Best Reliability And Maintenance Practices And Return On Investment
(Implementation)
Rob Probst, Norske Skog Tasman
August 1, 2008
Summary: Empirical data has been gathered during a five
year implementation of a Maintenance Best Practices
program at Fonterra Dairy Cooperative in New Zealand.
The basis of the Fonterra MBP program is the IDCON, Inc.
CBP audit and handbooks. Performance data collected
from 2002 – 2007 has been used by MaintainNZ, (an
industry-based, non-profit maintenance training &
resource organization in New Zealand), to develop a Return
on Investment (ROI) model that can be used to project
financial benefits for maintenance and reliability best
practices program implementation. It provides an
indicative value for operational and maintenance
improvement that is directly attributable to measured
improvement in the delivery of “Best Reliability and
Maintenance” practices. The Return on Investment (ROI)
model is used to predict the time to implement maintenance
and reliability best practices at Norske Skog Tasman
newsprint mill in Kawerau, New Zealand as well as the
investment cost and financial benefit. The model may be
used to predict financial return on investment at other
manufacturing operations. The elements of “Best
Reliability and Maintenance Practices,” are reviewed to
illustrate the premise and mechanics behind the empirical
model. A technical description of the model follows this
paper.
Norkse Skog Tasman ROI Case Study
The Norske Skog Tasman newsprint mill consists of one
mechanical pulp mill and two newsprint machines which
are capable of manufacturing in excess of 300,000 tonnes
of newsprint per annum.
The mill has been in operation since 1954 . Both paper
machines have recently been rebuilt, (2005-2007), and this
work along with the ample supply of geo-thermally
generated electricity, virgin fiber supply from pine forest
plantations, and ample water supply provide a firm
foundation for success. The paper machines are currently
running at an average of 83.5% total efficiency with a
target of 88%. Increased time and paper efficiency are a
necessity.
The Equipment Replacement Value (ERV) of the paper
mill is approximately NZ $1 Billion dollars. Annual
maintenance expenditure is NZ $24 Million dollars. There
are 10 fulltime professional engineers (electrical,
mechanical) supporting the maintenance and capital project
work at the mill. There are 88 fulltime maintenance staff
which include management staff and crafts. Craft
disciplines are mechanical or electrical/instrumentation.
The crafts are covered by two different trade unions. There
are 422 people working at the mill. There are 30 (FTE)
full time equivalent contract maintenance craftspersons
used primarily on shutdown work. Theses craftspersons
plus the Norske Skog craftspersons employed “on the
tools” result in a total of 118 (MPP), maintenance
performing personnel,
An IDCON “Current Best Practices Maintenance” audit
was conducted at the Norske Skog Tasman mill in April,
2007. The purpose of the audit was to establish the current
state of practice and define opportunities to close the “gap”
to maintenance best practices. As a result of previous
experience at the Fonterra Dairy Cooperative, the author
was well aware of the direct connection between improved
operational and financial performance and the improvement
in maintenance best practices.
Following the IDCON audit, a steering group consisting of
maintenance and engineering management as well as
operations and engineering union representatives agreed to
focus on three top priorities that would help to close the
“gap” in crucial “execution-based” areas; planning and
scheduling , preventive maintenance and root cause
problem elimination (RCPE).
Initiatives were established during the remainder of 2007
to implement a “daily/weekly” planning and scheduling
discipline as well as an analysis of preventive maintenance
practices. A program was also initiated to establish a
listing of top downtime and cost incidents related to
equipment failure, and conduct root cause analysis to
eliminate reoccurrences.
Tracking of equipment breakdowns and operational and
financial losses associated with the breakdowns was also
initiated. Automated downtime and cost figures were
tracked prior to the maintenance best practices program
implementation in 2007, but the numbers were not
accumulated into totals. The total R&M expenditure for
unplanned downtime, (breakdowns) in 2007 was estimated
to be $1.25 Million dollars.
The associated, “equipment-related loss” or “Cost of
Failure” was estimated to be $5.5 Million dollars. The
equipment downtime was directly related to reduced
EBITDA (earnings be interest, taxes, depreciation and
amortization), associated with lost sales volumes as well as
quality, yield losses and increased energy, raw materials
and labor. These 2007 results confirm the “Iceberg”
effect of equipment related losses where unnecessary
maintenance costs (e.g. breakdowns) are 25% of the
“hidden” equipment related loss (COF) costs.
(See Figure 1)
 to occur 48 months after the full initiation of the
maintenance best practices program. (See Figure 2)

• Equipment Failure
It’s important to note that an additional time period needs
Labour,
Labour, Material, Repair Cost to be added to the “Total Months to Reach Target” value in
Overheads
the ROI model. This additional time value is dependent on
Equipment Downtime the readiness and commitment of the organization to
(Availability)
• Hidden Equipment
Reliability (Stop/Start) initiate the program. The larger the organization and the
Quality Failure-Related Losses more “cultural inertia” that exists, the longer the period
Impact on larger
inventories prior to full initiation of the program. There may also be
Longer
Safety
Lost Profit
Customer other mitigating factors present that enable or delay
Lead times
implementation, (e.g. collective employment negotiations).
Waste
Increased
The “lead in” period at Norske Skog Tasman has been 12
Cost of
repairs 126 months. In spite of the length of the “lead in” or “bow
wave” period, there are still likely to be positive behavior
Figure # 1: The Iceberg Effect and financial results simply as a result of increased
discretionary effort and higher standards in “pockets” of the
The R&M costs and equipment-related losses, and other organization that are more rapidly embracing the change
information mentioned, form part of the basis for predicting initiative.
the ROI for implementation of a maintenance and
reliability improvement program. Additional information
required is the current equipment availability, total yield Return on Investment for MBP at Norske Skog
loss, energy consumption, engineering stores value, Improved Practices = Reduced Cost of Failure (COF)
additional sales potential and sales margin (EBITDA), Projected 66% breakdown reduction
number of employees and earnings per employee. $1.25M on the top in 2007

