PRODUCTION ,PLANNING, CONTROL AND MAINTENANCE

1)Lead Time is the amount of time between process initiation

and completion. For our customers Lead Time is the time
between a confirmed customer order and its scheduled pick up or
delivery based on our terms and conditions. This varies based on
the customer and the product.

There are several different types of Lead Time, but there are four
primary types of Lead Time for our purposes in a manufacturing
or assembly environment.

1. Customer Lead Time – the amount of time taken between

order confirmation and order fulfillment (either pick up or
delivery depending on the agreement with the customer).
2. Material Lead Time – the amount of time it takes to place an
order with a supplier and receive it, from confirmed order to
having it on hand.

3. Factory/Production Lead Time – the amount of time it takes

to build and ship a product if all the materials are
available.

4. Cumulative Lead Time – the total amount of time it would

take from confirmed order to delivery of product if you had
to order all the materials (if none were on hand). It is the
summation of material lead time and factory lead time.

What is the difference between Factory/Production Lead Time

and Cycle Time?

 Cycle Time is the amount of time it takes to complete a

cycle of action. Completion of a specific task from start to
finish. More specifically it is the measured time that
explains how often a part is completed by a particular
process.
 Factory/Production Lead Time is the amount of time it takes
to build and ship a product if all the materials are available.
This includes all the manufacturing, sub-assembly, and
 assembly processes that impact the ability to process
material into a product.

Why is Lead Time important?

 Lead Time is an important factor for customer satisfaction.

Typically customers want goods or service as fast as
possible with minimal effort.
 For manufacturing and assembly the concept of Lead Time
is married to and has a direct relationship with the amount
of inventory that exists at different points in the overall
supply chain.

 If Customer Lead Time is less than: Material Lead Times,

Production Lead Times, or Cumulative Lead Times it will
result in the holding of inventory within the supply chain at
some or all points. Variation and inconsistency will often
compound this issue – it will cause the holding of stock or
inventory to mitigate risks in the supply chain.

Inventory is one of the 7 wastes commonly recognized by Lean

theory.

 Inventory requires people to move it, space to hold it,

counting, transporting, maintaining etc.
 Inventory can hide waste and significant business
opportunities: supplier issues, quality issues, housekeeping
and organization issues, scheduling issues, forecasting
issues, machine downtime, line imbalances, setup and
changeover issues etc.

 Inventory is risk and exposure. If customers don’t buy it, it

will become a write off or obsolete. If there is a quality
issue the business could be holding onto scrap.

 Inventory held at vendors is also exposure. Quite often

inventory held at vendors has a clause that the purchasing
business will have to buy the material (up to a certain
amount). If a vendor has large batches of inventory made
 during long production runs, any quality issues would be
magnified. For this reason being able to get more material
quickly can be a challenge. It also can result in higher
prices for the business buying material, if the supplier
cannot get their costs under control.

 Inventory ties up business cash. Inventory costs money and

when you spend money on inventory the business' cash is
now used on the buying and holding the inventory vs. having
cash on hand for other purposes (the business' cash is like
its checking account).

How do you reduce Lead Time?

 Hold stock, ideally the right stock.

 Vertical integration – the ability to source, manufacture and
assemble internally. Suppliers can be vertically integrated
or our business could become more vertically integrated.

 Reduce Cycle Times, thus reducing Production Lead Times.

For example, a focus on setup reductions and Quick
Changeover (QCO); Line Balance Activities etc.

 Have good equipment and employee availability. Solid Total

Productive Maintenance (Preventative Maintenance,
Autonomous Maintenance etc.). Robust quality systems in
place. Proper staffing levels.

 Reduce supplier Lead Times. Focus on long lead time

components – source local; supplier business improvements
etc.

 Suppliers/vendors hold stock e.g., stocking agreements.

 Vendor Owned Inventory (VOI); Vendor Managed Inventory

(VMI); Consignment Inventory etc.

 Change shipping methods – faster, more frequent

shipments.

 Have accurate forecasting, planning and scheduling.

  Good supplier performance and quality. Stable strategic
suppliers. A focus on supplier development can be beneficial
to help with this.

 Reduce product and component variation and obsolete low

runners.

What is the impact?

 Reduced Lead Times can mean reduced inventory and more

cash on hand for the businesses. In several aspects it
means less risk, exposure and management of materials.
 One main exception would be a reduction in Customer Lead
Time. If Customer Lead Time reduces it can mean winning
more business and at the same time holding higher stocking
levels; especially if there is a variance between the
Customer Lead Time and the Cumulative Lead Time (or the
Production or Material Lead time specifically).

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Inventory Management, Inventory Costs,

Newsvendor vs. EOQ
March 22, 2016March 25, 2016 bsaikrishnaLeave a comment

Different models are used to manage inventory for products that are continually available (like
milk) or products available for limited time (like seed).The Economic Order Quantity (EOQ)
model determines the least cost level of inventory to carry, as well as costs. News Vendor models
are used for products only available for a single period.

EOQ and News Vendor models have proved useful for managing inventory for many years,
analyzing tradeoffs among major cost components. These models are robust and easy to
customize to particular industries. Their approach to costing is similar reflecting levels of
inventory, as well as shipping costs or quantity discounts.

Inventory costs fall into three classes:

1) carrying costs of regular inventory and safety stock;
2) ordering or setup costs;
3) stockout costs. Inventory control systems balance the cost of carrying inventory against the
costs associated with ordering or shortfalls
Firms carry extra inventory to guard against uncertain events. Known as safety stock, the
purpose of this inventory is to provide protection against stockouts. Safety stock is costed just
like regular inventory, it is an interest rate times the level of safety stock.
If less is sold than expected during the 10 days or if the shipment arrives early, we will still have
inventory on the 10th day and no customer service problems are encountered.
Managing the uncertainty surrounding safety stock is the key to reducing inventory levels.
stockout costs involve lost sales when no inventory is on hand. Such costs fall as inventory (and
customer service) levels increase. The relationship between stockout costs and inventory depends
upon the accuracy of the demand forecast and the ability of the firm to recognize and react to a
change in demand.
One way to evaluate an inventory management policy is to choose a service level target. From
this target, the inventory policy will determine the inventory requirements and associated costs of
providing that level of service. A higher service level implies that more inventory will be held as
safety stock.

