Reduce Production Costs

There are no excuses for being poor asset managers.  With websites such as Brightnest the non-engineer can do an excellent job of managing their most important asset.  This free and easy to use service provides homeowners with a means to manage home asset lifecycle activities in a central location.  This asset management system comes “complete with reminders for when your regular maintenance needs to be done. The service can even keep track of your product manuals, paint colors, and more.”  

Consider now how the domestic asset manager can have an asset health indicator score for her home.  She'll have a dashboard of all relevant risk-mitigating tasks that will also help her project and control costs.  Most of all, the expensive, unplanned downtime of the air conditioner in mid-summer can be avoided.

Another example of “domestic” asset management systems is BMW.  In 2002 BMW introduced condition Based Service.  Starting with the 7 Series BMW offered onboard sensors and algorithms that measure oil condition and level, frequency and severity of braking, AC micro filter, mileage and several other factors.  Data and results are electronically submitted to the local service center.  Conditions are evaluated against predicted failure rates.  BMW calls you to schedule servicing.  The company describes the benefits of this service in terms of safety and convenience.  “Save time and money by servicing your vehicle only when it needs it…based upon individual driving habits”.  Service times can be reduced as the service center can be completely prepared ahead of time with technicians and parts.

Asset Performance Management is what Brightnest and BMW offer to their clients - only on a much larger scale with some analytics to make it fun.  My US TAG colleague Scott Morris and I will be presenting a paper on "Taking the Fun and Excitement Out Of Asset Management" at SMRP Annual Conference in October.  Please join us there.

Joe Nichols, VP of Product Strategy gave an overview of the Meridium 3.5 release today at Meridium Conference 2012.   During his presentation Joe made reference to BMW's condition based service.  This is not something new.  The BMW 7 series car, starting in 2002, had installed technology that monitored certain measurement locations to determine the condition of the lube, the tires, the brakes, etc.

 The owner could opt to allow the local dealer to have access to this data.  The dealer would monitor the car's data, make service recommendations, and call the owner to set the appointment for servicing. 

Imagine what that does for safety, cost, and of course risk.  The brakes will tell you when the pads need to be changed and on what basis.  With some basic analytics the program could predict the lead time during which the brake condition will reduce in useable condition.  The warranty agreement between the consumer and the manufacturer is far more transparent because claims can now be based on evidence-based decisions rather than best-guess estimations (that typically puts the consumer at a disadvantage).

 Now what would make this inconvenient?  If the sensors and analytics for the engine were separate for the sensors and analytics were on a different platform the condition points would be in silos.  What if the local dealer used two different software point solutions to analyze brake data and another for engine data?  The dealer would call the owner in for work on the brakes and then a week after the brake service they would be called for engine service.  That's the danger of point solutions. 

Meridium APM software helps your assets communicate effectively with you.  So when your assets call you to make an appointment for servicing, you'll have all of the information you need based on all measurement locations through one integrated tool set.

On my recent trip to Fort Myers, FL. I flew a major commercial airline. I won’t mention the name only that they happened to be ranked eighth in reliability by Forbes Magazine.  I had one connection in Atlanta, GA and continued on to Fort Myers. During the flight to the surprise of the passengers, the captain made an announcement we would be arriving 15 minutes early; this was a pleasant surprise as most of us have been on flights that have not been early.  In fact, I have been on many flights where I have missed connections and had severe impacts to my schedule and on occasion needed to rent a car to complete my trip. I no longer consider flights by this airline due to the frequent failures within the airline. It is not surprising that airline is at the very bottom of the Forbes list for reliability.

Interestingly enough my destination in Florida was the Reliability Performance Institute to attend a Reliability Centered Maintenance conference. This week engineers from all over the world representing industries from refineries & mining to consumer products & bakeries (No representation from the airline industry). Their focus is on reliability and they will be learning RCM concepts and strategies for increasing the effectiveness and availability of their assets. 

What I find interesting is RCM’s birthplace was in the airline industry in the 60’s. While it wasn’t called RCM until later, the fundamentals were created, which were to prevent or greatly reduce failures with the proper amount and type of maintenance.  This approach to maintenance will lead to cost effectiveness, machine uptime, and a better understanding of the level of risk that the organization manages. Having said all of that the next statement may come as a shock.

“RCM is not a panacea.” Ok maybe not a shock but it is important to understand that corporations needing a line-of-sight linkage between corporate strategic goals and priorities and solutions proposed by managers of physical assets will also be looking to optimize the spend. Reliability investments not only need to include failure rates, maintenance and equipment condition, etc., there is still a need to tie this to strategy of investment. As companies  address work processes and capabilities there should be a look into the future. The road to reliability doesn’t end with a project that has “reliability” in the title. There also needs to be a strategy view of asset management with a proactive view based on risk and optimization.

