Reliability and Maintenance (RAM) The Path to World-Class Performance 27th Brazilian Congress on Maintenance Rio de Janeiro, Brazil September 12, 2012 Al Poling RAM Study Project Manager HSB Solomon Associates LLC Dallas, TX

Survival in Nature “It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is the most adaptable to change.” - Charles Darwin

Survival in a Global Market “It is not the strongest, nor the most intelligent that survives. It is the one that is the most adaptable to change.” “Reliability and maintenance are tools in the manufacturing survival tool kit!” - Al Poling 3

Reliability and Maintenance Benchmarking Benchmarking is the use of actual operating data to compare performance of multiple entities (e.g., companies, sites, production units, etc.). A benchmark is a performance threshold used for comparative purposes (e.g., first quartile, median, etc.). Benchmarks can be average values (e.g., overall average, better half or poorer half average, etc.) of a peer group’s performance indices. Benchmarks can also be any breakpoint used to distinguish performance between better and poorer performers.

Reliability and Maintenance Benchmarking Monetized margin loss (maintenance downtime times standard margin) due to a facility’s mechanical unavailability and failure to perform as designed compared to peers in the same industry Maintenance The normalized cost of conserving a facility’s physical assets so they operate at design performance levels compared to peers in the same industry

International Study of Plant Reliability and Maintenance Effectiveness (RAM Study) Implemented in 1996 to compare company, site, and unit Maintenance Costs Mechanical Availability Process Industry Chemicals and Petrochemicals Refining Redesigned in 2010/2011 Focused on Factors that Impact RAM Performance Utilizing Contemporary Measures of Performance Benchmarks Against Better Half Average Performance

RAM Study – Core Indices Maintenance Cost Index (MCI) Maintenance Cost Type Expense Capital (replacements due to end of life) Maintenance Cost Categories Labor Material Overhead/Support Maintenance Work Types Corrective Preventive Predictive/Condition Monitoring Maintenance Work Categories Routine Maintenance Turnarounds Including Short Overhauls

RAM Study – Core Indices Mechanical Availability Index (MAI) Captures all reliability and maintenance related downtime Breakdown Turnarounds and Short Overhauls Slowdowns and Rate Reductions Monetizes all reliability and maintenance downtime Assigns a standard margin for each production unit Plant replacement value (PRV) × 40% × annual RAM downtime Captures downtime by equipment category Rotating Fixed Instrument/Electrical Benchmarks Mean Time Between Failure (MTBF) Pumps, compressors, motors, heat exchangers, etc.

RAM Study – Core Indices Reliability & Maintenance Effectiveness Index (RAMEI) Reports Net Performance Gaps Reliability Maintenance Highlights Areas of Excellence Where performance is equal to or better than first quartile performance Need to understand what enables excellent performance and replicate throughout the site Sums Total Improvement Opportunities Maintenance Cost Improvement Opportunities Mechanical Availability Improvement Opportunities Provides a Basis for a Performance Improvement Plan

Reliability and Maintenance Culture Behaviors are driven by the local culture There are two distinct cultures in the reliability and maintenance community Traditional Culture – based on the belief that failures are inevitable, so they focus on being good at reacting Contemporary Culture – based on the belief that failure-free operation is the objective, so they focus on failure elimination 10

Traditional Culture High Maintenance Costs (Cost/PRV >1.4%) Low Equipment Reliability (<96.7% mech. avail.) Reactive Culture (reinforce reactive behaviors) Majority Corrective Maintenance (80/20) Annual Turnarounds (T/As) with Little Scope Management Change (Risk) Averse Focus on Optimizing Reactive Behaviors Reinforce the Current Culture and Related Behaviors Inefficient and Ineffective Organizations 11

Consequences of Traditional Reliability and Maintenance Increased risk of a catastrophic incident Higher recordable injury rate Increased downtime, therefore less production More off-spec product, thus lower margins Larger replacement capital requirements (4–10%) Reduced revenue, therefore lower profit Resource intensive Lower return on assets Cannot compete in a global marketplace 12

Contemporary Culture Low Maintenance Costs (Cost/PRV <1.4%) High Equipment Reliability (>96.7% mech. avail.) Proactive Culture (reinforce proactive behaviors) Majority Condition-Based Maintenance (80/20) Efficient and Effective Organizations Failure Averse Low T/A Frequency (5–7 years) w/Scope Management Accept Failure-Free Operation as Normal Focus on Optimizing Overall Performance 13

Benefits of Contemporary Reliability and Maintenance Lower risk – both safety and environmental Uninterrupted operation Higher product quality Increased throughput Higher return on assets Smaller replacement capital requirements (0–2%) Increased revenue and profits Optimum resource requirements Competitive globally 14

Traditional vs Contemporary Reliability and Maintenance Which one are you? How do you know? You know by measuring and comparing performance! 15

The Relationship Between Reliability & Maintenance Reliability and Maintenance Are Inextricably Linked Reliability Cannot cost cut your way to improved reliability Maintenance Maintenance costs are driven by reliability…or the lack thereof Best performers achieve high reliability at low cost! Poor performers have high cost with low reliability! Each 1% increase in mechanical availability can translate into a 10% reduction in maintenance cost!

Traditional Approach Pressure Applied Here Maintenance Costs Reliability (Margin)

Initial Traditional Result Pressure Applied Here Lower Reliability (Margin) Lower Maintenance Costs

Long-Term Traditional Result Higher Maintenance Costs Lower Reliability (Margin)

Contemporary Approach Maintenance Costs Reliability (Margin) Apply Pressure Here

Progressive Result Higher Reliability (Margin) Apply Pressure Here Lower Maintenance Costs Apply Pressure Here

RAM Optimization Total Maintenance Costs Reactive Proactive 100% Mechanical Availability

Profit Optimization Total Cost Costs Maintenance Cost Lost Revenue 100% Mechanical Availability

Maintenance Cost, % (US $/PRV) Path to First Quartile <95 95 96 97 98 >98 1 1.4 >10 Maintenance Cost, % (US $/PRV) Mechanical Availability, % High Mechanical Availability and Low Cost Industry Leaders Sustainable Effectiveness Low Mechanical Availability and High Cost Not Sustainable Facility Efficiency and Cost

World-Class Manufacturers Recognize the value of reliable operations Focus on failure elimination (uninterrupted operation) Build reliability into their corporate strategy Engineering Design Procurement Operation Compete effectively in a global marketplace

Summary If maintenance costs are not below 1.4% of plant replacement value, you are not a world-class performer. If mechanical availability is not above 96.7%, you are not a world-class performer. Best performers continue to get better while poor performers continue to fall further behind. Regrettably, for some, it is already too late! The path to world-class performance begins with the first step… what are you waiting for?

Questions? Thank You! Al Poling RAM Study Project Manager Al.Poling@SolomonOnline.com +1-972-739-1731 HSB Solomon Associates LLC Dallas, TX