Newsvendor Model

From sweatshirts in EOQ to summer dresses in Newsvendor. The big difference is that while
sweatshirts were continuous selling items, the demand for summer dresses is limited to summer
months. Once the summer season is over, the unsold dresses must be heavily discounted. You are
a local design firm that designs northwest-accented summer dresses, sources them from China
and sells them through retailers here.

The problem is that for a particular summer dress, total demand during the summer season is
hard to predict. All you can do is to make a guess, that is, develop a probability distribution of
demand. Let us generate our demand with the throw of a regular dice; it can be any number from
1 to 6, each with probability 1/6.

On the supply side, the lead time from your Chinese supplier is long. There is no possibility of
making multiple orders. You make one order before the summer season starts, sell as many as
you can during the season and then whatever is left is discounted. Let us say that per unit
purchase cost c is $80. For any units that you are able to sell per unit revenue r is $100. For the
units you are not able to sell during the season, let us say that you can discount them and are able
to sell them at a per unit salvage value s of $30.

The big decision is the order quantity S of dresses you should order from your Chinese supplier
at the beginning of the summer season.

The Trade-off

If you order a very large quantity, there is a bigger chance that you will not be able to sell all of
them. There will be excess units at the end of the season that you will have to discount. You will
lose money on them. On the other hand, if you order a small quantity, there is a bigger chance
that you will be short. That is, there will be some demand you will not be able to satisfy. You will
not be able to make as much money as you could have.
The order quantity decision resolves this trade-off between the expected cost of having excess
inventory and the expected cost of falling short. We will call the sum of these two costs as
Mismatch cost. The optimal order quantity will minimize mismatch cost.

Marginal Costs

To resolve this trade-off, we start with defining marginal costs of excess and shortage.

Marginal Cost of excess Ce is defined as the cost of having one unit excess. You bought this unit
for purchase cost of c=$80, were not able to sell it during the season and then had to discount it
down to the salvage value of s=$30. The cost to you is $80-$30=$50. That is, in this setting,
Ce=c-s.

Marginal Cost of shortage Cs is defined as the cost of having one unit short. Had you bought this
unit for purchase cost of c=$80, you would have been able to sell it during the season for a
revenue of r=$100. We say, that the cost to you for being one unit short is $100-$80=$20. That
is, in this setting, Cs=r-c.

Service Level

Service level is the chance that you will be able to meet all the demand in a single period
(summer season). Suppose you bought an order quantity S=3 units. Recall that demand is any
number between 1 and 6 with equal probability 1/6. In this case, you will be able to meet all the
demand only if demand is either 1 unit, 2 units or 3 units. That is, the probability that demand is
less than or equal to S=3 units. This probability is known as cumulative probability and is given
by the sum of the probabilities that demand is 1, demand is 2, and demand is 3 =
(1/6)+(1/6)+(1/6)=3/6=1/2. That is, if you buy S=3 units, you will provide a service level of
50%.

Here is a quick table to provide cumulative probabilities in our case:

Demand 1 2 3 4 5 6
Probability 1/6 1/6 1/6 1/6 1/6 1/6
Cumulative 1/6+1/6 2/6+1/6 3/6+1/6 4/6+1/6 5/6+1/6
1/6
Probability =2/6 =3/6 =4/6 =5/6 =6/6=1

Optimal Service Level and Optimal Order Quantity

Single-period model tells us that, given the marginal costs of excess and shortage, Ce and Cs, the
optimal service level is given by (Cs/(Cs+Ce). In our case, the optimal service level is equal to 20/
(20+50)= 0.2857.

Optimal order quantity S* is the minimum size of the order that will be able to provide the
optimal service level. Going by the above table, if you buy, for example, S=1, you will be able to
provide a service level of 1/6=0.1667 which is less than the optimal service level we wish to
provide. If we buy 2, service level is 2/6=0.3333 and we will be able to satisfy the optimal
service level requirement of 0.2857. Therefore S*=2.

Rule: compute optimal service level and find the minimum value of demand for which
cumulative probability, for the first time, equals or exceeds optimal service level. That is the
optimal order quantity.

Summary of Formulas for Continuous Demand: Normal Distribution

The demand distribution we considered above is a discrete distribution because demand can only
take a limited number of values. In some real settings, it is easier to work with the assumption
that the demand follows Normal distribution with a given mean and standard deviation. Normal
is a continuous distribution because demand can take any value. In this case, we can use the
following formulas:

Given per unit revenue r, per unit purchase cost c and per unit salvage value s:

Marginal cost of excess Ce=c-s; Marginal cost of shortage Cs=r-c.

Optimal service level = Cs / (Cs+Ce)

Given a normally distributed demand with given mean and standard deviation

compute z = spreadsheet function Normsinv (required service level)

Order quantity that can provide required service level = mean + z*standard deviation

Alternatively, given an order quantity S, the service level it can provide =

Spreadsheet function = Normdist (S, mean, standard dev., TRUE)

For Normal distribution, we can also compute the following:

Expected shortage = Std. Dev.*{ Normdist(z,0,1,false) -z +z Normdist(z,0,1,true)}

Expected excess = S – mean + Expected shortage

Expected mismatch cost = Cs*Expected shortage + Ce*Expected excess

Expected profit = (r-c)* mean – Expected mismatch cost

How much to order and when to order?

One of the major objectives of any supply chain is to cater to the demand in the most efficient
manner. One of the ways of having achieving such efficiency is: cater to the demand by
minimizing the inventory levels as much as possible.

Essentially, there are two fundamental decisions that help us manage inventory. They are:

1. How much to order?

2. When to order?

How much to order?

Newsvendor Model

We decide on how much to order depending on the cost of over-stocking and the cost of under-
stocking. For example, say you are company that sells cakes. A cake costs you $1.24 to prepare
and you sell the cake at $2.49. But, if you cannot sell the cake within 24 hours, then you have to
sell it to another local vendor at $0.99. In this case, the

Cost of under-stocking (Cu) is: $1.25 (the profit that you lose in not being able to sell the cake)

Cost of over-stocking (Co) is: $0.25 (amount that you lose because you have to sell at a discount
to a vendor)

The optimal service level (SL*) is: Cu/(Cu+Co). The optimal quantity that you need to order is
the smallest quantity Q at which the service level exceeds the optimal service level (SL*).