Projection 2012
All of these values can be favorably affected by the
introduction of improved maintenance practices. In Labour,
Labour, Material,
• Equipment Failure
Repair Cost
$ 412K
addition, estimates can be made for additional costs
Overheads

Equipment Downtime
(Availability) • Equipment Failure
• Hidden Equipment
required to educate employees about maintenance best Reliability (Stop/Start) Labour,
Labour, Material, Repair Cost
Overheads

Quality Failure-Related Losses Equipment Downtime

(Availability)
• Hidden Equipment
Reliability (Stop/Start)

Quality Failure-Related Losses

Impact on larger Impact on larger
inventories
inventories

practices and create/improve maintenance and reliability

Longer
Safety Customer
Lost Profit
Longer
Lead times

Safety Customer Waste

Increased
Lost Profit Lead times
Cost of
repairs 126

systems and practices. For instance, it may be necessary to Waste

Increased
Cost of
repairs 126

create and train employees in a root cause analysis program $ 1.82M

to eliminate recurring operations and maintenance

problems or to implement a new FMECA-based preventive
maintenance program where only a “reactive” breakdown
response existed before.
Once these “input” values have been estimated they can be
loaded into the (ROI) model and a prediction can be made
for the time for maintenance best practices implementation
and the potential ROI , NPV financial benefit. This value
can then be substantiated by defining potential savings and
a business case can be developed to support the expenditure
for MBP program implementation.
There are several ways to look at the potential for
improvement. The first scenario is simply looking at the
projected reduction in breakdowns and associated cost of
failure (COF) reduction. This does not take into account
the costs for the program implementation or some of the
additional savings that may not be captured as a direct
result of unplanned downtime reduction incidents (e.g.
energy savings, inventory reduction, headcount reduction
opportunities). That scenario will be explored later in the
paper.
In Norske Skog Tasman’s case, the predicted reduction of
breakdowns is 66% (from 6% to 2% of total workders).
This means that the submerged portion of the “Iceberg” is
also reduced 66%. Total annual reduction in costs and
expenditure is from $6.72M to $2.32M. This is projected
$5.5M on the bottom (COF)
4
Figure # 2: Shrinking Iceberg
The second scenario for projecting the benefit is using the
ROI model. The ROI model , or calculator, projects a net
benefit of $4.3 Million dollars over a 48 month
implementation period with an implementation cost of
$941K. This is roughly equivalent to the simplified
“Iceberg” benefit projection described before. The total
NPV for the project is $3.88Million dollars with an IRR of
399%. This is the projected financial benefit from an
improvement from 38% to 70% in maintenance practices
measured with the IDCON, Inc audit.
The “front end” of the ROI Calculator, (See Figure 3)
shows the inputs for the ROI calculation at Norske Skog
Tasman. CBP audit score figure was entered following
conduct of the audit in 2007. The Input CBP score is 38%.
This is a crucial value in the modeling process as the
increase in CBP score is used to project the increase in
plant availability and reduction in percentage of
Breakdown Work Orders. The rate of increase is the
foundation for projected financial benefits, time to reach
target availability as well as costs associated with the MBP
program implementation.
 MAINTENANCE BEST PRACTICES ROI CALCULATOR
MBP KEY PERFORMANCE INDICATORS

MBP AUDIT SCORE

20 25 30 35 40 45 50 55 60 65 70
75
COMMITMENT INDUSTRY TYPE Pulp & Paper
Excellent Average Poor
Good Low

ANNUAL R&M SPEND $ 24,000,000 ANNUAL BREAKDOWN W.O.% 6.0

MAINTENANCE PERSONNEL (MPP) 118 ANNUAL EARNINGS / MPP $ 85,000

EQUIPMENT REPLACEMENT VALUR (ERV) $ 1,000,000,000 ENGINEERING STORES VALUE $ 10,000,000

PLANT KEY PERFORMANCE INDICATORS

ANNUAL GRADE LOSS $ 2,000,000 ANNUAL TONNES OF PRODUCT 300000

ANNUAL YIELD LOSS $ 2,000,000 MARGIN PER TONNE $ 200

ANNUAL ENERGY COST $ 34,000,000 ANNUAL EARNING OPERATOR $ 85,000

AVAILABILITY % 94.0 TOTAL OPERATORS 150

Figure #3: ROI Calculator (Input)

The “Commitment” factor shown in the input table is
derived from a simple table that estimates the
organization’s willingness to support the MBP program.
The Commitment score changes the slope of the CBP
score, Availability and Breakdown Work Order curves used
by the model to predict the rate of improvement. The five
elements that comprise the Commitment Factor estimate
are shown in Figure 4. It is highly likely that a more robust
method can be created to estimate the Commitment Factor.
The Commitment Factor does not account for other issues
that can delay or shorten the MBP program
implementation, (e.g. re-organizations, leadership changes,
industrial action, recessions).
 Calculate the Commitment Factor

