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Using Replacement of Asset Value to Audit Your Maintenance Program's Efficacy

Four essentials for determining true asset criticality

"Replacement of asset value" can help manufacturers bring the highest quality reliability-based maintenance to their operations. But how?

As the complexity of modern manufacturing assets continues to add intricacy to the processes surrounding them, maintenance staff charged with keeping these machines functional will need to adapt. What worked in the age of simpler, labor-intensive mechanical equipment won’t cut it in today’s manufacturing plants, where digital integration pushes companies to utilize data and automate production.

Innovation, however, can be a double-edged sword. Enhanced assets bring value-added capabilities to original equipment manufacturers, but by doing so, these applications become integral and subcutaneous to expanding plant processes. Growth in modern manufacturing means allowing this equipment to assume greater roles behind the scenes, so running them to failure has more of a negative impact on the quality of production, safety standards and time management. Proactive maintenance strategies are then brought on to deter these kinds of impediments from causing more interruption than need be. In fact, barring the occasional fluke, enterprise asset management programs that pay careful attention to the status of their maintenance can avoid the most costly repairs.

Some might argue preventive and proactive maintenance requires investment before equipment ever breaks down. True as it may be, it’s not the whole truth. Assets are called assets for a reason – they’re inextricable from manufacturing operations, perhaps even their respective industry in general. All reliability-based maintenance principles ask is that OEMs and manufacturers invest their resources intelligently throughout a piece of equipment’s lifecycle as a means of staving off everyday inefficiencies as well as the most costly investment of all: total asset replacement.

But if OEMs make the switch to RBM programs, how can they be sure their changes are actually having an effect without expending resources unnecessarily? Understanding the concept of “replacement of asset value” not only provides manufacturers with a litmus test for implementing RBM, but the same system can determine whether these proactive approaches to maintenance could go even further.

What is Replacement of Asset Value?

Replacement asset value (RAV), or replacement asset valuation, is a way of auditing maintenance programs by weighing their annual value against that of a complete asset replacement. Maintenance becomes a fraction of the total purchasing cost. The lower this maintenance percentage goes, the more valuable an overall maintenance program is to an organization.

Replacement Asset Value Calculation

Ricky Smith, CEO and president of Maintenance and Reliability Best Practices, LLC, describes the replacement asset value formula as the following:

  1. First, add together all maintenance-related costs performed on a specific asset over the course of a year.
  2. Next, multiply that number by 100.
  3. Finally, divide the product from the first two steps by the total cost to replace said asset.

What you’re left with is RAV. But how are manufacturers supposed to understand this figure? And how can it be applied to RBM?

What RAV Can Do for Business Intelligence on the Manufacturing Floor

To put things into perspective, the Maintenance Phoenix reported reactive maintenance strategies, where manufacturers wait around for equipment to fail before performing repairs, which could reach as high as nearly one-fifth of an asset’s annual RAV. This means a company’s stance on maintenance is so lax that the resources it hemorrhages in reactive maintenance only remain cost-effective for five years. Alternatively, proactive maintenance solutions can extend an asset’s lifecycle by four times that amount or more.

Proactive maintenance isn’t only a cost-saving philosophy about how manufacturers should treat their equipment, but a mosaic of separate repair initiatives specifically tailored to each asset, and components within that asset, individually. True RAV can only be obtained once an organization has developed its master asset list and performed criticality rankings on each piece of equipment it wishes to cover.

For OEMs that have adopted proactive maintenance best practices already, RAV can begin to act as a mile marker for how well the program has been executed and managed.

"Fluctuations in RAV could signal defects in a RBM caused by improper management."

What are the Warning Signs? What Do They Mean?

While manufacturers may take on RBM strategies for a slew of different reasons – increasing uptime, employee safety and production volume, but reducing system failures – the ultimate objective shakes out to opening up new revenue streams by both retaining resources and enhancing the quality of the product itself. To that end, assigning a percent-based monetary value to incremental proactive maintenance can be a simple and highly effective means for overseeing reliability-based maintenance implementations. However, as Plant Services pointed out, that’s only half of the enterprise asset management picture. The other side involves understanding an asset as it operates amid the panoramic production schema. RAV also supports this outlook by acting as a red flag for inefficiency.

Fluctuations in RAV could signal defects in a RBM caused by improper management. Noticing these subtle changes can help steer manufacturers toward the leanest possible maintenance process possible while also ensuring the resources expended on RBM are being utilized intelligently. For example, should an asset’s RAV increase, many somewhat irrelevant factors could be driving these percent up, like the decreasing equipment costs. That said, if manufacturers supporting a RBM framework have isolated the RAV increases from these incidental issues, this increase could be a sign of a loose end that needs tying:

  • Have RBM maintenance procedures been performed in a timely manner?
  • Have maintenance crews properly identified the root causes behind asset depreciation?
  • Are maintenance decision-makers passing along RBM best practices to staff?
  • Does the manufacturer’s inventory adequately stock enough competitively priced replacement components for smaller repairs?
  • Has the full scope of performance metrics been monitored as closely as need be?

Manufacturers who take a proactive approach to maintenance and repairs for their most important assets maximize their productivity over the life of the equipment they oversee, but RBM isn’t something that works autonomously. OEMs must work alongside maintenance teams as well as equipment operators to utilize every tool at their disposal for catching costly repairs well before they happen. Replacement asset valuation is just one way to not only quantify the cost-saving capabilities of RBM and proactive maintenance strategies, but as maintenance decision-makers begin to implement these practices and programs on the production floor, RAV helps audit their integrity throughout the onboarding process, ensuring only the strictest RBM habits are adhered to. In doing so, these maintenance crews will continue to support their capital-intensive assets and their value retention well into the future.

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