How can I get the service levels? You can get the demand distribution and the service levels from
the past data.

The above formula is also called the newsvendor formula. This is used when the product has a
limited shelf life and inventory cannot be carried over.

Economic Order Quantity Model

The other approach to determine quantity is called the Economic Order Quantity model.

Let us make two assumptions:

1. Demand will be steady (no variance)

2. Lead time for delivery order is zero. The order is immediately delivered whenever an
order is issued.

In such a scenario, I will always order whenever the inventory goes to zero. Immediately the
order comes and my inventory reaches Q again. The rate at which inventory goes to zero is the
throughput rate (R) itself.
So, the time between two orders is Q/R

Therefore, the order frequency is R/Q.

Every order has certain fixed costs associated with it. For example, even if you order 1 unit of an
AC there will be some $2000 of fixed costs (assume fixed cost will be a step cost). So, therefore
you want t order as many units as possible so that the fixed costs of an order are spread over
large number of units.

But at the same time, if you order more number of units then you have to bear more costs for the
inventory carrying costs. Let’s look at what is an optimal solution for under this trade-off
situation.

Fixed cost paid per period = S*R/Q (S is the fixed cost for every order)

Cost of holding inventory (H) = cost of keeping one unit in inventory for a certain period

The sum of both fixed cost and the cost of holding the inventory has to minimum. Under such
conditions the optimal quantity to order is the Economic Order Quantity (Q*) = sqrt (2RS/H). If
you centralize your inventory, then it helps in inventory optimization because: if demand
increases by 2 then quantity increase by only sqrt(2).

This can be rounded off to the nearest packaging standards that are required for your supplier.

Now, let’s negate one of the two assumptions we made in the EOQ Model.

Let’s say we have a lead time of 3 weeks before the order comes.

——————————————-

A table for reference to understand which order quantity is better

What is Lead Time? Why Is it Important?

Lead Time is the length of days between when an order is placed and
the date the goods are available for use. The largest impact to lead
time accuracy is found by comparing expected receipt date to actual
receipt date for each purchase order. In simple terms, the variance is
calculated as the absolute value of the difference [expected or
requested receipt date – actual receipt date] for each line on the
purchase order. These variances in days across multiple purchase
orders establish the need for lead time accuracy testing and lead time
forecasting.

What is the Impact When Supplier Lead Time is Not Accurate?

Suppliers provide an estimate of lead time, but these numbers are not
always accurate. The differences between your expected receipt date
and actual receipt date can become expensive from the resulting
unplanned over stocks, out of stocks, and deflated consumer opinions.
Lead time tracking and lead time forecasting are mission critical to the
success of your supply chain. Lead Time Forecasting, like Demand
Forecasting, should use a set of math algorithms to calculate the
correct lead time days to use in planning purchase orders. Also, like
Demand Forecasting, the Lead Time Forecast should move up and
down according to changes in market, business influences and
seasonality of product.

The ability of Lead Time forecast to be accurate and dynamically

updated decreases the amount of safety stock needed in your
inventory. The resulting lead time forecast is then multiplied by the
daily demand forecast for each day moving forward to determine how
many units will need to be carried on the shelves to maintain service
level in between orders.

Do Lead Time Forecasting Variances Impact Inventory Optimization?

Lead time forecasting accuracy heavily influences your inventory

optimization success by impacting both safety stock and consumer
opinion of your customer service capability. When to place the
inventory replenishment order or when to place the new product order
should be based in part on lead time days.

While some companies use a single lead time forecast number for all
vendors, the reality is that all vendors and products are not the same.
Start reviewing how many products have a bad lead time that is to
short, which means you run out and have lost sales. Calculate your
lost sales for those out-of stock days (you do have a method to
calculate lost sales, right?) and sum the total lost sales across six
months to see how much money you are losing. Now look at all those
skulocs that had overstock where the actual lead time was less than
the expected lead time across the last six months. Sum the cost of the
excess inventory and, multiply the result by 10%, and then you have a
conservative estimate of your overstock carrying cost. In reality, your
actual costs are probably double that number. Finally, add the
overstock cost and the lost sales cost together to see a six month
total. How much profit did you lose this past year due to poor
lead time forecasting?
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-2) Materials Handling

Minimize Movement and Maximize Productivity

Manufacturing organizations handle many types

of materials in their production environment. Raw materials,
materials-in-progress, finished goods, accessories,
components, packaging materials, maintenance and repair
supplies, scrap and many more must be handled in an
efficient manner to make the operations cost-effective and to
avoid wastage. The principle behind material handling
process is said to be “no handling”, which is not practicable
in reality. So it would be appropriate to say, that the objective
of materials handling would be, to reduce the number of
handlings as well as reducing the distances through which
the materials are handled.

Why efficient materials handling is inevitable in a

manufacturing set-up?

 The movement of materials from the receiving area to

the shipping area through the production line does not
add value to the product but only to the cost.
 Further, plant layout and materials handling are
complementary to each other. A production facility must
incorporate a good plant layout that enhances the
efficiency of movement of materials with ease and
should deliver maximum productivity.

Principles for Efficient Materials Handling

There are certain principles that serve as a guide for efficient
materials handling. These provide a framework for selecting
specific materials handling equipments that form the core of
the production system.

POWERED BY

 Eliminate handling-If not, reduce the distance travelled

by the materials
 Keep moving-If not, reduce the time spent at crucial
points
 Simple patterns of material flow is appreciated-If not,
reduce back tracking, cross overs, congestion
 Carry pay loads
 Carry full loads
 Use reliable and inexpensive source of power

Materials handling should be considered in the light of

movement of men, machines, tools and information. It also
depends on the type of product manufactured, quantity,
value and size of the organization. Cost effectiveness can be
achieved if the firm is able to reduce the manufacturing cycle
time through faster movement of materials and thus work-in-
progress inventory costs can also be controlled and reduced.
Design of the plant layout that facilitates sequential flow of
materials through the production facility, improved working
conditions, safety in the movement of materials, contribution
to better quality by avoiding damage to the materials due to
inefficient handling and workers being appraised about the
importance of smooth materials handling result in higher
productivity at lower manufacturing cost.

