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LEAN MANAGEMENT GUIDELINES FOR CHECK POINT 69

IMPORTANCE OF LEAN OPERATIONAL GUIDELINES

It is essential to formulate specific objectives related to maintenance of plant, machinery, and equipment within the organization to ensure its continued successful performance. In order to accomplish this task, you and your management team must become familiar with Lean Management principles, methods, and guidelines contained in this program and apply them to plant, machinery, and equipment maintenance activities. These guidelines have been developed by management experts in the Toyota Motor Corporation in Japan and contained in the Toyota Production System (TPS).

MAIN ELEMENTS OF THE TOYOTA PRODUCTION SYSTEM

Total Productive Maintenance (TPM) is a methodology designed to maximize productivity in operational processes while ensuring full maintenance of equipment and tooling. Total Productive Maintenance is discussed in detail in Tutorial 1.

Some of the Lean Operational Guidelines related to plant, machinery, and equipment maintenance are summarized below.

LEAN OPERATIONAL GUIDELINES
RELATED TO EQUIPMENT MAINTENANCE

Lean Management is discussed in detail in Tutorial 1.

PLANT MAINTENANCE IMPLEMENTATION

Depending on the company's size and specific operational needs, the implementation of a cost-effective maintenance of plant and equipment may require one Maintenance Person, a Maintenance Team, or reliable maintenance sub-contractors. It is essential, therefore, to establish specific Plant Maintenance Implementation Parameters outlined below.

PLANT MAINTENANCE IMPLEMENTATION PARAMETERS

SIZE OF A MAINTENANCE TEAM

Magnitude of the Maintenance Team depends mainly upon the physical size of the facility and the number of machinery and equipment therein. The total number of work-hours required to keep equipment in good operational shape under the existing conditions within the facility should be assessed. 

The Work-Hour Rating Of Maintenance Work should be summarized in accordance with the annual maintenance program and converted into the number of maintenance employees. If, for example, a particular facility requires 4,300 work-hours per year of maintenance work, the company may have to budget and subsequently to employ two full time maintenance specialists, each working on average:
 
45 work-hour/week x 48 weeks/year = 2,160 work-hours/year

It is generally more economical to keep a small maintenance team and to use sub-contracting services, which are particularly cost-effective in the process of installing, maintaining, or removing specialized equipment. Management in each company, however, should develop its own policy with regard to the maintenance of production equipment.

THE PRIME OBJECTIVE OF THE EQUIPMENT MAINTENANCE TEAM

The prime objective of the Maintenance Team is to ensure smooth operation of plant, machinery, and equipment within the production or operational facility. The maintenance work may entail a number of specific tasks outlined below.

MAIN TASKS OF THE EQUIPMENT MAINTENANCE TEAM

MAIN OBJECTIVES OF THE PREVENTIVE MAINTENANCE PROGRAM

The main objective of the Preventive Maintenance Program is to avoid equipment failure and to remedy minor defects before they necessitate major repairs. 

The effectiveness of the Preventive Maintenance Program depends substantially upon an adequate Equipment Inspection and Servicing Procedures covering the whole range of plant, machinery, and equipment in the facility. The frequency of equipment inspection is usually determined in accordance with the general experience related to the particular type of machinery in use. Inspection results and maintenance records normally indicate when the frequency should be changed.

MAINTENANCE WORK IN A SMALL BUSINESS

Planning and control of Maintenance Work in a small or medium-sized company can be accomplished by using a manual "document-based" system or a "paperless" computerized software program. Irrespective of the system, planning and control of maintenance work entails a number of steps outlined below.

PLANNING AND CONTROL OF MAINTENANCE WORK

PLANT MAINTENANCE SOFTWARE PROGRAMS

There are various Plant Maintenance Software Programs which are available to business owners and plant managers to ensure cost-effective implementation of the plant maintenance function within an organization. Some of these software programs are listed in Capterra online and include:

Plant maintenance software programs offer several important advantages which are summarized below.

ADVANTAGES OF PLANT MAINTENANCE SOFTWARE PROGRAMS

ADDITIONAL INFORMATION ONLINE

STEP 1: DEVELOP A PREVENTIVE MAINTENANCE PROGRAM

The first task of the maintenance section supervisor is to develop an effective Preventive Maintenance Program for every important piece of equipment and machinery in the operational facility.

