Asset Acquisition

Best Practices

Stefan Terblanche
PAS 55 Context
 Topics
1. Operational Requirement & Scope Definition
2. Risk Evaluation
3. Asset Specification & Procurement

Evaluate
4. Life Cycle Costing Evaluation
5. Warranties & Performance Guarantees
6. Service & Support Evaluation
BUY
7. EAMS Updates
8. Training

Life-cycle
9. Performance Monitoring
10. Closing Remarks
 1. Scope Definition
Requirement

• Motivational requirement:
– In line with long term operational plan (no short term surprises)
– Major equipment often couple of years lead time
• Formal scope that clarifies:
– Production requirements
– Specific success factors
– Life Cycle Costing expectation
– Specific design requirements
– Maintenance Parts and Training
– Budgetary constraints
– Service and Support requirements
Original Scope
 2. Risk Evaluation
Original Scope

• Yes, evaluate the risks involved with the proposed asset

acquisition
• But also identify areas that must be addressed during
purchasing process
– Sustainable development
– Energy, CO2 and Water
– SHE standards
– Training
– Software, control & measuring systems
• Review the scope once the Risk Evaluation Process is
complete

Detailed Specification
 2. Risk Evaluation
Quadrant Value Analysis Example
Positive
15% Desired Area
Commodity
Heads’
Discretion Water

- NPV
+ Footprint
Energy, Base Case
CO2 &
Water
impact as CO2
per
FOOTPRINT Energy + NPV
- Footprint

Not
Negative
Recommended
15%
Negative Value Generation Positive
15% 15%
NPV, IRR, EP, etc.
 2. Risk Evaluation
Life Cycle Training Plan
Acquisition Commissioning Year 1 Year 2 Year 3 Year 4

Engineer Risk evaluation Project Performance Performance

training; Management Management Management
Health system @ training; Refresher
OEM; Performance
Capital Projects Management
EAMS

Operators 2 week OEM 1 week on-site Refresher on- Recertification Refresher on-
course; support and site site
Need a simulator? certification evaluation; evaluation; evaluation;
recertification Recertification Recertification

Maintainers Risk evaluation Diesel Mechanic, First 250h Refresher on- Refresher on- Refresher on-
training Auto Electrician 2 service, 500h site coaching 1 site coaching site coaching
week @ OEM service and week; 1 week 1 week
1000h service 5000 h service
coaching by OEM

IM Health system @ OEM support

OEM; interface with
EAMS system EAMS
interface
 2. Risk Evaluation
Information and Performance Management
LEVEL 4 $/ton
Business Intelligent AM Dashboards, Reporting and Benchmarking
Systems Data Warehouse

LEVEL 3
Management ERP/EAMS
Systems
Maintenance Financial Specialist
Management Management Systems

Operations Material Human Document

Management Management Resources Management

Integration Tool

LEVEL 2 Quality Control Operations/Production Health

Operational Control
Systems
Control Monitoring
Quality System Control Energy Condition
Monitoring Monitoring

SCADA Asset
Monitoring

LEVEL 1
Measurements Levels, Temperatures, Weight, Volume, Voltage, Flow Rate, Rates,
Consumptions, Pressures etc
 3. Specification
Original Scope

• Specify “as previously supplied”

• Or have detailed specification covering:
– All specifications defined by Original Scope
– Additional specifications identified by Risk Evaluation Process
– LCC requirements
– Reliability and Maintainability requirements
• Availability
• MTBF
• MTTR

Detailed Specification
 4. LCC Evaluation
LCC Evaluation Example
Chosen Option

• Acquisition Cost the

Truck Units 240 Ton 320 Ton Year 1 Year 2 Year 5 Year 10
Production
Hours per annum 6,500 6,500 6,500 6,500 6,500 6,500

main driver?
Tons /Hour 481 608 600 550 550 600
Annual Tons 3,126,500 3,952,000 3,900,000 3,575,000 3,575,000 3,900,000

• Or do you consider the

Capital
Capital Cost US$ 2,500,000 3,000,000 3,000,000 3,000,000 3,000,000 3,000,000
Life Hours 80,000 70,000 70,000 70,000 70,000 70,000

life cycle of the asset?

Capital Unit Costs $/hour 31 43 43 43 43 43
Working Costs
Parts $/hour 39 52 52 65 90 45

– Cover the whole life cycle

GET $/hour 1 1 1 1 1 1
Lub $/hour 7 8 8 8 8 8
Maint Labour $/hour 9 10 10 12 18 10

– Identify performance
Overheads $/hour 6 6 6 6 6 6
Operator Costs $/hour 10 10 10 10 10 10

measures that asset can

Tyres $/hour 25 50 50 50 50 50
Diesel @ 0.60 $/hour 71 81 81 81 81 81
Other $/hour 3 3 3 3 3 3

be monitored against set Total W Costs $/hour

$/Tonne
171
0.36
221
0.36
221
0.37
236
0.43
267
0.49
214
0.36

targets over the life Total Costs

For 4,000,000 Tonnes

$/hour
$/Tonne
202
0.42
264
0.43
264
0.44
279
0.51
310
0.56
257
0.43

Truck Op Cost/Anum $/Anum 1,422,037 1,453,947 1,473,333 1,716,364 1,941,818 1,426,667

