June 13, 2016
Identifying Cost Savings for CMMS
For those charged with presenting the factual reality about a proposed Computerized Maintenance Management System (CMMS) implementation to the decision makers, identifying a substantial return on investment is obviously essential. CMMS, after all, is not a new product line. And, the maintenance staff in many organizations represent labor costs attributed to "overhead expense" as opposed to production line "operating expense". Costs for maintenance guys turning wrenches does not factor into the cost of goods sold.
So, calculating ROI on a CMMS can be tricky if you don't know where to look. Nevertheless, there are four principal expense generators that can be huge cost-saving gold mines when a quality CMMS is properly implemented:
Labor Cost Efficiencies:
- Drastically reduce overtime labor – Intelligent preventive maintenance (PM) scheduling arrests preventable equipment breakdowns. Decreased downtime means much less overtime.
- Decrease straight-time labor costs – Smart allocation of crew time and assignment by craft/skill eradicates unnecessary dead time and rework.
- Eliminate contract labor costs – Managed maintenance keeps repairs in-house using a more-efficient crew. No maintenance logjams eliminates emergency contractor costs.
Production Line Efficiencies:
- Sharply increase productivity – Decreased equipment downtime eliminates unscheduled production line stoppages.
- Reliable production improves customer retention – Ensure high equipment reliability by enforcing regularly-scheduled PM by skilled maintenance crews. Customers receive quality product on-time.
Inventory Management Efficiencies:
- Immediately eliminate unused stock and orphaned parts – Control inventory purchasing through purchase orders and implement strict stockroom discipline.
- Dramatically reduce inventory overhead – Restrict parts and supply purchases based on reliable data using fully-automated CMMS processes.
Life Cycle Asset Management Forecasting
- Dramatically extend asset life – Proper preventive maintenance (PM) following manufacturer guidelines keeps the asset producing more product over a much longer lifetime.
- Make repair or replace decisions based upon solid data – Tracking metrics like equipment miles, engine hours and more versus repair dollars and operating costs over time signals when it is cheaper to replace than to maintain.
These expense generators are far from all the advantages that a quality CMMS software implementation can provide. For one thing, over time, data collected by the CMMS becomes exponentially more comprehensive significantly refining management decision-making capabilities. And then there are not inconsiderable benefits from safety and best practice enforcement guaranteed by proper CMMS implementation that effectively reduce unforeseen accidents and resulting equipment/product damage as well as legal expenses.
Calculating ROI for a CMMS
It goes without saying that every organization is unique in its operations, financial objectives and business goals. So, obviously, there is no "one size fits all" method to reach an objective ROI solution. Nevertheless, given the four main areas outlined above, some starting points could be:
- Payroll Overtime – What is your organization spending on overtime for maintenance staff?
- Contractor Labor – How many dollars does the organization spend on maintenance-related labor performed by outside contractors particularly for unscheduled equipment and asset repair?
- Lost Production Caused by Downtime – How much revenue is lost based upon unscheduled production line stoppages on an annual basis?
- Lost Customer Lost Revenue – If your organization lost customer(s) over a given time period due to unmet production or maintenance-related issues, what impact has this had on annual revenue?
- Inefficient Inventory Practices – Determine a cost for inventory over-stockage, orphaned and unused parts, emergency ordering and untraceable expenditures.
- Asset Sinkholes – Can you identify major equipment repairs traceable to certain pieces of equipment or asset types? How much can the organization save by replacement by reliable models or manufacturers that are properly maintained?
For most, justifying a quality CMMS is a no-brainer. However, installing CMMS software is not as simple as downloading the application to staff workstations. Like any personal exercise machine, it must be used to be effective. Similarly, a major cost-control system comes with important implementation implications. Will staff buy into the program? What are the costs for training and initial startup? Are cost reductions a significant improvement over the status quo?
The answers may be readily apparent to the astute professional manager. ROI aside, profitability in the 21st century requires deep commitment to organizational efficiency. In that regard there is absolutely no doubt that a properly-implemented CMMS is critical to extracting pure gold from otherwise unrecoverable overhead. And, you can't ask for more efficiency than that.