The details of all work to be performed in accordance with such a program should be entered into the Monthly Preventive Maintenance Schedule through a manual or a computerized system. The prime purpose of this schedule is to summarize all planned maintenance work requirements in an orderly manner to ensure effective allocation of Maintenance Tasks.

A typical Preventive Maintenance Schedule is illustrated below.

PREVENTIVE MAINTENANCE SCHEDULE

STEP 2: PREVENTIVE MAINTENANCE WORK

Once Preventive Maintenance Work requirements are identified, all maintenance tasks must be scheduled for timely execution through a manual or a computerized system. Some of the preventive maintenance work guidelines are outlined below.

PREVENTIVE MAINTENANCE WORK GUIDELINES

A typical Maintenance Work Progress Report is illustrated below.

MAINTENANCE WORK PROGRESS REPORT

STEP 3: ISSUE A MAINTENANCE WORK ORDER

Accurately specified work assignments prevent conflicting instructions and ensure timely accomplishment of various tasks. It is essential, therefore, to record each job in a Maintenance Work Order through a manual or a computerized system to provide a sound basis for equipment maintenance control.

Some of the working guidelines in the Maintenance Section are outlined below.

WORKING GUIDELINES IN THE MAINTENANCE SECTION

MAINTENANCE WORK ORDER

STEP 4: COMPLETE A MATERIAL REQUISITION

Written or computerized instructions on Maintenance Work Orders should be as brief as possible because more detailed information is normally supplied in the relevant manuals, videos, or CDs. This information provides a comprehensive functional description of a specific plant, machinery, and equipment.

It is also necessary to prepare a written or a computerized Material Requisition and to specify the materials and spare parts required for the completion of the maintenance work. The material requisition could also serve as a receipt for all withdrawals of materials from stores.

The exact requirements for equipment maintenance service can usually be pre-determined, although provision should be made for spares in case a need is identified only after dismantling the machinery. For this reason the maintenance supervisor should be issued with a Material Requisition Book or have the ability to enter relevant details into the computerized plant maintenance software system.

STEP 5: KEEP THE COMPLETED MAINTENANCE WORK ORDER FILE

Upon completion of a particular maintenance task, the Maintenance Work Orders should be placed into the "Completed Maintenance Work" File or entered into the computerized plant maintenance software system to enable the maintenance supervisor to enforce control within the maintenance section. A copy of the maintenance work order or a computerized system entry should be sent to the financial department for Maintenance Work Cost Control purposes.

It is essential to keep effective communication between the Maintenance Section and the Financial Department to ensure that all costs related to equipment maintenance are kept under control and compared with the corresponding budget projections. This will enable the company's management to ensure that equipment is not only maintained on a cost-effective basis, but replaced whenever it ceases to be economically viable.

STEP 6: KEEP UPDATED EQUIPMENT MAINTENANCE RECORDS

The effectiveness of equipment maintenance service depends substantially upon the availability of records related to previous maintenance work. It is essential, therefore, to summarize relevant details of maintenance work in an appropriate Equipment Maintenance Record file or in a computerized plant maintenance software system, and keep this file updated on a continuous basis.

A typical illustration of equipment maintenance record is presented below.

EQUIPMENT MAINTENANCE RECORD

THE EQUIPMENT REPLACEMENT PROGRAM

The Costs Of Maintenance and Repair Work may vary depending on the age and quality of machinery and equipment and their degree of utilization in the facility. When these costs are unforeseen and substantial, it is necessary to consider replacement of the equipment if it proves to be more economical. 

It is essential, therefore, to develop a suitable Equipment Replacement Program, to establish a repair limit cost for every major piece of machinery, and to monitor the actual expenditure against the budgeted repair limit cost.

When the Actual Repair Cost exceeds the budgeted limit, this is the first indication that a particular piece of equipment should be considered for replacement. The value of equipment repair limit cost depends upon the age of machinery and equipment, cost and availability of replacements, possible loss of production output and final resale value.

Some of the major objectives of the Equipment Replacement Program are outlined below.

OBJECTIVES OF THE EQUIPMENT REPLACEMENT PROGRAM

EQUIPMENT REPLACEMENT FACTORS

Whether the equipment is replaced in accordance with a Specific Replacement Program developed by management or as a result of a sudden breakdown, a specific plan of investigation should be prepared.

The main objective of such a plan is to adopt standard criteria in the form of a checklist of points and factors which could be used to examine the need for equipment replacement in terms of its technical suitability and cost-effectiveness. Thus, the two major Equipment Replacement Factors are presented below.

