July 2007

Maintaining equipment performance 24/7

Gaining a competitive edge through reliability excellence in
continuous process industries

By Karel Eloot, Jerome Luciat-Labry, G. Alan Osan, and Arnaud

Schuh

Companies that successfully pursue reliability excellence can achieve

remarkable improvements in their manufacturing performance. In
maintenance alone, top performers' costs are 10 to 15 percent lower
than those of average performers—and 25 to 30 percent less than
those of fourth-quartile performers. And that is just the tip of the value
creation iceberg. Even more important, highly reliable companies make
better employers, better business partners, and better community
citizens.
So what is reliability excellence? It is the sustainable ability to safely
manufacture products while meeting specifications and optimizing
performance. Equipment reliability is a cornerstone of production
stability and a primary driver of maintenance costs.
Yet most companies in continuous process industries do not recognize
how crucial reliability is in gaining a competitive edge. Even when they
do, few are able to capture its potential. The ones that do employ a
holistic operating system that strengthens technical abilities, deploys
disciplined management performance practices, and establishes the
right mindsets and behaviors from the executive suite through to the
shop floor (Exhibit 1). In addition, they aggressively pursue all three
elements in an integrated way.
Companies that achieve excellence in reliability are able to maximize
equipment availability and optimize production levels. Their operating
costs drop significantly because equipment failures are less frequent
and workers' productivity rises. Product quality improves because
stabilized production operations eliminate the variations caused by
frequent shutdowns and restarts. Increased stability also minimizes
environmental problems like air emissions and wastewater discharges.
In addition, plant safety performance rises due to enhanced
maintenance planning, coordination, and execution that reduce unsafe,
reactionary practices.

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Exhibit 1: Reliability excellence is built on a holistic operating system

Furthermore, as these companies reach world-class reliability, their

freedom in operating their facilities soars. This flexibility enables them to
seize marketplace opportunities, increase revenues, and further
enhance their reputations. For example, a well-regarded and profitable
European-based materials company uncovered hidden capacity across
its network of facilities that equaled the production capacity of an entire
plant. A global petrochemical producer optimized profitability by
shipping its product to customers from its most cost-effective site. Not
only that, its network's reliability enabled the company to benefit from its
competitor's inflexibility. By providing products to the competitor's
customers when they needed them, the company enhanced its industry
reputation as a preferred supplier.

But why are there so few success stories?

In our experience, and based on McKinsey's extensive research, we
believe there are a number of reasons. One is that some organizations
never get beyond "fix it when it breaks" for their maintenance strategy.
As a result, they become excellent firefighters—but they never develop
the ability to eliminate defects based on root causes. One case in point:
a major North American pulp and paper manufacturer is adept at
minimizing the length of unplanned downtime, but has never tried to
reduce the frequent outages that drive that downtime. As a result, its
maintenance costs remain substantially higher than best in class.
Another reason is that many companies view maintenance as a
"necessary evil." At a major European steel mill, this approach was
partially responsible for decreases in upstream production performance.
In just a few years, overall equipment effectiveness (OEE) dropped by
more than 5 percentage points—falling from an industry average level
to substandard performance. As OEE decreased, production levels
dropped, and maintenance efforts focused solely on repairs and quick

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fixes to manage costs. The result? A vicious cycle of decreasing
stability in the production process that doubled unplanned downtime,
negatively affecting yields, quality, and costs.
The offshore platform of a global oil company provides another sobering
example of the damage this view can cause. When crude prices
dropped—as did the company's profits—the platform cut maintenance
spend significantly. This resulted in lower routine maintenance levels
and more emergency repairs the year after the cuts. These unplanned
shutdowns wreaked havoc with production schedules and pipeline
flows. Within 3 years, reliability levels had dropped substantially and
maintenance costs had surpassed the original spend. Worse, missed
and late shipments had seriously damaged the company's reputation as
a supplier.

So, how can companies avoid these risks, achieve

reliability excellence, and gain a competitive edge?
This depends on a company's starting point. Companies that need to
stop a performance decline often rely heavily on quick, simple, technical
improvements as the primary lever, supplemented with some changes
in management processes and mindsets. Companies seeking to
institutionalize their best performance usually focus on enhancing
management practices and mindsets, while continuing to pursue
technical improvements (Exhibit 2).
No matter the starting point, successful companies all adopt a broad
perspective. They pursue an integrated approach that leverages all
three performance levers: strengthening technical capabilities, applying
more effective management practices, and changing mindsets and
behaviors. This ensures they capture the maximum value afforded by
reliability excellence.
Exhibit 2: Each reliability transformation is a journey with a unique
starting point

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Strengthen technical capabilities

Successful organizations start by improving maintenance efficiency and
then using the freed resources—personnel and operating savings - to
increase effectiveness (Exhibit 3).
Exhibit 3: Starting with efficiency frees resources to pull high-impact
effectiveness lever
These companies improve efficiency by:
• Using disciplined planning and scheduling to ensure that
the right people use the right approach do the right jobs at the
right time. Planners create detailed work plans with the specific
steps, parts, and resources required for each job. Schedulers
then use these plans to sequence the work and coordinate the
multiple resources required. Weekly commitment and look
back meetings ensure that teams know what needs to happen
in advance and that they identify learnings to improve future
performance. As execution improves, schedules move from a
few days outlook to forward-looking robust plans covering a 2-
to 3-week horizon, further enhancing efficiency. A world-
leading aluminum smelter in Canada plans 95 percent of its
routine maintenance jobs and achieves a 90 percent schedule
adherence rate. Overtime rates are also extremely low - only 2
percent of total maintenance hours.
• Standardizing and constantly improving work practices by
codifying and disseminating best practices for each job.
Feedback loops between mechanics and planners make it
possible to improve future work plans and increase the
mechanics' skills. Companies audit jobs—e.g., with videotapes
—and leverage the results in brainstorming sessions that help
streamline work. plans for high-frequency jobs like
maintaining/operating pumps in chemical plants and cranes in
steel mills and aluminum smelters. These plans are not just
more efficient; they offer powerful training tools. A global steel
producer reduced the duration of its weekly maintenance
shutdown by 15 percent without lowering reliability by applying
and optimizing critical-path planning and creating a shutdown
coordinator role.
These companies improve effectiveness by:
• Building reliability into plant design to optimize equipment
performance. By integrating reliability thinking and
maintenance expertise into the initial design process and
examining the total cost of ownership (the lifetime cost
including repair costs and downtime losses), a European
packaging manufacturer was able to reduce the maintenance
costs of a critical line by 20 percent when compared to
historical costs on similar equipment.

