meter readings can provide a higher degree of certainty in scheduling the PM. If users can retrieve this data in an automated fashion, they will get more “data points” on the asset while eliminating human error during data entry, thus giving better, more accurate and timely analysis.

The reality is this: Preventive maintenance is always cheaper than corrective measures, so it makes sense to circumvent equipment failure whenever possible. Or, as Benjamin Franklin put it: “An ounce of prevention is worth a pound of cure.”

Streamlining repair communications

Seamless communications between staff members who report problems and the maintenance team who responds to those reports contribute to maintenance efficiency. With CMMS, automating the repair process can replace the handwritten notes that are easily misplaced/difficult to read, the avalanche of redundant e-mails that have to be retyped into CMMS, or the constant interruptions managers get from radio calls or hallway encounters with staffers checking on the status of repairs. Also, managing redundant requests, getting appropriate approval from supervisors, and other tasks around the request process can be automated.

For example, a maintenance repair dispatcher on the West Coast receives a “trouble ticket” about a broken machine at the company’s facility across the country. With CMMS, that ticket is automatically routed to the most appropriate technician. The automated system also generates a work order that the technician completes once the repair request is fulfilled and the machine is back up and running.

Throughout this process, CMMS updates the East Coast facility until the machine resumes functioning. In this way, CMMS saves time and energy for staffers because it keeps everyone in the communication loop and they can stay abreast of repair progress. Further, the automated system also clarifies which technician is responding to which request, and removes any mystery about when the problem has been resolved.

Once again, by using CMMS, not only does staff communication improve but the repair process for technicians is much more efficient, which translates to faster machine repairs and improved uptime.

Stretch the life of your assets

CMMS gives managers an edge when they need to make strategic decisions about capital expenditures and equipment replacement. Typically, the age of an asset is the determining factor when considering whether it needs to be replaced or not. That criterion, however, may not be the best measure or the most cost-effective one.

For example, the director of operations asks managers to list the assets they will need to overhaul or replace so he can add to his budget for the forthcoming fiscal year. Because CMMS technology analyzes and grades equipment based on existing operational information captured daily from PMs and WOs (including labor, parts, and other factors), a 10-year-old air conditioning unit could show superior uptime versus a newer model. Replacement could be postponed until the following year’s budget. That conclusion might be drawn because the newer AC has required far more repairs than the older one, plus the older AC may show a steady or even decreasing frequency of failure with a steady decrease in maintenance costs.

This analysis helps shift asset capital spending to where it is needed more, making it a significant contributor to the ROI of a CMMS system. While no single CMMS-generated report can fully automate purchasing decisions, this technology makes it easier to assess key performance indicators and develop a more robust, multidimensional view of equipment costs. It can also help with a more accurate deployment of staff, PMs, etc. CMMS makes it possible to sift through asset maintenance history and grade machines to better inform budget and operational decisions, helping to intelligently stretch the life of your assets.

Regulatory compliance

If there is one maintenance headache—and expense—that every manager wants to avoid, it is the cost of fines levied by regulatory agencies. CMMS significantly diminishes this problem in several ways. Also, a by-product of CMMS is that much of the information needed for this compliance is already in the CMMS system, eliminating the need to keep redundant records.

Managers use CMMS to automate the process of defining, scheduling, and implementing preventive maintenance and work order tasks and schedules to comply with safety and environmental regulations as well as equipment insurance policies.

For example, OSHA auditors want to see a trackable history of what was done on a piece of equipment, when it was done, who did it, how often it has been inspected, whether it had clear instructions and safety procedures documented, etc. The automated PM system of a CMMS system can accurately and easily search historical work orders and related data of an asset and generate a report that will satisfy regulatory agencies.

In addition, CMMS-generated logs of preventive maintenance work provide an accurate history of repairs in response to a civil lawsuit. For example, a football stadium was being sued for damages related to a patron’s fall in a restroom. The management team at the stadium was able to rebuff the suit because they could show the history of all the work (PM and corrective maintenance) that had been done around the restrooms and related systems using CMMS reports that transformed work order histories into a summary chart of repairs.

In another case, a large textile and linen rental company implemented its CMMS so effectively that it not only met OSHA compliance but became eligible for the agency’s Voluntary Protection Program, which recognizes and partners with businesses that show excellence in occupational safety and health.

One of the truisms about regulatory compliance is that “if it is not documented, it did not happen.” CMMS provides that documentation and proof of compliance—which is no small feat considering the fact that in the last decade, OSHA has levied more than $300 million in penalties against U.S. corporations.

Just-in-time parts inventory

CMMS allows manufacturing plants to keep lower stocks of spare parts by giving an accurate count and setting “just-in-time” reorder points to match up with maintenance demands. This is especially helpful with expensive parts (and those with long-lead times) that need to be stocked at every facility within a company.

As a result, real cost savings can be achieved when different locations “share” these costly parts. With CMMS, managers can quickly search throughout the company to find the parts they need and have them delivered overnight—a system that satisfies most situations.

In one case, a company was keeping three to four circuit boards on hand as replacement stock in each of its facilities. The firmware on the circuit boards, however, expired after 12 months, rendering the boards useless. Consequently, the company was throwing away $10,000 circuit boards. Once the CMMS program was put in place, the circuit boards were stocked at only a few plants and then overnighted to the plant that needed them, facilitating the company’s just-in-time parts delivery system.

Rather than keeping multiple circuit boards on hand, the company used CMMS to keep track of spare parts inventories. Now, the CMMS system automatically notifies the engineering department when a circuit board is shipped out.

These five facets of cost savings demonstrate how CMMS quickly shows a return on investment and enhances maintenance operations in ways that go far beyond simply tracking daily work orders. Whether using CMMS to prevent equipment failures, extend the life of assets, and keep parts inventory costs low, or to improve staff communication and regulatory compliance records, this technology can prove invaluable to a company’s bottom line.

CMMS does far more than make sure broken machines get fixed. It increases capacity for an organization, as if the company was adding new equipment. Essentially by reducing downtime, it can shift the view of upper management that maintenance is a profit center—not a cost center.

ROI Method 1: Classic Maintenance Expense Model

If you have a good idea of what your maintenance expenses are (including any combination of equipment, inventory, downtime, overtime, or overall), the formula is relatively easy.

The example above spans 3 years. Annual maintenance budgets are $400,000 or $1,200,000 over the 3 years. The cost of the software over that 3-year period in this example is $9,150. The annual percentage improvement estimates are 2%, 4%, and 7% based on the assumption that improvements increase through greater CMMS product usage. With these conservative improvement percentages, the company will show a stronger bottom line of $42,850 over 3 years. That comes to an ROI of 368% and a payback in just 2.56 months.

CMMS can make this happen by reducing labor/overtime, improving inventory control, decreasing equipment replacement/repairs, etc. These are all possible through a good CMMS implementation.