There are many market conditions that drive cost optimization, and the pressure is high in 2016 for many industries to accelerate efficiencies. However, identifying opportunities to reduce cost can be difficult in an ever-changing market—some of the changes are:
- Business conditions: When the market is up, companies produce at maximum output thresholds. But when the market is down, margins tighten and conserving cash becomes important
- Technology: The tools people use are different, including those used by competitors, which makes leveling the playing field imminent
- The game: Equipment is becoming more sophisticated, data is growing exponentially, customers are demanding more, and the price of raw materials is volatile
When it came to lowering costs, the old playbook mandated cutting training, travel, contractors, overtime, and work that can be deferred. But that isn’t enough anymore— nor is it safe or sustainable—and we need to create value in new ways. That means implementing a risk-based approach.
But not just any risk-oriented approach will work. Intelligent asset strategies (IAS) cost less than preventive maintenance or time-based strategies because this approach lets equipment tell us when it needs to be maintained or re-built.
When considering an IAS smart cuts approach, consider these three essential steps:
1. Optimize your existing strategy
There are likely maintenance tasks that were generated that are no longer necessary, such as those that stemmed from a single incident as more of a reaction than a careful and preventive evaluation. Evaluate lower criticality equipment with the highest maintenance cost and assure the related maintenance strategies are updated to reflect current business conditions.
2. Re-evaluate your risk tolerance
Do any of these areas have room for manipulation in your risk tolerance?
· Safety: Probably not, you must keep both people and process safe
· Environmental: Probably not, you can’t violate environmental hazard protections
· Compliance: Probably not, you have to meet regulatory requirements
That leaves financial risk. Evaluate your financial risk tolerance curve and adjust as needed. Often when the market is down production rates are lower and we can absorb more downtime while still meeting the production plan. This means we can tolerate a higher risk of equipment failure. While we must be careful to not inflict any long-term damage, we can, in general, live with a lower level of equipment maintenance and reliability. This translates into dollars saved.
3. Communicate risk options
Leverage technology to show risk over time, not just in year 1, but year 2 and beyond. By helping your peers visualize risk and the corresponding mitigation tasks, your organization can make informed decisions that not only address short-term challenges, but also support long-term goals.