Factors to considered while deciding on material

handling equipments:

Adaptability, flexibility, load capacity, power, speed, nature of

supervision required, space requirements, ease of
maintenance, environment friendliness and cost are some of
the factors to be taken into consideration while deciding on
the type of material handling equipments. Also the
capabilities of manpower to operate the equipment and
safety of personnel cannot be overlooked. It is important to
select and design, materials handling system that are
expensive to purchase and operate. For instance, if overhead
cranes are to be used, the structure of the building should be
strong enough to support the installation. Spacious aisles are
mandatory if the loads are heavy and transported across the
shop floors.

Equipments used:

Elevators, hoists, industrial trucks like fork-lift trucks, pallet

trucks, pipelines, automatic transfer devices, automated
guided vehicles, and industrial robots are some of the
handling equipments that have found their ideal place in this
process. Materials handling activity should be evaluated like
any other activity to gauge its effectiveness. The focus should
be on the manufacturing cycle efficiency, equipment
utilization, percentage of time lost, total number of moves
and material handling costs as percentage of manufacturing
expenses.
4) The term preventive maintenance commonly refers to the practice of
regularly servicing equipment on a pre-determined schedule so that it does not
develop catastrophic failures and performs better over its useful lifecycle.

Although it is well known that equipment routinely serviced on a pre-determined

schedule outlasts equipment that is not, many companies still indulge in the
practice of neglecting equipment and/or only responding reactively to equipment
failures.

This is unfortunate as the preventive maintenance of assets has even greater

implications in today’s economy. Preventive maintenance has a number of
powerful advantages that make it worth utilizing. Because of these advantages,
more and more companies are starting to realize the importance of taking proper
care of their equipment.

Five Advantages of Preventive Maintenance

1. Extends the useful lifecycle of assets decreasing the need for capital
replacements.
2. Enhances the efficiency of equipment keeping them running more
efficiently and lowering power expenses.

3. Enhances the performance of assets by increasing uptime.

4. Enhances customer (internal or external) service because maintenance

teams have less unplanned maintenance and can respond quicker to new
problems.

5. Contributes positively to the reputation of companies

Tying Profits to the Advantages of Preventive Maintenance

Preventive maintenance doesn’t just enhance the lifespan of regularly used

equipment, it enables higher performance. How well equipment performs
depends on a huge number of factors ranging from the quality of the equipment
in use to environmental factors.
However, generally speaking, well maintained equipment performs better than
poorly maintained equipment. Companies that take the time to maintain their
equipment on a regular schedule typically get the best performance possible out
of their equipment.

The performance of company equipment is often intimately related to profits.

Many companies rely heavily on their equipment, and the more efficiently and
smoothly their equipment performs, the more profit they can make.

While it is true that in the short run companies that do not spend time
maintaining their equipment well can make more money, in the long run their
equipment will end up performing more poorly, and they will end up losing a
great deal of money.

Preventive maintenance doesn’t just increase what managers can get out of
equipment, it also makes it possible for managers to save money on power costs.
Equipment that is poorly maintained typically requires more electricity or fuel to
run.

This increase in electricity or fuel use may seem trivial at first, but it typically
ends up costing companies a great deal. While these costs may end up remaining
hidden, they still end up negatively impacting the bottom line.

Quality equipment only stays quality equipment if it receives the level of care
it deserves

Equipment that is routinely serviced on a regular schedule usually requires no

extra electricity or fuel to run even after years of use. Often companies will make
the extra effort to purchase high quality equipment (knowing that in the end they
will save money), but they overlook the importance of maintaining equipment
properly.
Failing to adequately service high quality equipment ends up costing companies
a great deal of money that could otherwise go towards enhancing the bottom
line.

Preventive Maintenance Enhances Customer Service and Reputation

Preventive maintenance can also help companies to provide customers (internal

and external) with better customer service. Because regularly scheduled
maintenance enhances equipment functioning, companies that practice it can
offer their customers more reliable service.

Many customers are just as interested in the reliability of services as their

quality. While a number of companies make the mistake of assuming that
customers care only about the quality of service they deliver, most of the best
companies realize that consumers don’t want great service delivered on an
unreliable timetable. Consumers want both quality and reliability, and companies
that realize this are the best positioned for growth.

Companies that are able to produce their products on a reliable schedule or offer
reliable services find themselves acquiring very good reputations. Businesses
live and die based on their reputations and anything companies can do to
enhance their reputations is something they should at least consider.

While not all reputation boosting moves are worth taking, preventive
maintenance yields so many benefits in so many areas at so little cost that it is
clearly an intelligent strategy for companies to adopt.

Companies that neglect their equipment and ignore their reputations may
temporarily prosper in the short run, but ultimately they will be displaced by
reliable companies with excellent reputations. Only companies that work on
cultivating long-term positive relationships with customers have a good chance
of surviving in an increasingly competitive marketplace.
Although television and newspaper advertisements certainly have their place,
nothing advertises a company better than word of mouth. Building up loyal
customers willing to engage in word of mouth advertising is an essential move if
companies are to have any chance of achieving long-term success.

How to get the most from Preventive Maintenance

A lot of the drive behind the new emphasis on preventive maintenance stems
from fundamental changes in management philosophy. A new management
philosophy known as Enterprise Asset Management (EAM) is beginning to
become more popular with many CEOs and managers.

The basic premise of an EAM is that companies need to focus on optimizing

operations from the perspective of long-term corporate growth. This approach
stands in stark contrast to the typical corporate emphasis on short term profits.

Companies interested in implementing preventive maintenance strategies should

start gradually. Often the best way to start out is by researching EAM software
and looking at the structure of normal repair operations.

The switch from reactive maintenance to preventive maintenance does not

usually occur overnight, but with time and training it can occur after a moderate
period of time.

The main key is to use appropriate software and to spend adequate amounts of
time training staff. The software is important because preventive maintenance is
not really realistic on a large scale without appropriate software tools.

