Has it ever occurred to you that it was necessary to specifically ask your OEM to add modern lubrication to the bill-of-material when you purchase equipment from him?
Have you ever thought about selecting and specifying equipment based on life expectancy and life-cycle cost as opposed to just the initial cost?
Maybe this is a more familiar scenario: Your OEM includes high-performance filters, breathers and modern sampling hardware as standard items on its equipment.
However, your bargain-hunting purchasing agent perceives this as “building the ticket” and asks how much less the equipment would cost without these items. After getting a better price (his goal), the purchasing agent replies, “good . . . sell it to us without the premium filters, breathers and modern sampling hardware.”
Many purchasing agents earn bonuses based on their performance in driving down the cost of the equipment they purchase. However, these agents are never asked to pay back their bonuses when later this same equipment experiences high maintenance costs and frequent failures.
A better purchasing strategy for companies is to minimize the life cycle cost of ownership. When you buy cheap you often are buying problems. Compounding the issue, once a lowest price specification is in place, companies tend to buy the same problems again and again.
A similar scenario occurs when companies pretend to save money by buying lubricants from the lowest bidder. Some corporate buyers have even used Internet reverse-auctions to buy lubricants in a way similar to the way commodities are bought and sold.
Like lubricants, it is not the initial cost of the equipment that matters but rather the life-cycle cost (operating costs, maintenance, energy consumption, etc.). Consider the breakdown of the typical life-cycle cost of a common centrifugal pump compared to what might be achieved if modern lubrication hardware and better seals were included (Table 1).
In Table 1, modern lubrication and better seals result in an increase in the initial purchase price of $500. For people who buy equipment, this may seem rather unsavory and not the bargain they were hoping for. However, for those who view overall long-term business performance, it’s a financial windfall!
Actually, more like the goose that laid the golden egg. Put in $500 today and five years later get $10,000 in return. This is equivalent to earning a compounded interest rate of 111 percent on a passbook savings account. The net present value on the $500 is approximately $7,727 based on a discount rate of five percent. Not bad!
Put another way, for those who pretend to save money by buying equipment stripped to the bones: $500 saved is not $500 earned, but rather $7,727 forfeited, all for the quest of $500.
Next, let’s talk about what it costs to buy equipment not properly equipped by the OEM for modern lubrication. When this happens, the maintenance staff is left with having to engineer, source, buy and retrofit the necessary hardware onsite. Now, back to the pump example and that initial cost increment of $500.
This is what you pay when these parts are included in the original bill-of-material. When this same hardware is purchased and later retrofitted onsite, the cost can increase to $3,000 or higher. Why? Users are not equipment builders and don’t purchase in volume. Aftermarket parts can cost many times more than preassembled machines or systems, not to mention the assembly labor.
Take for instance that centrifugal pump; it costs approximately 3.5 times more than a preassembled new pump when purchased piece-by-piece. Even more interesting is an automobile. Bought piece-by-piece, it costs 17 times more than an assembled one on the showroom floor.
One factor not considered in the centrifugal pump example is machine availability (uptime) and productivity. When machines are better lubricated, they require less maintenance but they also require less downtime to perform the maintenance tasks and associated repairs. This is perhaps best visualized in the example below showing an important industrial financial metric known as return on net assets (RONA):
A machine can generate revenue only when it is operating. Increased uptime means the machine makes more widgets (BTUs, tons of steel, etc.). When lubrication is at best practice, machines are more productive and revenue increases.
This includes energy, maintenance costs (repairs and PMs), spare parts, etc. When lubrication is at best practice, expenses decrease.
This is the cost of machinery and equipment, including modifications, less depreciation. When machines are accessorized for proper lubrication by the OEM and not by the maintenance staff, this decreases net assets.
What’s interesting is that good lubrication practices affect all three parameters and in the right way: revenue increases, expenses decrease and factory-installed lubrication accessories reduce net assets. The collective effect is an increase in RONA, which is exactly what is desired.
Many OEMs include only the minimum equipment for lubrication as a part of the original bill-of-material. Anything else is optional and therefore frequently left off the ticket. These options add to the cost but may generate real value when selected. Following is a list of lubrication-related hardware and accessories that where suitable for a particular machine and application, could be factory-installed:
The best lubrication programs, often referred to as world-class, are those that have world-class lubrication technicians, use world-class lubricants and deploy world-class procedures. What must be included is the need for factory-installed world-class lubrication equipment and devices. It’s time to talk to your equipment supplier.
Mackay, Ross. “Current Best Reliability and Maintenance Practices of Pumps and Pump Systems.” Results Oriented Reliability Maintenance Conference. Raleigh, N.C. November 2002.