1- Does CEO/GM support the MBP initiative wholeheartedly……………….... ? No

0
Do Management have MBP KPI’s as part of their Performance agreements (e.g.
2- Plan/Scheduled work completion %, RCPE completion %, Preventive Maintenance No
% Completion)…………………………………………………..... ?
0
Are Maintenance and Operations jointly responsible for the R&M budget
3- No
expenditure……………………………………………………………………....….?
0
Is the Maintenance improvement program part of the company strategy with
4- Yes
money and additional staff to support the development and implementation ?
1
Is the MBP improvement program viewed as a medium term (5 to 7 year)
5- Yes
program…………………………………………………………………………….. ?
1
Back to ROI ENGINE TOTAL COMMITMENT : Low

Figure #4: Commitment Factor

Headcount figures and earnings for MPP (maintenance
performing personnel) and Operators are also inputted to
the ROI calculator (See Figure 5), to estimate a number of
costs and several benefits:
• Need for increase in MPP to support plant and
subsequent salary increase
• Total cost for training of both MPP and Operators
in root cause problem elimination, maintenance
best practices approach
• Potential savings from headcount decrease for
MPP and Operators.
Equipment Replacement Value is used in several
calculations:
• ERV/MPP yields a p.a. value (usually in Millions
of dollars) that each MPP can maintain. If the
value is greater than a threshold value for the
industry (e.g. $15Million/MPP) then a calculation
is made to increase the headcount for MPP.
• ERV is also used to estimate the potential
reduction in R&M expenditure (as a % of ERV).
This is also based on benchmark threshold values
for industry.
• The ERV is used to calculate the cost for
implementation of new maintenance processes;
preventive maintenance program, root cause
problem solving sessions, and purchase of
condition monitoring tools like vibration pens,
alignment equipment etc. The assumption is
made in calculating these costs that consultants
will be utilized and crafts-persons will be
“backfilled” to develop the new systems. If
these items and systems already exist within an
organization, the costs can be reduced
accordingly.
• Calculation of potential savings in inventory
carrying costs
Annual Grade Loss is required to calculate the loss when
product is downgraded to lower levels from “Prime” or A-
Grade. This invariably results in a loss of profit to the
company. The model takes just 10% of this loss into
consideration when calculating potential savings in this
category, as empirical evidence indicates that 10% of the
grade loss is associated with equipment malfunction or
breakdown.
Yield Loss, (e.g. fiber loss to drain in the case of newsprint
manufacturing), must be entered. The model takes just
10% of the total yield loss figure to calculate potential
yield-related savings as a result of the MPB program. The
assumption is made , (based on empirical evidence), that
the balance of the yield and grade loss recoveries and
savings will be made through process engineering, capital ,
lean operations projects or other means that are not related
to equipment-related loss reduction.
Annual Energy Cost figure is entered next. When
unplanned downtime occurs, energy is consumed in order
to keep process equipment and raw materials circulating,
heated, cooled , moist or dry until equipment is repaired
and processing is resumed. As unplanned downtime is
reduced, the energy consumption per unit of product is also
reduced. The opportunity for energy savings is based on
the gap between current plant availability and 98.5% which
is assumed to be maximum plant availability attainable. A
conservative approach is taken when calculating the
opportunity for MBP-related improvements by limiting the
total energy cost reduction to 5% of the potential calculated
using the availability “gap.”
Availability is the overall plant availability figure at the
time of the CBP audit. The availability is the % of time
that the equipment is ready to run. It is one of the three
elements required for calculation of OEE (Overall
Equipment Effectiveness), so there is no consideration for
speed and quality when calculating the value. The
availability value and the gap to 98.5%, which is the
benchmark best practice maximum figure, are crucial
values in the calculation of outputs with the ROI
Calculator. The increase in the CBP score is directly
proportional to the projected availability improvement
which drives the calculation of financial benefits for the
model.
Annual Breakdown Work Order % is entered directly from
CMMS work order history at the time of the CBP audit.
The definition for breakdown, is any event that stops or
requires a change in the process. This is another key value
that is used directly in benefit calculations. The
assumption is made that an organization will never get to
zero breakdown percentage.
Annual Earnings / MPP (Maintenance Performing Person)
is required to calculate:
• additional headcount cost of maintenance crafts-
persons if the ERV/MPP ratio is above the
threshold.
• Cost for backfilling MPP staff to develop
maintenance systems and participate in RCPE
sessions
• Savings associated with headcount reduction as
maintenance efficiency improves. This savings
is limited to 2% of the total MPP annual cost,
which is very conservative.
MAINTENANCE BEST PRACTICES ROI CALCULATOR
COST : BENEFIT OUTPUT PROJECTION
MBP AUDIT TARGET SCORE
20 25 30 35
75
CUMULATED YIELD & GRADE SAVINGS $ 200,681
CUMULATED ENERGY SAVINGS $ 833,933
CUMULATED R&M EXP. SAVINGS $ 2,522,890
CUMULATED ENG. INVENTORY SAVINGS $ 157,681
CUMULATED EBITDA INCREASE $ 634,320
MPP STAFFING REDUCTION SAVINGS $ 600,073
OP. STAFFING REDUCTION SAVINGS $ 305,122
Figure #5: ROI Calculator (Output)
Engineering Stores Value is required to estimate the
potential inventory carrying cost savings associated with
MBP improvements. The assumption is made that
inventory values will be reduced to a minimum of 0.25%
of the ERV. The model calculates the difference between
the current value of the Inventory/ERV ratio and estimates
the potential carrying cost savings over the established life
of the MBP program.
Annual Tonnes of Product is one of the most leveraging
elements of the model. If the manufacturing output of the
organization is limited by raw materials or demand, (e.g.
the Fonterra Dairy Coop is limited by the number of dairy
cows in the country, and the international newsprint
market is limited by demand), then it is necessary to decide
whether or not to enter a value other than zero in this
category. If there is truly an opportunity to increase
production to the value that would be produced at 98.5%
plant availability, then the current production value must
be entered here. In the case of Norske Skog Tasman,
which is currently “fully sold,” no adjustment has been
made and current production tonnage is listed. The margin
per ton may then be entered ($200 is picked as a “sample”
value here as the intention is not to divulge Norske Skog’s
sales margin). These two values are then used to calculate
the increase in EBITDA (earnings before interest, taxes,
depreciation and amortization) that can be realized as plant
availability is increased to the target value at the end of the
MBP program. EBITDA has the potential to outweigh
any other financial output, so it’s important to be
conservative and realistic when entering the production
value,(e.g.Annual Tonnes). If there is any doubt about
achievement, then entering a Zero for either or both will
negate the contribution and provide a more conservative