Training should not be overlooked either as training staff adequately is essential

because people often need help adjusting to the outlook required for preventive
maintenance to be successful. If all of the above factors are taken care of, the
switch to preventive maintenance is almost guaranteed to be a success.
 Preventative maintenance

Preventative Maintenance

Preventative maintenance (PM) is and remains the dominant maintenance

strategy across a number of industries. Preventative maintenance gained
popularity due to its reduction of costs and equipment downtime when
compared to reactive or run-to-failure maintenance, which repairs machinery
only after failure has occurred.

Today, in addition to PM, a much wider variety of maintenance strategies

exist, such as predictive or condition-based monitoring, which has advanced
rapidly due to technological advancements in cost-effective data collection,
developed by companies such as ProAxion®. As a result, maintenance
methods have been changing. However, preventative maintenance still has a
number of uses, especially when applied in conjunction with other
maintenance strategies.

What Is Preventative Maintenance?

Preventative maintenance is a strategy which relies on regular, highly

scheduled inspection and repair to address failures in equipment and
machinery before they occur. It is traditionally either time-based, with
inspections and upkeep scheduled at regular intervals of several weeks to
several years depending on the nature of the equipment, or use-based, with
maintenance occurring after the machine has run for a certain number of
hours or miles. Time-based preventive maintenance is more common, with
use-based strategies usually applied to manufacturing equipment,
automobiles, construction machinery and occasionally aircraft.
When a preventative technique is employed, the equipment is inspected and
then any number of maintenance tasks are performed which can ultimately
prevent failure from occurring. Upkeep tasks which often occur during a
preventative inspection include cleaning, lubrication, oil change, and the
repair or replacement of individual parts. If failure is judged as being
particularly likely to occur soon, partial or complete overhaul of the system
may also be carried out.

Accurate records must be kept of every inspection to create a complete

picture of the equipment’s performance throughout its life cycle.
Traditionally, these records were created in the form of handwritten
documents, but recently many companies have made the switch to digital
records.

The key tenet behind preventative maintenance is the idea that a piece of
equipment becomes more and more likely to fail as it ages. Usually, the
intervals between scheduled inspections decrease as a machine becomes
older. Additionally, preventative maintenance also takes into account the
periods of time when equipment sees most frequent use when determining a
schedule. For example, an air conditioning system might be inspected once
per year in May or June, at the beginning of summer, while a heating system
is instead inspected in October or November as winter begins. Today, a
number of software products exist which can help manufacturers efficiently
schedule inspections depending on the age and use of the equipment.

As preventative maintenance increased in popularity, many manufacturers

began including recommended inspection times, usually in the owner’s
manual which accompanies the equipment. For example, a manufacturer of a
small personal vehicle might recommend that it undergo inspection and/or oil
change after every 5,000 miles of driving.
Four Questions - Should I Use Preventative Maintenance

There are four questions which can be asked regarding a piece of equipment
when determining whether or not preventative maintenance is the proper
strategy to employ.

These questions are:

1. Does the equipment perform a critical function? What does the

equipment do, and how important is this function to the overall productivity
of the facility or company?

2. Does failure of the equipment come with safety risks? Is the equipment
regularly operated by human workers? Would those human workers be in
danger of injury, illness or death were the equipment to fail? Alternately,
could failure cause major property or environmental damage?

3. Is the equipment expensive to repair? How much does the equipment

cost when only reactive / run-to-failure maintenance is used? Would regular
inspection be ultimately cheaper?

4. Does the equipment being down disrupt business? Can the facility or
company still be productive without the equipment, or not? Would the
equipment being down force employees to work overtime or create
unnecessary, unproductive downtime?

If the answer to any one of these four questions is “Yes,” the equipment is
probably a good candidate for preventive maintenance. However, if the
answer to all four is “No” – it does not perform a critical function, has no
safety risk, is inexpensive to repair, and does not disrupt business when down
– reactive or run-to-fail maintenance may be the lowest cost option to be
used.
Advantages of Preventative Maintenance

Preventative maintenance has proven to possess a number of advantages,

especially when compared with run-to-failure strategies. It is, in most cases,
less expensive than reactive maintenance, and does not cause unplanned
equipment or employee downtimes (and the resulting loss of production) as
failures are addressed before they occur. Prior to the advent of ProAxion
Tactix, preventative maintenance could even be considered more cost-
effective than condition based or predictive maintenance, which had required
constant or scheduled manual measurement or observation of the equipment.

In addition, preventative maintenance has been found to improve the life

cycle of many types of machinery, as well as decreasing the risk of injury for
equipment which is operated by human workers. It also produces significantly
less paperwork than reactive maintenance, as the documentation of
equipment failure requires an extensive and time-consuming process. Lastly,
sticking to a preventative maintenance schedule means that equipment is far
more likely to pass external audits (safety, quality, etc) and inspections at
any time during its operation.

Disadvantages of Preventative Maintenance

However, preventative maintenance is not without its disadvantages.

Foremost among these is the time and resources required in implementing
such a strategy. Employees must be trained in inspection techniques (or a
professional inspector hired, which can be quite costly), inspections must be
scheduled, and of course all upkeep tasks performed must be carefully
documented in minute detail.

In addition, while unplanned downtime is prevented, this sort of maintenance

must still occur while the equipment is not functioning – so unplanned
downtime is merely replaced in many cases with planned downtime. Contrast
this with condition-based, predictive maintenance, which is capable of testing
and collecting data on the machinery while it is still running, and the
inefficiency of preventative maintenance can be seen.
Lastly, preventative maintenance runs the high risk of carrying out either too
much or too little maintenance on any given piece of equipment. Too-frequent
inspections are a waste of time, labor, resources and money, while too-
infrequent ones can lead to failure and force the company to resort to
reactive maintenance instead.

In recent years, the theory that an equipment’s rate of failure decreases

steadily as it ages has been discounted and disproved (particularly by the
1978 Nowlan-Heap Report, which introduces the non-age based reliability-
centered maintenance strategy). Some types of equipment experience a
consistent failure rate over time, while others actually possess greater risk of
failure shortly after installation (a concept referred to as “infant mortality”).
Increasingly, preventative maintenance’s age-based scheduling techniques
have become seen as outdated and inefficient.