 To learn from our customers how Meridium is helping with asset performance management click here. Our customers have presentations on the beneficial results of Meridium solutions.  

Fire shuts 180,000-bpd refinery, Answers seeked in wake of explosion, Oil refinery blast kills one worker, Propane explosion kills one, forces evacuations.

All of the above headlines were in the news in just the last few days. I could have gone on to list a dozen more. Most of these are senseless accidents that frequently and sadly claim lives. In a global market place competition is fierce and the risks are high. At Meridium conference this year Sam Mannan shared an example of looking at risk he said “If you look at Risk as a balloon of a certain size and if an inherent safety measure ends up pushing the balloon from one side to where it pops out on the other side then all your doing is displacing risk from one area to another area”

An evolving company culture can set unreasonable expectations maybe even myths about performance. During the last few years companies around the world needed to prop up the bottom lines of their financial reports with the help of reducing or eliminating the maintenance budget for their assets; to make this worse this action without immediate consequence signified to these same people” nothing bad has happened so we must be doing something right.”  In this type of thinking there is inherent risk.

Take a look at OSHA Citations through 2009, Mechanical Integrity has the highest number of citations issued.  If these citations are afforded and not reasonably dealt with, we know what the result could be. The proximate causes of the above disasters likely won’t be particularly difficult to discern and some may have been legitimate uncontrollable events (Acts of God). However, we need to remember that legitimate accidents are failures of foresight in which history plays the prominent role. 

 In asset intensive industries historical data is important.  Data is often stored in silo's. The top two things I hear when speaking to engineers in asset intensive industries  are “How do we know we are collecting the right information?” and “ We have many separate data systems, how can they be leveraged?"  

Many companies realize they need to address their assets, but are not sure where to start. Others begin a project and try to "boil the ocean". Failure to act often causes production interruptions and costly accidents that equal , injured workers, reputation problems and reduces their ability to compete.    

High performing companies use analytical tools like those found in APM Software to eliminate failures and create an asset strategies. When these companies are in headlines it is usually because they beat their earnings forecast. For more information on how to improve the way you’re company handles asset information  click here to register for an upcoming workshop in your area.

Jared Wade, yesterday, wrote in the Risk Management Monitor, a very terrific post that touches on a very large and important discussion. 

He describes risk management a double-edged sword - the greater exposure the greater risk.  Jared's post also includes a video of Harvard Professor Forest L. Reinhart and his description of how energy companies reduce risk.

Equipment failures cost the US refining business over $4 Billion per year and two-thirds of those costs are associated with the failures of static equipment.  The average refinery has a risk of $25 million per year due to static equipment failures.  Two-thirds of those costs are associated with piping failures.  A solid risk based inspection program can help reduce these costs significantly.

Now on the flip side there is tremendous benefit to investing in what can be called the "hidden plant".  A great example of this is Marathon Petroleum in its 2007 annual report highlighted how the increase in refining mechanical availability resulted in an increase of total refinery throughput of 169,000 barrels per day.  That's the equivalent of adding an entire medium sized refinery to the business without capital outlay.

The Marathon story is about hidden capacity that exists in all asset-intensive energy companies.  Drilling into that hidden capacity proves much more productive and a far more risk-averse exercise than conventional drilling.

1. Reduce maintenance cost
2. Increased production
3. Extend life of assets
4. Reduce operational costs
5. Energy management/sustainability purposes
6. Aging workforce
7. Environmental, Health, and Safety Concerns

As I prepare to speak to the Institute of Internal Auditors (IIA) next week I can't help but share some of the information I've been able to put together for the presentation. 

We spoke with many reliability practitioners last week at SMRP 2010.  One of the dominant topics we talked with people about had to do with APM foundations.  Many of the people we talked to said, "we're about to implement SAP" or "we're trying to get more use out of our EAM data".  The end in mind for these initiatives is to reduce cost and avoiding costly failures.

There are five elements to achieving reliability best practices:

1. Asset Taxonomy - A global system of classification that encompasses all of your production assets.

I suggest you read this first part and use the second part below as reference.  I never intend these posts to be too long - I'm always trying to be pithy (... whatever that means...)

Part 1

The long and winding road of Enterprise Risk Management follows principles that are anchored in foundational, sound maxims. 

There is a gap, perhaps more adequately described as a CHASM, that separates what risk managers are trying to do and what is happening in the asset intensive industry.  Up from that chasm emerge devastating events that kill people, devastate the ecosystem, and generally slow economic growth.  Do I really need a list of those events or should I just point out what's happened in San Bruno California over this past weekend?  Reading that should evoke thoughts of other pipeline explosions, underground mine explosions, Gulf of Mexico explosions, refinery explosions...