estimate of benefit.
40 45 50 55 60 65 70
TOTAL MONTHS TO REACH TARGET 48
AVAILABILITY % 97.5
BREAKDOWNS % 2.0
PROGRAM CUMULATED COSTS $ 941,579
PROGRAM CUMULATED SAVINGS $ 5,254,698
TOTAL PROGRAM BENEFIT $ 4,313,120
IRR 399% NPV $ 3,881,988
MBP Audit Target Score is the first and ONLY entry on
the ROI Calculator Output “front end.” This value
determines the time, financial benefit and costs of the
project. The author recommends a target of at least 65%
for the MBP Audit Target Score. An organization truly
begins reaping benefits once a score of 50%+ is achieved,
but it is not until a value of 65% is reached that the benefits
begin to become truly sustainable, and at this point there is
still the potential of “backsliding.” Once the thresh-hold to
CBP is reached at 75% there is a fairly strong implicit
guarantee that an organization will maintain its MBP
program.
The Cumulative Savings projected for Norske Skog
Tasman over the 48 month period is $ 5.25 Million dollars.
Costs are estimated at $941K leading to a net benefit of
$4.313 Million dollars.
Once again, it is important to note that the 48 month period
would be achieved only if Norske Skog Tasman was “ready
to roll,” fully committed on the MBP program on the day
of the first CBP audit in 2007. In reality it has taken six
months to begin implementing aspects of the “Top Three
Priorities” (Preventive Maintenance, Planning &
Scheduling, Root Cause Problem Elimination). The likely
time period for implementation is closer to 60 months.
This means that Norske Skog Tasman will achieve a CBP
audit score of 70% in April of 2012 if there are no
unexpected distractions such as reorganizations, industrial
action , natural disasters or market / funding disruptions.
I’d bet that at least one of these will occur during the five
year period that will add an additional six to twelve months
to the MBP program. Nevertheless, benefits and positive
financial results will be realized along the way that will
lead to further support of initiatives.
Cumulative benefits are described for each of the subsets as
noted on the input and output figures. A portion of these
benefits will continue to be realized on a per annum basis
once the target is reached. The IRR is calculated only for
the period shown. Detailed graphs and charts display the
monthly cumulative and non-cumulative costs and benefits.
(See Technical Paper at the end of this paper)
It is also interesting to note that the ROI Calculator can be
worked in reverse to show the negative impact associated
with reducing funding for maintenance and engineering. It
is assumed that users can estimate the reduction of plant
availability and/or the increase in Breakdown Work Orders
if funding is removed to support preventive maintenance,
planning and scheduling once better or best practices have
been reached. The MBP Audit Score can be entered at its
best practice value on the Input Calculator and the lower
MBP Target Score (as a result of funding and resource
reduction) can be entered on the ROI Calculator Output.
The Total Program benefit will then turn to a negative
value and will accumulate the negative values over a
predicted time period. This can be used to demonstrate the
potential impact for removal of support for a MBP program
by naïve accounts or leadership.
ROI Model Development
The ROI Model was developed from empirical data
collected across 20 manufacturing sites at the Fonterra
Dairy Cooperative in New Zealand. The Fonterra Dairy
Cooperative was formed in 2002 after the two major dairy
companies in New Zealand amalgamated.
The new general manager of the organization was aware
that the estimated 94% plant availability was not “World
Class” and initiated a joint project involving Fonterra
maintenance management and the Engineering Printing and
Manufacturing Union (EPMU), which represented crafts-
persons at the 22 sites. The MBP Project kicked off in
February of 2003. The “gap” between the estimated 94%
plant availability and best practices target of 98.5% was
equivalent to an entire average-sized dairy plant broken
down all day , every day. A $350 Million capital
investment that was idle.
Fonterra Dairy Cooperative is a world leader in the
manufacture of dairy products, particularly powdered
wholemilk, powdered milk protein, infant formula and a
host of other valuable products. 95% of Fonterra’s dairy
products are exported worldwide. In 2002, Fonterra
operated 22 manufacturing sites with a capital value of over
$5 Billion and R&M expenditure of $73 Million. R&M
expenditure was immediately increased during the first year
of the MBP project to compensate for a previously under-
budgeted maintenance program. Crafts-person, planning,
management and support staff were increased. Current
expenditures are approximately $100M for R&M with over
$6 Billion of installed capital plant at 20 sites.
The “Joint” Fonterra Management & EPMU Maintenance
Best Practices Improvement Project selected the IDCON,
Inc. model for maintenance best practices and adopted the
IDCON CBP (Current Best Practices) audit as a benchmark
and tool to improve the maintenance program at each of the
manufacturing sites. This decision was made in May of
2003, and a definition of MBP was completed for review in
October 2003 along with an action plan for
implementation. The delay of nearly six months from
conception to initiation of project actions was typical for a
large organization
A business case was developed to support expenditure on
MBP improvement initiatives. Project cost and benefit
over the five year period required to increase the plant
availability to 98.5% was estimated to be:
Benefit:
• $11 Million for deferred capital cost (getting the
$350 Million plant back on line)
• $6.4 Million reduction in Yield & Grade loss
• $7.7 Million reduction in R&M expenditure
(assuming that current expenditure was adequate,
which was disproved early in the project)
Costs:
• $2.5 Million increase in R&M operating costs
(hiring of additional craftspeople and planners)
• $10 Million capital expenditure (not required)
 • $ 8 Million expenditure to: Year 3 of the MBP Project was the year of the
o Develop preventive maintenance pgm “breakthrough” where the curve shape for CBP scores as
o Develop planning & scheduling well as the Plant Availability and Breakdown Work Orders
o Root Cause Problem Elimination made dramatic changes in slope. MBP Project team
o Training in MBP, RCPE, etc. members and R&M staff at the sites became aware of the
o Purchase of vibration pens, alignment “breakthrough” and realized that there was a correlation
equipment etc. with the Hedge Hog affect noted by Jim Collins in his
o Consultant fees book, “Good to Great.” See Figure #6.
o Backfill for program development
o Salaries for national MBP Project BREAKTHROUGH - Current Best Practise .......IDCON Site Audits
Past Reactive to Stabilisation (20-40%) & Preventive Zones (40-60%)
Team
o Expenses for networking forums within
60 Te Rapa
Fonterra Maintenance & Engineering 57
Whareroa
50
Edgecumbe
The MBP program posted a 1.7% improvement in plant 46
41 Hautapu
40
availability after the first year’s implementation. 38
36 Te Awamutu
Presumably a result of the increased manning levels, 33
32 Edendale
30 31
30
26 Clandeboye
system implementation at several of the 20 sites and an 25
Waitoa
increase in discretionary effort at most sites. The following 20 19
16 17 Stirling
year was disappointing as the MBP program bogged down 10 Maungaturoto
for a number of reasons: Kauri