Additionally, technological advancements in the field of predictive

maintenance (aka condition-based maintenance) have increasingly left more
traditional preventative maintenance in the dust. Predictive maintenance
allows for the real-time monitoring of equipment to detect failures before
they occur, allowing maintenance to occur only when-needed. For example,
ProAxion®’s signature vibration and temperature monitoring technology,
Tactix™, is simple and cost-efficient to install and uses vibration and
temperature to predict failures in advance. This saves industry leaders a
significant amount of money in the long run as unnecessary maintenance is
never performed.

When to Use Preventive Maintenance

Despite its disadvantages, preventive maintenance still sees use today. It

should be applied when equipment experiences a regularly consistent failure
rate or one which increases with age, or in situations when either predictive
or reactive maintenance are not cost-effective.

Preventive maintenance is best used in conjunction with other maintenance

strategies including predictive and reactive. The reliability-centered
maintenance (RCM) approach analyzes equipment failure modes and
consequences and then implements the most time-, labor- and cost-efficient
strategy. When preventive maintenance is recommended by RCM, it has been
determined to be effective and should be used.

Contact ProAxion® today to learn more about both the advantages and
drawbacks of preventive maintenance and its role as a possible solution
within the overall RCM process.

What Is Lean Maintenance?

Elements that need to be in place for success

Much has been written about lean manufacturing and the lean enterprise—
enough that nearly all readers are familiar with the concepts as well as the
phrases themselves. But what about lean maintenance?

Is it merely a subset of lean manufacturing? Is it a natural fall-in-behind

spinoff result of adopting lean manufacturing practices? Much to the chagrin
of many manufacturing companies, whose attempts at implementing lean
practices have failed ignominiously, lean maintenance is neither a subset nor
a spinoff of lean manufacturing. It is instead a prerequisite for success as a
lean manufacturer. This article will explain why.

The definition
The best starting point is to define lean maintenance:

Lean maintenance is a proactive maintenance operation employing planned

and scheduled maintenance activities through total productive maintenance
(TPM) practices using maintenance strategies developed through application
of reliability centered maintenance (RCM) decision logic and practiced by
empowered (self-directed) action teams using the 5S process, weekly Kaizen
improvement events, and autonomous maintenance together with multi-
skilled, maintenance technician-performed maintenance through the
committed use of their work order system and their computer managed
maintenance system (CMMS) or enterprise asset management (EAM) system.
They are supported by a distributed, lean maintenance/MRO storeroom that
provides parts and materials on a just-in-time (JIT) basis and backed by a
maintenance and reliability engineering group that performs root cause
failure analysis (RCFA), failed part analysis, maintenance procedure
effectiveness analysis, predictive maintenance (PdM) analysis, and trending
and analysis of condition monitoring results.

That is lean maintenance in a nutshell, albeit a rather large nut (except for
a few details that were omitted here but will be covered later in the article).
Let’s discuss the highpoints of this definition to be sure everyone
understands the terms used:

• Proactive. This is the opposite of reactive where the maintenance operation

reacts to equipment failures by performing repairs. In the proactive
maintenance operation the prevention of equipment failures through
performance of preventive and predictive maintenance actions is the
objective. Repair is not equivalent to maintenance.

• Planned and scheduled. Planned maintenance involves the use of

documented maintenance tasks that identify task action steps, labor
resource requirements, parts and materials requirements, time to perform,
and technical references. Scheduled maintenance is the prioritization of the
work, issuance of a work order, assignment of available labor resources,
designation of the time period to perform the task (coordinated with
operations/production), and breakout and staging of parts and materials.

• Total productive maintenance. TPM is the foundation of lean maintenance.

It is an initiative for optimizing the reliability and effectiveness of
manufacturing equipment. TPM is team-based, proactive maintenance and
involves every level and function in the organization, from top executives to
the shop floor. TPM addresses the entire production system life cycle and
builds a solid, shop floor-based system to prevent all losses. TPM objectives
include the elimination of all accidents, defects, and breakdowns.

• Reliability centered maintenance. RCM is a process used to determine the

maintenance requirements of physical assets in their present operating
context. While TPM objectives focus on maintaining equipment reliability and
effectiveness, RCM focuses on optimizing maintenance effectiveness.

• Empowered (self-directed) action teams. Action team activities are task-

oriented and designed with a strong performance focus. The team is
organized to perform whole and integrated tasks, hence requiring multi-
department membership. The team should have defined autonomy (that is,
control over many of its own administrative functions such as self-evaluation
and self-regulation—all with limits defined). Furthermore, members should
participate in the selection of new team members. Multiple skills are valued.
This encourages people to adapt to planned changes or occurrence of
unanticipated events.

• 5S process. There are five activities for improving the work place
environment: sort (remove unnecessary items), straighten (organize), scrub
(clean everything), standardize (standard routine to sort, straighten, and
scrub), and spread (expand the process to other areas).

• Kaizen improvement events. Kaizen is the philosophy of continuous

improvement, that every process can and should be continually evaluated
and improved in terms of time required, resources used, resultant quality,
and other aspects relevant to the process. These events are often referred to
as a Kaizen blitz—a fast turnaround (1 week or less) application of Kaizen
improvement tools to realize quick results.

• Autonomous maintenance. This refers to routine maintenance (e.g.,

equipment cleaning, lubrication, etc.) performed by the production line
operator. The maintenance manager and production manager will need to
agree on and establish policy for where in the production processes
autonomous maintenance will be performed, what level and types of
maintenance the operators will perform, and how the work process for
autonomous maintenance will flow. Specific training in the performance of
designated maintenance responsibilities must be provided to the operators
prior to assigning them autonomous maintenance responsibilities.

• Multi-skilled, maintenance technician. Multi-skilled maintenance technicians

are becoming more valuable in modern manufacturing plants employing
PLCs, PC-based equipment and process control, automated testing, remote
process monitoring and control, and similar modern production systems.
Maintenance technicians who can test and operate these systems as well as
make mechanical and electrical adjustments, calibrations, and parts
replacement obviate the need for multiple crafts in many maintenance tasks.
The plant processes should determine the need for and advantages of
including multiple skills training in the overall training plan.

