Reliability’s Bottom-Line Connection

A couple of months ago, while at a trade show, I received a white paper titled “How Reliability Impacts Shareholder Value,” authored by Bruce Hawkins, CMRP of Emerson. The title piqued my interest, so I flagged it for later reading—and later I actually read it.

The piece addresses one of the biggest challenges faced by anyone who is trying to establish and sustain a reliability program: How to demonstrate to management that establishing and sustaining a reliability culture puts money on the bottom line. The seven-page document contains segments that address revenue growth, cost effectiveness, asset efficiency, market expectations, and measuring shareholder value. It also has several charts that are ideal for presntations. Below are some of the statements that I coated with highlighter ink. You can download and read the entire piece here.

Reliability enables premium pricing: “Stable production processes within statistical control inherently produce consistent quality products. Unreliable equipment that frequently fails introduces “special cause” variation into the process that leads to quality problems. If these special causes can be eliminated, it enables the organization to research and address the sources of common-cause variation, leading to quality improvement. Consistently higher quality products than the competition enables the organization to command premium prices, or at least to maintain pricing in the face of a market downturn.”

Reliability drives down minimum unit cost: “A reliable manufacturing process helps ensure that the products can be produced at a minimum unit cost. In most commodity businesses, the low cost producer wins—it is in the best position to ride through a potential market downturn while remaining profitable and providing an acceptable return on assets. A good reliability program can have a significant impact on Costs of Goods Sold (COGS) through efficient resource utilization and the ability to eliminate unnecessary work.”

Reliability maximizes asset efficiency: “A reliability program assists with asset efficiency by helping to maximize output with a minimum of investment. As we increase reliability we would be able to increase asset utilization without investing in additional capacity (more capital assets). Also, if we clearly understand the operating condition of the equipment (its “health,” so to speak), we have less uncertainty and therefore less of a need to have redundant spare equipment. Additionally, if the equipment is appropriately cared for, its useful life is extended and there is less need for replacement capital (this also has the effect of reducing costs due to a reduction in depreciation expense). The business has the option to deploy that capital on items that will increase productivity or reduce operating costs.”

Reliability cuts turnaround costs: “One major expense in some industries is the scheduled turnaround (also referred to as shutdowns or outages in some industries). A good reliability program helps to maximize the efficiency and effectiveness of the turnaround by ensuring that the scope of the turnaround is known (the predictive-maintenance program provides information on asset health and there are fewer “surprises” when equipment is opened). Advanced notice of issues and effective planning of the corrective actions can help minimize turnaround duration.”

Reliability enhances knowledge of assets: “Organizations with reliable assets inherently have better knowledge and information about those assets; it is a byproduct of understanding how the equipment is supposed to operate and how it can potentially fail. They understand both the capacity constraints of the equipment and the potential consequences of exceeding those constraints. They also, through effective condition monitoring, understand the operating condition and the general asset health at any point in time so mitigating actions can be taken with minimal disruption to the operation.”

Reliability delivers more than planned: “Organizations that embrace asset reliability and focus on implementing the tools, techniques, and technologies necessary to enhance and sustain it nearly always find that the returns are much greater than anticipated. When reliability becomes an integral part of an organization’s culture, the discipline and rigor necessary to launch and sustain it tend to permeate throughout the organization and drive benefits in all facets of the operation. It is doubtful that an organization can embark on any other initiative that can have such a far-reaching impact on the entire business.”