o Collective Agreement negotiation complications 0 Reporoa
F02 F04 F06 Average
and resistance at a number of sites with historic
Industrial Relations “baggage”
o Too many initiatives at once within the MBP Figure# 6: Breakthrough
project
o A lack of MBP Project team resources (which In 2007 , members of Fonterra’s maintenance organization
were increased from 2 to 6 staff for year 3) and representatives from MaintainNZ, a non-profit,
o A general challenge getting the “flywheel” of stakeholder-based maintenance training and improvement
improvement into acceleration. centre in New Zealand decided to document the
o Lack of commitment by a number of Operations improvements in CBP scores across Fonterra sites and
leaders investigate the correlation between the CBP scores and
o Estimates of the 1.7% availability improvement improvements in key performance indicators to see if there
were over-stated due to manual data entry errors was a basis for a predictive ROI model.
in Baseline and Year 1, which were curtailed in
year 2 of the program. Data was available from all of the 20 sites for the following
key performance indicators:
Midway through year 3 of the project a substantial o ERV ratio
increase was observed that carried into years 4 and 5. The o Breakdown Workorder %
author believes that one of the primary reasons for o Plant Availability %
increased “traction” was the willing incorporation of the o IDCON CBP Score %
CBP Score targets into the performance agreements for Site o R&M Expenditure
Operations Managers in addition to maintenance staff. o Engineering Stores Value
Operations managers voluntarily incorporated the o Annual Earnings for crafts and operations
improvement requirement for maintenance practices as they o Expenditure for MBP Project activities including
had begun to see the positive affects on the site o PM program development costs
performance. o Training in MBP concepts
o Planning & Scheduling development
Year 3 was also the year that a review of preventive o Consulting and backfill costs
maintenance practices during the “off-season” took positive o Condition Monitoring equipment
affect. Historically, many site maintenance programs had purchases
over-hauled equipment whether or not it was broken, with o Alignment and other MBP tool
the mistaken belief that over-hauls would increase purchases
equipment life and prevent failures. With the incorporation o MBP Project Team support
of FMECA and reliability centered maintenance philosophy
from IDCON, Inc. into preventive maintenance programs Data was available at only three of the 20 sites for
and average of 15% or Winter Shut PM tasks were reduction in equipment-related Cost of Failure, directly
eliminated along with the infant mortality failures, contract attributed to MBP actions :
craftsperson costs and parts. Plant availability was o Annual Grade and Yield Loss improvement
positively affected. o Energy reduction improvement
o R&M expenditure reduction
o Production Tonnes increases
The 17 remaining sites had registered improvements in the
same categories but were unable or unwilling to estimate
what portion of the improvement was attributable to the
MBP program. There were competing improvement
initiatives such as an energy reduction program, capital
project initiatives and the Dairy Worker Union sponsored
“Manufacturing Excellence program.” The author had
encouraged maintenance managers at all sites to track the
specific equipment-related losses on a yearly basis to prove
the impact of the MBP program by correlating a reduction
of breakdowns, (which was documented and accepted),
with a reduction in cost of Failure (COF). Unfortunately,
many of the maintenance managers did not heed the
author’s advice, and the result was a lack of clarity
regarding the basis of improved performance.
There was , however, a large amount of anecdotal evidence
which corroborated the reduced cost of failure at the 17
remaining sites. For example, the manager at one of the
major sites confirmed that more than $ 1Million p.a.
savings in yield had been achieved as a result of
maintenance initiated RCPE on spray drying nozzle
equipment. Another major site manager agreed that an
RCPE project had result in a substantial increase in
tonnage and $1 Million increase in site EBITDA. This was
also accompanied by a reduction in effluent and
cancellation of a multi-million dollar effluent-handling
capital project. Milk tanker diversion costs had been
substantially reduced as a result of plant availability
improvements, which provided fuel savings and increased
transport efficiencies which were acknowledged but not
quantified by transport management.
Specific data was collected for the Grade, Yield and
production tonnage improvements at the three sites
mentioned and extrapolated for the balance of 17 sites.
The data was then assembled for review of trends and
correlation between CBP performance, availability,
breakdown work order reduction and financial benefit.
Julien Maffre, primary author of the accompanying
Technical Paper, created the ROI model which was tested
ROI Engine Model
80
70
IDCON CBP Score
60
50
40
30
20
10
0
0 1 2 3
Year
Figure #7: CBP Audit Score Model Curve = “FLYWHEEL”
at several different sites within Fonterra Dairy and at four
locations outside the Dairy industry in NZ for validity. A
review of the results was conducted with representatives of
the Fonterra Dairy accounting department who were non-
committal. Site management and accountants at the three
sites with data were supportive of conclusions.
It is interesting to note that the model curve shape for the
CBP improvement (which includes real data from all 20
sites over the five year period) is the shape of an electric
motor, which , of course, is the shape of a flywheel. The
improvement at Fonterra with the MBP program tracks the
prediction of Jim Collins’ Good to Great” Flywheel model,
(See Figure 7).
The curve for Site 1, (shown in Figure 7), depicts the
average five year results for CBP scores at the 20
manufacturing sites. The additional points in the Site 1
curve, beyond year 5, are predicted by the curve shape of
an electric motor which fits the first five points. (See
Technical Paper for more discussion)
The average initial score for all Fonterra sites was 21% on
the IDCON, CBP audit. This is based on the fact that all
sites conducted a self assessment survey in 2003 , the first
year of the project and three sites conducted a CBP audit.
It was found that the sites that conducted a CBP audit
scored exactly half of the score that they had awarded
themselves with the self-assessment. The self-assessment
survey was much less rigorous and was self scored by the
interviewees rather than a trained audit team. The self
assessment audit was conducted in Year 2, (2004), and
discontinued in Year 3, when it was replaced at selected
sites by the IDCON CBP audit. In 2005, all sites began
assessment using the IDCON CBP with an “in-house” audit
team trained by IDCON representatives. As noted, this
was the year that operations management incorporated the
IDCON CBP score with a 10% increase as a target for their
personal performance reviews and site performance target.
Site 1
Model
4 5 6 7 8
The ROI Calculator model utilizes three values for cumulative benefits and costs. These values can be used in
predicting costs and benefits; CBP Score, Plant Availability annual performance plans, and to illustrate potential
and Breakdown Work Order Percentage. A number of improvements for verification and action.
graphs are generated to show cumulative and non-