• Work order system. This system is used to plan, assign, and schedule all
maintenance work and to acquire equipment performance and reliability
data for development of equipment histories. The work order is the
backbone of a proactive maintenance organization’s work execution,
information input, and feedback from the CMMS. All work must be captured
on a work order—8 hours on the job equals 8 hours on work orders. The
types of work orders will include categories such as planned/scheduled,
corrective, emergency, etc. The work order will be the primary tool for
managing labor resources and measuring department effectiveness.

• Computer managed maintenance system. The information (maintenance)

management software system performs, as a minimum, work order
management, planning function, scheduling function, equipment history
accumulation, budget/cost function, labor resource management, spares
management, and a reports function that utilizes key performance indicators
(KPI). To be effective, the CMMS must be fully implemented with complete
and accurate equipment data, parts and materials data, and maintenance
plans and procedures.

• Enterprise asset management. The EAM system performs the same

functions that the CMMS does but on a more organization-wide, integrated
basis, incorporating all sites and assets of a corporation. Even broader
enterprise systems incorporate fully integrated modules for all the major
processes in the entire organization and offer the promise to effectively
integrate all the information flows in the organization.

• Distributed, lean maintenance/MRO storeroom. Several stores locations

replace the centralized storeroom in order to place area-specific parts and
materials closer to their point-of-use. Lean stores employ standardized
materials for common application usage. The lean stores operation also
employs planning and forecasting techniques to stabilize the purchasing and
storeroom management process. This method requires that a long-term
equipment plan is developed and equipment bills of material (BOM) are
entered into the CMMS as soon as the purchase order for new equipment is
issued.

• Parts and materials on a just-in-time basis. Stores inventories are drastically

reduced (as are the costs of carrying large inventories) through a strong
supply chain management team that uses JIT suppliers, and practices such as
vendor-managed inventories in which the vendor is given the responsibility
for maintaining good inventory practices in replenishment, in ordering, and
in issuing the materials. The vendor is charged with the responsibility of
controlling costs and inventory levels, the sharing of information with the
facility, and making improvements in the process.

The supply chain management team advocates day-to-day supplier

communication and cooperation, free exchange of business and technical
information, responsive win-win decision-making, and supplier profit sharing.

• Maintenance and reliability engineering group. Because statistics indicate

that up to 70 percent of equipment failures are self-induced, a major
responsibility of maintenance engineering involves discovery of the causes of
all failures. Reliability engineering is a major responsibility of a maintenance
engineering group.

Their responsibilities in this area also include evaluating preventive

maintenance action effectiveness, developing PdM techniques/procedures,
performing condition monitoring/equipment testing, and employing
engineering techniques to extend equipment life, including specifications for
new/rebuilt equipment, precision rebuild and installation, failed-part
analysis, root cause failure analysis, reliability engineering, rebuild
certification/verification, age exploration, and recurrence control.

Other terms
Here are descriptions of some of the terms related to the maintenance and
reliability engineering group:
• Root cause failure analysis. One of the most important functions of the
maintenance engineering group is RCFA. Failures are seldom planned for and
usually surprise both maintenance and production personnel and they
nearly always result in lost production. Finding the underlying, or root, cause
of a failure provides an organization with a solvable problem, removing the
mystery of why equipment failed. Once the root cause is identified, a fix can
be developed and implemented.

There are many methods available for performing RCFA, such as the
Ishikawa, or Fishbone, diagramming technique; the events and causal factor
analysis; change analysis; barrier analysis; management oversight and risk
tree (MORT) approach; human performance evaluation; and the Kepner-
Tregoe problem-solving and decision-making process.

• Failed part analysis. Examination, testing, and/or analysis by maintenance

engineering on failed parts and components, removed from equipment,
determines whether the parts were defective or an external influence, such
as operating conditions, faulty installation technique or other influence,
caused the failure. Physical examination is often required in order to
determine where to begin RCFA. For example, when a bearing fails the mode
of failure must be determined by examining the bearing,. If electrical
erosion/pitting is found, then stray ground currents (the cause of electrical
pitting in bearings) must be found and eliminated.

• Procedure effectiveness analysis. Among the responsibilities of

maintenance engineering for the establishment and execution of
maintenance optimization is the use of CMMS-generated unscheduled and
emergency reports and planned/preventive maintenance reports to
determine high-cost areas, and establish methodologies for CMMS trending
and analysis of all maintenance data to make recommendations for changes
to preventive maintenance frequencies, corrective maintenance criteria, and
overhaul criteria/frequency. It also must identify the need for the addition or
deletion of PMs, establish assessment processes to fine-tune the program,
and establish performance standards for each piece of equipment. The
maintenance engineering group also establishes adjustment, test, and
inspection frequencies based on equipment operating (history) experience.
Additional responsibilities include the optimization of test and inspection
methods and the introduction of effective advanced test and inspection
methods. Maintenance engineering performs periodic reviews of equipment
on the corrective maintenance (CM)/PdM program to delete that equipment
no longer requiring CM/PdM, or to add to the CM/PdM program any
equipment or other items as appropriate. The maintenance engineering
group also communicates problems and possible solutions to involved
personnel and controls the direction and cost of the CM/PdM program.

• PdM analysis. A major role of maintenance engineering is optimizing

maintenance. One of the most widely used tools in this regard is PdM to
forecast necessary maintenance actions. Depending on the quantity and
kinds of production equipment in a plant, the array of PdM techniques can
range from as few as two or three to as many as 10 or more. Whether a PdM
technique is outsourced or performed in-house, the results and
recommendations must be analyzed by maintenance engineering and
maintenance actions scheduled prior to predicted failure or out-of-
specification condition.

• Trending and analysis of condition monitoring. Condition monitoring,

actually a subset of predictive maintenance, usually involves the use of
installed metrology (gauges, meters, etc.) to derive the equipment’s
operating condition. Examples can be as simple as a differential pressure
gauge across a filter or the head-flow characteristics of a pump.

Maintenance engineering must establish operating limits for the condition(s)

being monitored and trend the observed data, obtained from a log sheet or
planned maintenance procedure, to determine when the operating limits will
be exceeded so that required maintenance can be performed. This is
referred to as condition-based maintenance and can be both more effective
and less costly than periodic or fixed frequency maintenance.

