The boom and bust cycles of the resource sector are a constant reminder of how money flows in and out of an operational budget. When this occurs two events play out that are interdependent, and they are efficiency and effectiveness. Effectiveness is defined as accomplishing those tasks that achieve the company’s goals, and in boom time’s history has shown it is at whatever it costs. Efficiency is achieving the company’s goals with minimal effort, cost and waste. During the boom cycle efficiency is usually a second thought and purely because of the businesses ability to absorb high operational costs. In the bust cycle, efficiency is the number one priority, yet management still requires its business to be effective. Management theory tells us that there is a fine line between efficiency and effectiveness, and can be difficult to find a happy medium (McWilliams & William 2012).
This article looks at how the efficiency and effectiveness paradigm has an effect on the bottom line with insights draw from management theory.
During any build phase and coupled with a high commodity price, associated operational costs are treated as non-trivial. There is an attitude of build it, abstract it and get the product to the port as quickly as possible, and when this is the mode de jour effectiveness is being realised. When the dust settles and the build phase winds down, the commodity prices fall and then begins the old routine of cost cutting, and it is usually in the form of head count. When the head count cannot be rationalised any further, and in order to continue to drive down operating costs, management devise efficiency programs and one of which is at the top of their list is maintenance, more specifically reducing maintenance costs.
Maintenance efficiency programs take on a collection of forms such as complex Computerised Maintenance Management Systems (CMMS) to simpler Asset Management Systems (AMS). Yet these systems all have one thing in common, and that is plan to maintain in the hope that the planned proactive actions will prevent downtime and limit reactive actions.
The overall objective of the maintenance function is to increase efficiency for the purpose of increasing profitability (competitive advantage). High equipment reliability and availability will improve product performance and has a direct impact on operational maintenance costs. A robust maintenance function should attempt to reduce or get as close to zero the reactive nature of maintenance and this can be achieved by the following business initiatives:
- Maintenance goals and objectives set to suit the business
- A strategy to achieve those goals and objectives
- An information system to measure and manage the maintenance function
- The right resources
The above approach will improve the equipment availability to ‘y’ in order to achieved ‘x’ additional tonnes per annum, with a probable increase of revenue of ln(p/(1-p))=βx. If the business takes the view that reliability and availability have a direct connection to equipment uptime and revenue, then clearly the business must choose a strategy that prevents equipment/plant downtime.
Maintenance: Determine the Preferred State
Rio Tinto is at the forefront of integrating technology as a part of its business strategy. Rio Tinto’s autonomous vehicle program was not about employee rationalisation but about increasing maintenance efficiency. Autonomous vehicles afforded Rio Tinto the ability to extend vehicle life through increased predictable vehicle behaviour. Reduced fuel consumption, reduced wear and tear all culminated in the extension of the asset life cycle. The preferred state of Rio Tinto is about extending the time they have to purchase and service a vehicle.
Every business at some point in time ends up at this juncture; how they get there can take the form of a strategic plan or forcefully stumble into it. Rio Tinto achieved this by coordinating a maintenance strategy across all levels of their business. They had the vision to foresee that in order to increase their competitive advantage they had to reduce operating costs.
The basis of a sustained maintenance strategy is planned preventative maintenance with a focus on continuous improvement. In Rio Tinto’s case, the planned preventative element now has a predictive component, continuous improvement is partly foreknown. Rio Tinto’s example shows that the focus and company culture has to remove the reactive nature of maintenance and transform it to an elevated proactive action. Proactive maintenance is more than time or conditional based maintenance, it has to have some science, some predictability added.
Maintenance: A Link to Management Theory
There are many maintenance strategies to lean on such as Reliability-Centred Maintenance (RCM), condition and time based, and Just-in-Time (JIT). Some company’s take one approach and some combine them. Whatever strategy is chosen, there must be a component that fully incorporates preventative maintenance as being proactive and results in the understanding that the cost of downtime in itself will contribute to profitability regardless of it being viewed as a direct operational cost. The trick is to know how often preventive maintenance is implemented, too much too costly, too little will result in production loss.
Now back to efficiency and effectiveness. The reason I have heighted efficiency and effectiveness with regard to maintenance is because of the way in which it has a cause and effect on profitability. Management theory understood this many years ago. Management theory teaches that being too efficient eg focusing on serving customers as quickly as possible and not the product (effective) can lead to a reduction in quality (Cole, AG 2004). Being too effective at the job may make the customer feel less important and they may not return again. In the same way, a maintenance strategy that is heavily biased towards achieving a goal (effectiveness) at the expense of cost (efficiency) will eventually end up with a ever increasing operational budget, and conversely being too efficient may result in maintenance oversights and a reduction in quality. To explore the concept a little further, imagine being 100% efficient. Efficiency in a physical sense is defined as the amount of useful output (product/work) produced per the amount cost of resources or effort consumed. Being 100% efficient would mean that 100% of useful output (work, P) has gone into fixing something with 100% cost (r=P/Cx100%).
It might be a slight stretch in the analogy but it does however highlight that being too efficient leads to ineffectiveness. Interestingly the same result can occur if efficiency is low, that is, if the ratio between efficiency and effectiveness is the same or similar i.e. 50/50, 20/20 or 10/8, the resulting output is the same, ie no room for effectiveness.
What are the inputs and what are the output measures for maintenance, and what should be the magic efficiency and effectiveness ratio? In the next Technology Update, I will discuss ways to implement maintenance strategies that align efficiency and effectiveness.