80.0 100
1
98
70.0
96
60.0 score
% score & breakdowns

breakdowns 94
50.0 Availability

% availability
Now 92
Projected Score
40.0 Projected Time 90

88
30.0
86
20.0
84
10.0
82

0.0 80
0 12 24 36 48 60 72 84 96 108 120 132 144 156 168
months

Figure #8: ROI Engine Model – Key Trends

35
75
6
30

25 65
Total Co sts to come
Total Savings to come
20 Net Benefit
55
Now
$Millions

Pro jected Score

15 Pro jected Time
45
%

Sco re

10
35
5

25
0
0 12 24 36 48 60 72 84 96 108 120 132 144 156 168
-5 MONTHS 15
Figure #9: ROI Engine Model – Cost/Benefit
 Non cumulated yearly results

Engineering Operation Staffing

Yield & Grade Loss R&M Expenditure Energy Spend Inventory Value EBITDA Increase Reduction Savings MPP Staffing Reduction
$ Savings Yearly Savings Yearly Savings Yearly Savings Yearly Yearly Yearly Savings Yearly

Year 1 $ 73,123 $ 919,273 $ 303,863 $ 57,455 $ 754,358 $ 23,637 $ 46,485

Year 2 $ 57,792 $ 726,537 $ 240,154 $ 45,409 $ 609,020 $ 63,571 $ 125,023
Year 3 $ 41,493 $ 521,632 $ 172,424 $ 32,602 $ 454,047 $ 93,363 $ 183,613
Year 4 $ 29,214 $ 367,264 $ 121,398 $ 22,954 $ 314,485 $ 114,278 $ 224,747
Year 5 $ 23,021 $ 289,409 $ 95,663 $ 18,088 $ 198,014 $ 129,858 $ 255,387
Year 6 $ 13,205 $ 166,011 $ 54,875 $ 10,376 $ 141,295 $ 141,398 $ 278,083
Year 7 $ - $ - $ - $ - $ - $ 144,090 $ 283,377
Year 8 $ - $ - $ - $ - $ - $ 144,090 $ 283,377

Year 12
Figure #10: ROI Engine Yearly Benefits

The MBP Program at Fonterra documented achievement of
80% of the 4.4% availability target at the end of the fifth
year in 2007. This was one year later than the original
aggressive projection, but a substantial improvement
nevertheless. It is important to note that the
implementation of an Automated Plant Availability (APA),
system in 2005 uncovered additional opportunity by
proving the initial availability gap was greater than 4.7%,
The total benefit for continuation of the MBP
implementation was likely to substantially more than the
original business case. In 2008 the IDCON CBP audit
program was replaced with the Dairy Worker Union
(DWU) -backed Manufacturing Excellence program and
measurement. The tracking of the MBP initiatives and
improvements was absorbed into the wider-ranging
program. Estimates of results for the Fonterra MBP
program through 2007 are shown in Figure 11.