Leadership changes
The foregoing provides a good, basic definition of lean maintenance by
describing the activities and job responsibilities of those involved in the lean
maintenance operation. Lean maintenance is also about fundamental
changes in attitudes and leadership roles. In the lean environment the shop
floor-level employee is recognized as the company’s most valuable asset.
Management and supervisory roles change from that of directing and
controlling, to a role of supporting.

The lean maintenance organization is a flat organization with fewer layers of

middle management and supervision because, with the establishment of
empowered action teams, much of their direction comes from within. The
remaining supervisors spend the majority of their time on the shop floor
providing technical advice and guidance and identifying first-hand the
problems and needs of the action teams.

The foundation elements, in particular TPM, must be in place before an

organization can effectively build on the maintenance management pyramid
with elements such as autonomous maintenance and before it can sustain
continuous improvement.

A company transitioning to lean manufacturing will not have a sound basis of

maintenance support without first implementing many of these necessary
and fundamental changes in the maintenance operation. As the foundation
of lean maintenance, TPM must be operating and effective, as shown by the
key performance indicators, prior to launching a plant’s lean manufacturing
initiative. MT

The necessary steps to follow in Total Quality Management TQM process

Total Quality Management is a management philosophy which seeks to

integrate all organizational functions
(marketing,design,engineering,finance,production,customer service....)
to focus on meeting customer needs & organizational objectives.

Other meanings of Total Quality Management.

 TQM as systematically & continuously improving quality of

products ,service and life using all available human & capital
resources.

 TQM is a way to continuously improve the performance at every

level operation,in every functional area of an organization using
all available human & capital resources e.t.c
Some basic tenets of TQM

 Top management level must provide good leadership traits &

skills as a support for all quality initiatives.
 Prevention not detection is the key to producing high quality.We
must design quality into products & reduce variability.
 The Customer determines quality.
 People working within systems create quality
 Improving quality requires the estabilishment of effective quality
metrics.We must speak with data not just opinions.
 Quality is a moving target. it requires a commitment toward
sustained continuous improvement.

Since organization are in a position to initiate steps in form of test as to

how TQM will work out perfectly in their system,there aim is to show
the implication of these in realizing their goals & objectives for a set
target,

Let us consider what TQM process really is .

TQM process is a universal management process for conducting

operation so as to provide stability , prevent change and to maintain
the status quo. e.t.c these may vary from organization to
organization,it depends on the process in which they are working on.

Necessary steps to follow are listed below:

1. Choose Control Subject:. Control subject must consist mainly of

product and process characteristics set out in specifications and
producer manual e.t.c.Control subject must not be biased in nature and
it must represent a great number of acceptable criteria for our
justification e.t.c
2. Establishment measurement: After we have selected the control
subject, what follow is the establishment measurement, which is done
by actual performance of goods & services. The measurement
standard can be specified through defining frequency of measurement,
the way the data will be recorded, the format for recording such data
and person that will be held responsible for the making of such
measurements.
3. Establish standard of performance: For each control subject
chosen,it is mandatory to stabilize and establish a standard of
performance i.e. the performance of good quality, target and
objectives have to be evaluated. This is the primary goals for product
reliability and durability e.t.c
4. Measure actual performance: One of the most critical steps in
TQM is to measure the actual performance of a product or using the
process. measurement (equipment) tools such as thermometer, clocks,
yard and wieght scale, other include data system and computer e.t.c
and compare it with standard of performance .a value judgement is
necessary to drawn a conclusion from the scenario e.t.c
5. Interpret actual and standard performances: Comparing actual
performance of the product & the standard performance as to
determine if the product conform to the quality goals or not e.t.c.The
comparism is necessary to see if there is any likely differences or
variability exist at all in the performance indicator e.t.c
6. Take corrective action: In a well functioning TQM system,
actuation is needed to stimulate actions and to restore conformances
to requirements. It could be an official computer or a calibrated knob
for adjusting a machine tool, or even a memorandum to
surbordinates.Corrective actions are needed by applying quality
improvements measures or tools to restore conformance to
requirements and also to ensure product quality reliability & durability.

As we can notice from the above TQM process steps itemized to ensure
the smooth running of the TQM implementation in the system.if it is
well manage critically ,.it will go along way in achieving the positive
outcome or benefit ,that it is meant to achieved and reward shall be
great.

Steps in Total Quality Management

Total quality management (TQM) is a management concept of achieving the best possible
results from business inputs and operations. Most companies use TQM to improve
customer value and to increase the sales and profitability from goods and services.
Different methods may be used for TQM methods, but they will usually include similar
steps in achieving company goals.

Customer Focus
TQM is a customer-based vision of company management to increase the value of goods
and services offered to customers. Companies will collect and review customer data
regarding satisfaction on goods and services, current demands for new products and
suggested changes for existing products. Developing a customer-focused strategy of
improving products and meeting customer needs helps companies achieve high TQM
process.

Planning Process
Using the information gathered from their customer-focused strategy, companies will plan
their business processes to meet the desires of customers. Changing production materials,
correcting product flaws and creating new product features are part of the planning
process of TQM. Businesses must understand that product quality is based on the
perception of customers; planning and deciding how to achieve this perception are
important in TQM.

Process Management
Once the planning process is complete, management can focus on the actual production
process of TQM. Process management includes reviewing products and services to ensure
they are consistent in quality standards, to ensure products continue to meet customer
needs, and to ensure products are available in all markets. Managers must also review the
cost of raw materials and production methods, ensuring that delivering high-quality goods
can be done at relatively cheap costs.

Process Improvements
TQM is driven by the understanding that no consumer market continues to operate at the
same level of demand every year. As the business cycle moves through booms and busts,
customers change preference and incomes change; companies must be willing to adjust to
these changes to ensure TQM for their products and services. Improving processes to
reduce costs, finding cheaper raw materials or reducing labor costs are ways businesses
may improve processes to remain competitive.

Total Participation
All aspects of TQM can be achieved only through total participation from all employees of
the company. All division and employees must commit to a customer focus and desire to
produce the best goods and services to meet consumer demands. Managers must train,
educate and develop the customer focus strategy in each employee working in the
company. Solid communication lines must also be created between management and
employees; this allows the company to react quickly to any issues that affect the TQM
process in the company.