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• Creating a tightly focused equipment strategy to minimize
breakdowns in critical equipment with a significant effect on
safety, environmental, and cost performance. By developing
preventive measures for this equipment, companies can
reduce expensive emergency work and improve performance.
Most companies undermaintain highly critical assets (usually
10 to 15 percent of the total) while overmaintaining non-critical
ones.

Apply disciplined management practices

Tailored organizational structures improve consistency, efficiency, and
capability. However, best practice companies also establish rigorous
performance management practices that measure site reliability
performance versus selective key targets and motivate employees and
contractors to meet these targets. They:
• Use organization structure to optimize resources and
build trust. A large U.S. refinery reaped a multitude of benefits
by moving most mechanics into a single pool and centralizing
staffing and leadership. A handful of unit-based mechanics and
production maintenance coordinators responded to
emergencies and ensured unit-specific needs were met. The
result? Maintenance labor costs fell by $2 million to $3 million
annually. At the same time, the responsiveness rate rose and
a more unified, standardized maintenance approach emerged.
The closer interaction between mechanics developed their
skills more quickly, while performance improvements
increased the trust between production and maintenance.
• Leverage performance management to reinforce reliability
objectives. The heart of successful performance management
lies in the employees' ability—and desire—to translate goals
into day-to-day actions. Companies must use a combination of
key performance indicators to reinforce and reward the right
behaviors. For example, at a major European steel producer's
melt shop, close monitoring of key performance indicators for
planning and scheduling optimized maintenance schedules
and increased mechanics' productivity. In only eight weeks, the
share of planned activities grew from 70 percent to 90 percent,
and schedule adherence, which had not been previously
monitored, increased from 75 percent to over 85 percent, a
significant improvement. In another example, a North
American automotive steel producer uses creative contracts
and variable pay to align maintenance partners' goals with the
site's priorities. Partners can earn up to a 30 percent premium
if they meet or exceed the goals; if they do not, they can incur
a 5 percent penalty. Availability, quality, and uptime have
already improved.

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• Leverage people development to enable trust and
collaborative behavior. A North American based global
aluminum producer hires employees based on their ability to
live the site's values. Because they are expected to build
multiple skills, they receive up to 900 hours of specific skill
training upon joining the organization. They are encouraged to
maximize their value to the organization by alternating
between production, maintenance, and other plant positions
throughout their careers, building win-win conditions for the
employees and for the company.

Establish the right mindsets and behaviors

Employees must be owners of reliability—not just participants—for
performance improvements to last. Achieving this change takes time.
Moreover, it takes company commitment to creating a culture of
reliability excellence—whether through learning, leadership example, or
support for operations employees. Only then will improvements last and
the "us versus them" barriers between maintenance and production fall.
Although tactics differ, we find that best practice organizations share
certain guiding principles:
• Values are more important than technical capabilities. A
global metals producer recruits people who "know how to be
rather than how to do," believing that behaviors make a greater
difference than technical skills. The company's well-
established recruiting process evaluates six core values:
ownership, accountability, teamwork, autonomy,
communications, and flexibility.
• Production operators care for and own their equipment. In
the best companies, line operators inspect, clean, and paint;
some even decorate their equipment with family pictures. The
real value of these activities does not come from lower costs -
although this happens. Rather, it comes from recognizing that
the operators know their equipment best and that these
activities help them anticipate and resolve reliability issues.
• Production and maintenance are trusted partners. In poor-
performing operations, finger-pointing tends to be the norm
between the two functions. In the average company, the
functions see their relationship as a supplier-customer one.
Best practice companies, on the other hand, have developed
real functional partnerships through transparent maintenance
processes, joint accountability, and aligned incentives. They
recognize that both areas are equally critical in driving
performance. "Production produces ingots and maintenance
produces uptime," is how one metals industry plant manager
summed it up.
***

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Companies that pursue reliability excellence aggressively can achieve
significant performance improvements, increasing uptime and flexibility
while reducing maintenance and production costs.
Regardless of the starting point, however, reliability transformations
take time—time to develop strong technical skills, time to create
rigorous management practices, and time to instill ownership for
maintenance throughout operations. Therefore, continuous process
companies need to pace themselves so they can tackle all three
integrated elements and become top performers in their industries
(Exhibit 4)■

Exhibit 4: If one element of the reliability operating system is missing,

considerable value will be lost

About the authors: Karel Eloot is a Principal based in McKinsey's

Shanghai office, Jerome Luciat-Labry is Principal based in
Montréal, G. Alan Osan is a Senior Expert based in Pittsburgh,
Arnaud Schuh is an Alumnus.

Copyright © 2007 McKinsey & Company, Inc.

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