Fonterra Results
• 4.4% Availability Increase 80%
• $ 11M p.a. deferred cost of capital 80%
• $ 6.4M p.a. reduction in COF 80%
• $ 7.7M p.a. reduction in R&M expenditure 80%
• $ 2.5M p.a. R&M operations cost increase 100%
• $ 8.0M MBP project cost over 4 years
• Business Case IRR of 247% Exceeded!

11

Figure #11: Cumulative Fonterra Results 2002 - 2007

 Best Reliability and Maintenance
Practices and Return on Investment
(Implementation)
By,
Christer Idhammar, IDCON Inc.
Rob Probst, Norske Skog
Business and Management /Track 1

1
 Presentation Outline
1. Review and confirm the relationship
between ROI and Best Reliability &
Maintenance Practices
2. Return on Investment for Maintenance
Best Practices at Norske Skog Tasman
3. ROI Model development at Fonterra
Dairy Cooperative in conjuction with
IDCON CBP model.

2
 Current Best Practices (CBP) Reliability and Maintenance

KEY PROCESS
Leadership Root Cause Planning Preventive Engineering Facilities,
Skills Stores Technical
& Problem & Development Maintenance Management Database Interface with Tools, &
Organization Elimination Scheduling Maintenance Workshops

Work Maintenance Method Selection

SUB Request Cleanliness
PROCESSES Prioritization Lubrication
Backlog Alignment
Planning Balancing
Scheduling Operating Procedures
Execution Filtration
Recording Condition Monitoring
CMMS Tool

Examples of “Lubrication elements”

Examples of “Planning elements”
26. Lubricants are stored properly
32. Standard job plans are used for
ELEMENTS all repetitive and critical jobs
in clean, organized storage
areas.
33. Jobs are always planned before
27. Filtration is used to maintain
they are scheduled
lubricant cleanliness.
34. Operations support the planning
28. Ferro graphic analysis is used to
process identify oil contaminants.
3
 Evolution of maintenance
Reliability + 30%
Results
Level 4. Continuous improvement. CBP 75+
CBP Score • Maintenance cost less than 2.5 % of estimated
replacement value.
• Overtime and contractor hours less than 8 %.
75 + • Planned and scheduled work 95%
• 100% of PM executed.
• Root Cause Analysis 30% of available time.
Level 3. Resultsoriented partnership. CBP 50-75.
• Maintenance cost less than 3.0 % of estimated replacement value.
• Overtime and contractor hours less than 10%.
• Planned and scheduled work 85% of total work Reliability + 10%
50 - 75 • 90% of PM executed.
• Root Cause Analysis 20% of available time.

Level 2. Planned and Scheduled, Cost Focus, Internal customer. CBP 25-50
• Maintenance cost less than 3,5% av estimated replacement value.
• Overtime and contractor hours 15% - 20%.
25 - 50 • Planned and scheduled work 70% of total work. Reliability + 5%
• 70% PM executed.
• Root Cause Analysis 3 % of available time.
Level 1. Reactive, Cost Focus, Internal customer. CBP 0-25
• Maintenance cost over 3.5% of estimated replacement value.
• Overtime and contractor hours over 20%.
1 - 25 • Planned and scheduled work 40% of total work
• 30% of PM executed.
• Root Cause Analysis 0% of available time. Effort
4
 CBP, Current Best Practices –
Reliability and Maintenance
IDCON’s CBP Methodology is used to:
• Increase Reliability and manufacturing
throughput and to drive down costs.
• Express what practices are
expected to be executed in a
good maintenance organization.
• Educate an organization in
what constitutes best reliability
and maintenance organizations.
5
 CBP, Current Best Practices –
Reliability and Maintenance
Facilitate a process that makes
people discover how good their organization is and
how good it can become.
Benchmark maintenance performance.
Develop improvement action plans.
Measure improvements.
Compare performance with other organizations.

6
 Results Oriented Reliability and
Maintenance (RORM)
Implementation Model
Continuously
Improving
Results
•Competitiveness, Productivity, OPE, Costs

Action Indicators

Step IV – Root Cause Problem Elimination

-Maintenance Prevention Technical Data – Planning, Scheduling and

Base. Control of Operations and
-Preventive Maintenance Store Room
Step III Maintenance
Management

Step II - Current Best Practices – CBP - Educational Evaluation. Benchmark and

discover and understand how good your organization is compared to how good it
could be. Agree on action plan and commit to results.

Step I - Increase Awareness, Discover improvement potential, Lay down fundamental

Beliefs and principles.
Operations-Maintenance-Engineering
7
 VISION
By the end of year 2008 achieve
a CBP score of 75+

Mission
In a partnership with Operations Safely
deliver continuously improved
Equipment Reliability
through the implementation of CBP.