So what does this have to do with sustained profitability?  The Institute of Internal Auditors, in the ERM Integrated Framework (Sept. 2004) states:

"Value is created by informed and inspired management decisions in all spheres of an entity's activities, from strategy setting to operations.  Entities failing to recognize the risks they face, from external or internal sources, and to manage them effectively can destroy value - in absolute or relative terms - for shareholders and other stakeholders, including the community and society at large."

So what I would like to suggest for Part 2 of this blog is that you scan through the following excerpt of an annual report of a multi-billion dollar energy company.  If you can find words like Hazards Analysis or pipeline integrity or reliability best practices, I'll send you a box of Canadian Smarties.

The point I'm making is hopefully as obvious as a blast crater in San Bruno.  Not enough attention is being paid to risks that directly impact the integrity of product

Part 2 -

“The audit committee of the company’s board of directors periodically reviews and discusses risk assessment and risk management policies, including the company’s material financial and accounting risk exposures and the steps management has undertaken to control them. Our risk management committee reviews the status of risk exposures through regular reports and meetings and monitors compliance with our risk management policy and control procedures.”

Talking points you will typically find in an annual report

•         Economic risk of finding, producing and replacing reserves at a reasonable cost

•         Prevailing prices of crude oil and natural gas

•         Labor risk associated with securing the manpower necessary to complete capital projects in a timely and cost effective manner

•         Operating hazards and other difficulties inherent in the exploration for and production and sale of crude oil and natural gas

•         Success of exploration and development activities

•         Timing and success of integrating the business and operations of acquired companies

•         Credit risk management

•         Limit setting, contract protection, counterparty diversification, interest rate risk associated with the Company’s ability to secure financing on commercially acceptable terms

•         Foreign exchange risk due to fluctuating exchange rates on the Company’s US dollar denominated debt and as the majority of sales are based in US dollars

•         Risk of catastrophic loss due to fire, explosion or acts of nature

•         Geopolitical risks associated with changing governmental policies, social instability and other political, economic or diplomatic developments in the Company’s operations

•         Planning for growth product market demand

•         Succession planning

•         Environmental impact risk associated with exploration and development activities, including GHG

•         The Company utilizes various derivative financial instruments to manage its commodity price, currency and interest rate exposures.

•         The Company’s risk management program is not used for speculative purposes.

•         The Company uses a variety of means to help mitigate and/or minimize these risks

•         The Company maintains a comprehensive property loss and business interruption insurance program to reduce risk to an acceptable level

•         The Company believes this diversification reduces price risk when compared with over-leverage to one commodity

 
Part 3
 

Statements you won’t read about in the Annual Report

•         The Audit Committee periodically reviews consolidated reliability data on the state of production assets to ensure that threats to scheduled production have been accounted for

•         Levels of maintenance work are systematically reviewed so that the right level of work is done to meet the business needs of the operation, and no more

•         The Company’s Management Team periodically reviews engineering efforts which identify cost savings opportunities:

•         Areas with high levels of reactive work

•         High overtime areas

•         Work order analysis

•         High levels of production disruptions

•         High production costs

Outage Planning

–          The Company’s Management Team oversees strategies that balance the risk of failure to the cost of purchasing replacement power

CAPEX and OPEX reassignment

–          The Company has established best engineering work processes that systematically identify “bad actors”

–          Engineering Managers are able to quickly divert budget spend from low-need to higher-need areas

Energy Optimization

–          Asset Performance Management systematically helps engineering efforts to optimize energy consumption on a fleet-wide basis

–          Asset Performance Management supports HSE efforts by providing timely data on levels of reactive maintenance so that Lost Time Incidents and injury rates can be carefully monitored

–          Safety performance has been improved year over year due to the Asset Performance Management work processes

Ron Moore, noted author and authority on reliability offers a warning to those companies who are bent on cutting cost rather than managing them through reliability work processes:

"If you want sustainable lower costs, get your reliability processes right.  If you simply cut costs, your results are not likely to be sustainable.  You may see some immediate improvement over 6-12 months, but over subsequent years, there will be a price to be paid in poorer performance and higher costs."

• Only half showed productivity improvement
• Only a third showed profit improvement
• Only an eighth showed morale improvement

1. Take work out of the system - reliability
2. Improve workforce productivity - maintainability
3. Create top-line growth - availability

• reduced cost by eliminating more expensive, reactive work
• decreased non-financial risk by eliminating unplanned events
• decrease lost time incidents and threats to the environment

• Turn-Around days (TADD)
• Routine Maintenance Down Days (RMDD)
• Routine Maintenance Slowdown Days (RMSD)
• Regulatory Process Down Days (RPDD)
• Regulatory Process Slowdown Days (RPSD)
• Other Down Days (OTDD)
• Other Slowdown Days (OTSD)