6 March 2008

Managing equipment life cycles

By Jim Pinto

Today, a plethora of management tools exists to manage capital equipment lifecycles and maximize return on investment.

I like the idea of integrating the conceptual and design phases of products and equipment with the manufacturing and utilization processes throughout the useful life cycles. Life Cycle Management (LCM), or Product Lifecycle Management (PLM), is supposed to accelerate revenue, reduce costs, improve quality, ensure compliance, and drive innovation throughout product and equipment lifecycles.

I get a twinge of doubt when I wonder whether these are just new buzzwords for extending PERT charts to everything, and a means of keeping management tabs from end to end. How does one really schedule and measure the cost of innovation? Does LCM really deliver more end-to-end effectiveness and improve ROI?

The problem with all this good systems thinking, though, is business changes fast. Problems usually arise from major changes that come mid-stream; technology shifts, as well as basic operating shifts such as outsourcing, which change the ground-rules. They relate to not only large manufacturing process equipment, but also extensive MES and other manufacturing and business software systems that involve major change.

In more than a few companies recently, I have seen expensive capital equipment lying around, unused. It is not simply a matter of optimizing equipment life cycles through good maintenance and repair, but not even getting around to using the equipment sufficiently because its useful life cycle was curtailed by changing circumstances. This does happen more often than many would like to admit.

In one supposedly streamlined automated plant, I saw a vision monitoring system, which must have cost well over $ 1 million, being operated experimentally by a student intern. She was reading the manuals and playing with the machine. A little digging unearthed the underlying problem: By the time the equipment arrived, it was useless; the people who were supposed to be trained to use the equipment had been eliminated in a downturn. The useful life cycle turned out to be zero. However, it had to remain operating for the specified life cycle, so the financial investment could be amortized according to the original plan. Writing it off would have involved a significant and immediate loss.

Today, extensive software systems are available to do all the important jobs of management of assets and equipment life cycles. However, midst the information measurement and feedback tools, the problem is acceleration—as fast as one can get a handle on things, the targets move. A specific piece of equipment, or software, may be progressing satisfactorily at one moment in time. However, by the time it is delivered, if that is several months, the playing field may already have shifted. Or worse, changing business conditions, e.g., transfer of a complete production process offshore, may make the equipment valueless.

Equipment life cycle management is simply about having the right equipment available at the right time, and at the right place, and at the right cost. The problem is the time, effort, and knowledge it takes to do a serious evaluation of the choices. Most often, the people charged with doing evaluations are simply too busy to do a sensible job. So, they fall back on the statistics and justifications provided by equipment suppliers, which clearly are biased in their own favor.

To correctly evaluate equipment life cycles and financial break-even analyses, not only must the cost of equipment (or software system) be considered, but also delivery time, operator training, and implementation. What seems like equipment that will provide a significant payback within a short period (perhaps even a year) may turn out to be relatively useless and simply takes up valuable space on the plant floor. It eats up profits over the “projected life,” which turns out to be virtually nothing. Of course, no one wants to take the big write-off all at once.

Remember to stay flexible. All the LCM tools in the world would not help you to forestall change. That vaunted capital expenditure, which will allow your company to leapfrog competitors, may turn out to be tomorrow’s white elephant.

Related Links:

• Asset Management – What it is:
  http://www.assetmanagementinformation.com/
• ISA – Strategic asset management impacts bottom line
  http://www.isa.org/InTechTemplate.cfm?Section=Article_Index1&template=/ContentManagement/ContentDisplay.cfm&ContentID=37014
• Automation life cycle: A matter of evolution
  http://www.isa.org/InTechTemplate.cfm?Section=Executive_Corner1&template=/ContentManagement/ContentDisplay.cfm&ContentID=56328

Behind the byline

Jim Pinto is an industry analyst and founder of Action Instruments. You can e-mail him at jim@jimpinto.com or view his writings at www.JimPinto.com. Read the Table of Contents of his book, Pinto’s Points, at www.jimpinto.com/writings/points.html.