TWO MAIN EQUIPMENT REPLACEMENT FACTORS

EQUIPMENT REPLACEMENT PROGRAM

Many manufacturing companies adopt a plan of equipment replacement in accordance with a definite program instead of waiting until the machinery breaks down, deteriorates, or becomes obsolete. Implementation of the Equipment Replacement Program entails a completion of several tasks outlined below.

EQUIPMENT REPLACEMENT PROGRAM  TASKS

ECONOMICAL VIABILITY OF EQUIPMENT REPLACEMENT

It may be economically viable to replace Equipment during the first 10 to 15 years of its operation, depending on the nature of the manufacturing or operational processes and activities. 

Moreover, it is advisable to set aside an amount of money equal to the value of annual depreciation of equipment and to use it for new equipment purchases. This action may be helpful for several reasons outlined below.

EQUIPMENT REPLACEMENT PROGRAM GUIDELINES

EQUIPMENT REPLACEMENT STUDY

A number of Equipment Replacement Methods and formulas have been developed in the past. 

The replacement problem usually demands a comparison between the costs of performing specific manufacturing operations with various types of machinery and equipment. This problem is generally important enough to require a detailed investigation into the Equipment Replacement Study and should be handled by the operations manager or a senior company executive.

The equipment replacement study should cover all aspects of the equipment performance and should determine the minimum return on the required capital investment. It is also necessary to consider the cost of Tooling, Jigs, and Fixtures required for specific production purposes, keeping in mind, that tools usually have a high rate of deterioration.

EQUIPMENT ANNUAL COSTS

The fundamental approach of equipment replacement economics is based on the determination of Equipment Annual Costs incurred in the operational facility by a particular machine. It is essential to determine the total annual cost related to each machine and to compare it with similar costs of other machines.

It is also important to realize that some machines function for different amounts of working hours. During one year, some may operate only a half-shift, while others work two or three shifts. The study of equipment economics, therefore, should be based on the accurately estimated operating time performance of the machine and not on its full potential capacity.

Equipment Annual Cost can be determined as follows:

EAC = FC + LC + OC

KEY:

FINANCE COST

The Finance Cost should consider the direct investment in the present or proposed piece of machinery. For the existing equipment, it should be the Current Net Realizable Value, regardless of the original cost or book value, and for the proposed equipment this should be the total cost including transportation, installation, and finance charges.

The Finance Cost should be calculated on the basis of the total percentage of direct investment, allowing for return on the capital investment and depreciation of the equipment. This cost can be determined as follows:

FC = (A + B) x C

KEY:

LABOR AND OPERATING COSTS

The Labor Cost should take into account the total cost of direct labor and should correspond to the total projected operating time of a particular machine (e.g., half shift, one shift plus 20 percent overtime, or three shifts). The labor cost should also include annual vacation and holiday pay as well as total company's contributions toward the direct labor cost, such as retirement, medical insurance, and social security.

The Operating Cost should include the total cost of electricity and water consumption, space allotted to the machine, maintenance, and insurance costs.

EQUIPMENT REPLACEMENT STUDY

A particular manufacturer, for example, is considering replacing two milling machines with an NC machine of the same total capacity. 

The realizable value of each milling machine is $7,000, and the new NC machine is priced at $18,000. The expected rate of return on investment is 20% and annual depreciation of equipment is 15%. The new machine will require only 50% of the labor cost (two operators at $1,000 per month) and 70% of the operating cost ($200 per month) of the existing machines.

The Equipment Replacement Study summary is illustrated in below.

It is apparent from this example that the proposed NC machine will show savings that will not only pay back the increased investment in a reasonable period and earn a fair return on investment, but will also provide an additional saving of $11,320 per year ($31,300 - $19,980).

ADVANTAGES OF THE EQUIPMENT REPLACEMENT STUDY

The Equipment Replacement Study is easily applicable in cases where a particular machine or set of machines represents a part of a continuous manufacturing or operational process that deals with a specific product or operation. 

This study, however, is also applicable in cases where a particular machine is utilized in various manufacturing or operational processes and is used on many different products or operations. The latter study may require more information and could take more time to complete, but its general principles remain the same.

Equipment replacement studies usually provide valuable information related to the decision-making process that takes place during equipment evaluation, selection, and replacement procedures. Any such study will always require skillful managerial judgment in order to make a sound final decision.