This question came up during one of our most recent webinars and we thought it raised a very interesting point. Joel Smeby is an experienced reliability engineer who leads our North American engineering team and has helped implement reliability initiatives in many different organizations across a variety of industries.
Here is what Joel had to say about the role of a reliability team as it relates to calculating the cost of downtime:
Reliability is typically not directly responsible for production. But when you look at all of the different areas within an organization (purchasing, spare parts, warehouse, operations, maintenance, safety), Reliability is the one area that should stand across all of them. The organizational structure may not necessarily be set up in that way, but in terms of being able to talk to people in maintenance, operations, or purchasing and leverage all of that information into a detailed analysis and then make decisions at that level – I think it is Reliability that needs to do that.
I recently worked on a site and went to the operations department to validate their cost of downtime and they weren’t able to give us a solid number. It changed from day to day or week to week and from an organizational perspective it’s very difficult to make decisions based on data when you haven’t defined that number. As Reliability Engineers we need that downtime number to justify holding spare parts or performing preventive/predictive maintenance tasks. If Operations has not defined that then I think that a Reliability Engineer is the perfect person to facilitate that discussion. It can sometimes be a difficult conversation to have, especially if you’re gathering the information from people in upper management. One strategy is to help people understand why you’re gathering that information and how it will be used. Justifying maintenance and reliability decisions is all about balancing the cost of performing maintenance against the cost of downtime in order to get the lowest overall cost of ownership. The managers who have a budget responsibility that includes both maintenance and operations will typically appreciate this approach in finding the lowest cost to the organization.
Some organizations are able to determine the cost of downtime as a $/hour. This is done in the most basic sense by taking the annual profit that the equipment is responsible for and dividing by the number of hours the equipment runs each year (8,760 hours for continuous operation). A deeper level of analysis may be required in more complex operations such as batch processes.
The traditional view of a maintenance strategy is that the level of effort put in to preventing a failure is dependent on the type and size of equipment. The reliability based approach understands the cost of downtime, and therefore the equipment’s importance. This enables the maintenance strategy to be optimized to the overall lowest cost for the organization.
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