Håkan Hedlund
Most company owners would like to ensure their rate of return is good, and many companies use the DuPont model, in which you compare your profit with the total number of investments to find the ROI.
To achieve maximum profit in our industry, the machines should always run at full speed and produce full quality. And of course, we want to keep maintenance and other costs as low as possible.
The booked value of assets should also be as low as possible. So by keeping the profits high and the investments low, you will achieve a very high ROI.
Figure 1: DuPont model of ROI
Revenue greatly influences profit. You receive revenue when you sell your products. If you keep your machines running all the time and producing at full speed and full quality, your revenue will be high.
If you deduct the direct costs of producing the products, you will end up with a contribution margin, such as dollars per ton or dollars per car. This is the number that is usually used for calculating the benefits of condition-based maintenance.
By subtracting the common costs, you will get the profit. In most companies, the maintenance budget is hidden in the common costs. So by having well-planned maintenance, you can reduce the common costs, which will have a good effect on the profit.
On the other hand, a new production or site manager may try to increase profits by cutting the maintenance costs within the common costs. This, as we know, can have a very negative effect in the long run.
There are many KPIs you can use to assess profitability. For example, a paper mill tracked their activities for one year and noted they had 14 planned corrective actions that led to 54 additional or saved hours of production time, leading to an increased production of 2,100 tons.
Figure 2: Many types of KPIs can be used
They had one unplanned production stop that resulted in five hours of lost production time and thus decreased production by 350 tons. This is a good balance. The planned actions led to a lot of positive numbers, while the unplanned actions and breakdowns can be seen as opportunities for improvement.
If you look back at the lower portion of the DuPont model, you can see fixed assets. This is the booked value of assets such as land, buildings, and machinery. An electric motor generally has a booked value of zero after five years, but it may run for another 15 or 20 years. So the main purpose of maintenance is to keep this machine with a booked value of zero running for a long time.
The current assets are your stock of raw materials rather than finished products. With a good condition-based maintenance program, you may be able to reduce the current assets you keep on hand.
By reducing the fixed assets and current assets, you will reduce the value of your total assets. By increasing your profits and reducing your total assets, you will achieve high ROI.