CBP Audit

Action Plan

Implementation KPI
CBP Audit 8
 Norske Skog Tasman

• Newsprint mfg 1954

• 300,000 tonnes p.a.
• $1 Billion ERV
• $24 Million R&M
Expense
• 98 Maintenance &
Engineering Staff
• 38% on 1st IDCON
MBP audit in 2007

9
 Return on Investment for MBP at Norske Skog
Improved Practices = Reduced Cost of Failure (COF)
Projected breakdown reduction of 66%

$1.25M on the top in 2007

Projection 2012

Labour,
• Equipment Failure
Repair Cost
$ 412K
Labour, Material,
Overheads

Equipment Downtime
(Availability) • Equipment Failure
• Hidden Equipment
Reliability (Stop/Start) Labour,
Labour, Material,
Overheads
Repair Cost

Quality Failure-Related Losses Equipment Downtime

(Availability)
• Hidden Equipment
Reliability (Stop/Start)

Quality Failure-Related Losses

Impact on larger Impact on larger
inventories
inventories Safety
Longer
Customer
Lost Profit
Longer
Lead times

Safety Customer Waste

Increased
Lost Profit Lead times
Cost of
repairs 126

Waste
Increased
Cost of
repairs 126

$ 1.82M

$5.5M on the bottom (COF)

10
 “ROI” for MBP at Norske
Skog
MAINTENANCE BEST PRACTICES ROI CALCULATOR
MBP KEY PERFORMANCE INDICATORS

MBP AUDIT SCORE

20 25 30 35 40 45 50 55 60 65 70
75
COMMITMENT INDUSTRY TYPE Pulp & Paper
Excellent Average Poor
Good Low

ANNUAL R&M SPEND $ 24,000,000 ANNUAL BREAKDOWN W.O.% 6.0

MAINTENANCE PERSONNEL (MPP) 118 ANNUAL EARNINGS / MPP $ 85,000

EQUIPMENT REPLACEMENT VALUR (ERV) $ 1,000,000,000 ENGINEERING STORES VALUE $ 10,000,000

PLANT KEY PERFORMANCE INDICATORS

ANNUAL GRADE LOSS $ 2,000,000 ANNUAL TONNES OF PRODUCT 300000

ANNUAL YIELD LOSS $ 2,000,000 MARGIN PER TONNE $ 200

ANNUAL ENERGY COST $ 34,000,000 ANNUAL EARNING OPERATOR $ 85,000

AVAILABILITY % 94.0 TOTAL OPERATORS 150

11
 “ROI” for MBP at Norske
Skog
MAINTENANCE BEST PRACTICES ROI CALCULATOR
COST : BENEFIT OUTPUT PROJECTION

MBP AUDIT TARGET SCORE

20 25 30 35 40 45 50 55 60 65 70
75
CUMULATED YIELD & GRADE SAVINGS $ 200,681 TOTAL MONTHS TO REACH TARGET 48

CUMULATED ENERGY SAVINGS $ 833,933 AVAILABILITY % 97.5

CUMULATED R&M EXP. SAVINGS $ 2,522,890 BREAKDOWNS % 2.0

CUMULATED ENG. INVENTORY SAVINGS $ 157,681 PROGRAM CUMULATED COSTS $ 941,579

CUMULATED EBITDA INCREASE $ 634,320 PROGRAM CUMULATED SAVINGS $ 5,254,698

MPP STAFFING REDUCTION SAVINGS $ 600,073 TOTAL PROGRAM BENEFIT $ 4,313,120

OP. STAFFING REDUCTION SAVINGS $ 305,122 IRR 399% NPV $ 3,881,988

12
 ROI Engine Model Development

• Empirical Data from 5 Year MBP project @ Fonterra Dairy Cooperative

• $6B capital / $100M R&M expenditure
• Joint Engineering Union & Management MBP Project
• IDCON-based MBP philosophy
• Annual IDCON audits target 10%+ p.a. MBP score increase
• National MBP Project Team across 20 manufacturing sites
• Project Business Case projection of $22M p.a. bottom line improvement

13
 Audit Score Model Curve
ROI Engine Model

80
70
IDCON CBP Score

60 Site 1
50 Model
40
30
20
10
0
0 1 2 3 4 5 6 7 8
Year

14
 ROI Engine Model – Key Trends

80.0 100
1
98
70.0
96
60.0 score
% score & breakdowns

breakdowns 94
Availability
50.0

% availability
Now 92
Projected Score
40.0 Projected Time 90

88
30.0
86
20.0
84
10.0
82

0.0 80
0 12 24 36 48 60 72 84 96 108 120 132 144 156 168
months

15
 ROI Engine Model – Cost / Benefit
35
75
6
30
Use Benefit
Calcs for annual 65
25 Budgeting
To tal Co sts to co me
To tal Savings to co me
20 Net Benefit
55
No w
$Millions

P ro jected Sco re
15 P ro jected Time
45

%
Sco re

10
35
5

25
0
0 12 24 36 48 60 72 84 96 108 120 132 144 156 168
-5 MONTHS 15

0 – 18 month “lag” for

prgm prep
16
 Fonterra Results 2002-2007
• 4.4% Availability Increase 80%
• $ 11M p.a. deferred cost of capital 80%
• $ 6.4M p.a. reduction in COF 80%
• $ 7.7M p.a. reduction in R&M expenditure 80%
• $ 2.5M p.a. R&M operations cost increase 100%
• $ 8.0M MBP project cost over 4 years
• Business Case IRR of 247% Exceeded!

17
 Summary
• MBP programs
provide definable ROI
• ROI can be projected
from an empirically
based model
• You can use
projections to build a
business case and
convince your CEO to
commit to your MBP
program
18