Revenue/Month/Truck $m @ XYZ 3.6 4.6 4.6 4.2 4.2 4.6
 4. LCC Evaluation
Mine level
Activity level (eg, load & haul)
Equipment level (eg, truck)
New equipment
Hardware ($/hr)
Total life-cycle Components
cost ($/hr) + ($/hr)

Energy Parts
Total operating Fuels, electricity ($/hr)
+
cost ($/hr) ($/hr) Tyres
Fixed costs ($/hr)
Labour and
overheads ($/hr)
Unit cost ($/Ton)

Engineering Installed
Throughput Utilization
= x availability x capacity
(Tons/hr) (%)
(%) (Tons/hr)

Life-cycle Cost ($/hr) ≠ Operating Cost ($/hr) ≠ Unit Cost ($/Ton)

 4. LCC Evaluation
Understanding the Value Drivers
8%

6%
% NPV Savings

4%

2%

0%
2

%
%
%
%
%
5%

5%
3-

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-5
-5
+5
+5

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r+

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sp
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n

ap
on
pe

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W
ffi
k

el
uc

Fu
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5% Capital incentive equivalent to 1% NPV savings

5% Parts incentive equivalent to 1.5% NPV savings
5% productivity improvement equivalent to 6% NPV savings
 4. LCC Evaluation
Understanding the Value Drivers
Sensitivity v $/unit
40
Ops Availability
30
Prod Cost
% $/unit effect

20
Energy
10
Quality/Recovery
0
Overheads
-100.8 0.85 0.9 0.95 1 1.05 1.1 1.15 1.2
Eng Availability
-20
Maint Cost
-30
Change Factor

Reduction of 5% Reduction of 3% Increase of 3% Increase of 5%

of Energy of Production of Ops Availability of Eng Availability
Intensity Cost
 5. Warranties
• Is the equipment warranty for free?
• What is the actual cost of the warranty?
• Should you take/buy the warranty?
– OEM’s do not give it way for free – it is like life insurance
– Request cost breakdown structure of asset price
– Make your own decision if it is cost effective
• Performance Guarantees – do you specify?
• What about full maintenance service contract?
– Who is the owner of the maintenance plan?
– What about the master data and the maintenance history?
– Use which EAMS?
 5. Warranties

Value to
Customer Tactical Modernisation's World-wide
Maintenance
Continuous Expert In
Logistics TPM
Upgrading Maintenance Zero Defect Curve
Consulting RCM

Performance Break
Drop Overhaul and Fix
Repair

Commissioning End of Warranty Life Cycle

 5. Warranties
OEM Maintenance Contract Example

Fixed Price for Customer

Cost

Savings = Margin

Optimised Maintenance
=
Savings in
Labour
& Parts

Years
 6. Service & Support
• Evaluation of key tenders include service and support
during adjudication
• Formal scorecards used to ensure objectivity
• Targets and the ability if suppliers to achieve these targets
are formally evaluated during adjudication with input from
operations
• Internal strategies of suppliers also evaluated
 Topics
1. Operational Requirement & Scope Definition
2. Risk Evaluation
3. Asset Specification & Procurement

Evaluate
4. Life Cycle Costing Evaluation
5. Warranties & Performance Guarantees
6. Service & Support Evaluation
BUY
7. EAMS Updates
8. Training

Life-cycle
9. Performance Monitoring
10. Closing Remarks
 Procurement
Weighting Asset A Asset B Asset C

Life Cycle Cost 50% 9.9 8.2 9.1

Sustainable 10% 8.1 8.5 6.9

Development
Service and 20% 5.8 6.7 7.1
Support
Energy 4QA 20% 4.7 6.4 7.1

Total 100% 8.86 7.57 8.05

 7. EAMS updates
• The asset is now purchased
• Preparation before use very important
• Procedure/process in place to update the following:
– Fixed Asset register
– Equipment register
– As-build drawings
– Spares in Material Catalogue, Warehouse, Part Books
– Warranty field in EAMS
– Maintenance Plans
– Operational Budget
 7. EAMS updates
SAP PS Handover E-respond SAP PM

Network
Change/Modification Control
Asset Creation Procedure

Infrastructure in place Criteria? PM06 Work Order raised to

Quality workmanship energise, once all criteria met
Test certificates
Asset Tree’s updated Maintain Availability
Master data updated PM06 of Supply
Maintain Network
Maintenance Plans in place
Drawings updated – GIS
Warranty information
available
Maintenance Cost allocation
Spares allocation
 7. EAMS updates
Criticality B Criticality A
Goals: Goals:
Develop application specific tasks per Develop application specific tasks per equipment and component through full RCM-
equipment through a RCM-based process. based process with support from OEM’s.
Tactics: Tactics:
Production unit and equipment criticality Equipment and component criticality + failure analysis
EMP per equipment EMP sheet per equipment and component
Bi-annual review of tasks Annual review of tasks APL’s contain:
Review as triggered by RCA (level 2+) Review as triggered by RCA (level 2+) Mandatory, optional spares
Performance tracking per production unit Performance tracking per equipment Pre-inspected identified spares
Special tools and resources
Criticality C APL’s contain: Inventory Management Policy:
Mandatory, optional spares Criticality A
Goals: Inventory Management Policy: Expected Approach Profile:
Adopt OEM generic task Criticality B
Consequences

recommendations per equipment

and review/improve through
triggered RCA. Expected Approach Profile:

Tactics:
Production unit and equipment criticality
OEM generic specifications and equipment type
tasks KPI’s: KPI’s:
Performance tracking per production unit Availability per production unit OEE per production unit, drill
Performance rate per down to equipment level
production unit MTBF per equipment
APL’s contain: MTBF per production unit MTTR per equipment
Mandatory spares MTTR per production unit Programmed v Un-programmed
Inventory Management Policy: tasks
Criticality C

Expected Approach Profile: KPI’s:

Availability per production unit
MTBF per production unit

Probability of Failure
 8. Training
• Evaluated and addressed through the risk evaluation
process
• Included in tender/acquisition process
• Not only initial, but follow-up as well
• In-house or outsource going forward?
– how to include in the OEM material in in-house training
material/courses
• How to ensure continuation?
– Include in skill matrix
– Include in performance contracts
 8. Training
Life Cycle Training Plan
Acquisition Commissioning Year 1 Year 2 Year 3 Year 4

Engineer Risk evaluation Project Performance Performance

training; Management Management Management
Health system @ training; Refresher
OEM; Performance
Capital Projects Management
EAMS

Operators 2 week OEM 1 week on-site Refresher on- Recertification Refresher on-
course; support and site site
certification evaluation; evaluation; evaluation;
recertification Recertification Recertification

Maintainers Risk evaluation Diesel Mechanic, First 250h Refresher on- Refresher on- Refresher on-
training Auto Electrician 2 service, 500h site coaching 1 site coaching site coaching
week @ OEM service and week; 1 week 1 week
1000h service 5000 h service
coaching by OEM

IM Health system @ OEM support

OEM; interface with
EAMS system EAMS
interface
 9. Monitoring
LCC Evaluation

• Performance of major equipment is measured according to

acquisition KPI’s
• EAMS set-up to track performance of unit/hour, cost/hour
as well as cost/unit basis
• KPI’s forms the basis for contractual agreements
• Performance benchmarked
• Results influence future acquisitions
• Where appropriate Performance through a TCO model used
for incentives with suppliers
• Most important aspect – measure against original TCO
model
Performance Monitoring
 9. Monitoring
Chosen Option
Truck Units 240 Ton 320 Ton Year 1 Year 2 Year 5 Year 10
Production
Hours per annum 6,500 6,500 6,500 6,500 6,500 6,500
Tons /Hour 481 608 600 550 550 600
Annual Tons 3,126,500 3,952,000 3,900,000 3,575,000 3,575,000 3,900,000

Capital
Capital Cost US$ 2,500,000 3,000,000 3,000,000 3,000,000 3,000,000 3,000,000
Life Hours 80,000 70,000 70,000 70,000 70,000 70,000
Capital Unit Costs $/hour 31 43 43 43 43 43
Working Costs
Parts $/hour 39 52 52 65 90 45
GET $/hour 1 1 1 1 1 1
Lub $/hour 7 8 8 8 8 8
Maint Labour $/hour 9 10 10 12 18 10
Overheads $/hour 6 6 6 6 6 6
Operator Costs $/hour 10 10 10 10 10 10
Tyres $/hour 25 50 50 50 50 50
Diesel @ 0.60 $/hour 71 81 81 81 81 81
Other $/hour 3 3 3 3 3 3
Total W Costs $/hour 171 221 221 236 267 214
$/Tonne 0.36 0.36 0.37 0.43 0.49 0.36
Total Costs $/hour 202 264 264 279 310 257
$/Tonne 0.42 0.43 0.44 0.51 0.56 0.43
For 4,000,000 Tonnes
Truck Op Cost/Anum $/Anum 1,422,037 1,453,947 1,473,333 1,716,364 1,941,818 1,426,667
Life Cycle Cost
Revenue/Month/Truck $m @ XYZ 3.6 4.6 4.6 4.2 4.2 4.6 400

350

300

250
$/Hour

200

150

100

50

0
1 2 3 4 5 6 7 8 9 10 Ave

Actual Target
 10. Closing Remarks
• All starts with a good long term Production/Operation plan
• Asset Acquisition is a cross departmental process
• Perform detail Risk Assessment to identify not only
possible risks, but also opportunities that must be
addressed during Acquisition
• Perform a LCC evaluation and identify performance
measures to evaluate over life of asset
• Think carefully about warranties, performance guarantees
and outsourcing maintenance contracts
• Evaluate the asset against these acquisition performance
measures, as well as production, maintenance and other
service providers
The End, thank you.

Stefan Terblanche
for PRAGMA Products
stefant@pragmaproducts.co.za