October - Library - Central Queensland University

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The financial perf o rmance of a medium sized manufacturing business is shown in the following example. The relevant financial figures for the business are shown in Table 1. These figures are derived from the annual report of the business. Category Current Assets $ 167,988,152 Fixed Assets $ 476,610,000 Total Assets $ 644,598,152 Total Liabilities $ 215,241,494 Shareholder Equity $ 429,356,658 Sales Revenue $ 428,250,643 Operating Costs $ 406,728,737 Operating Profit $ 144,867,123 Table 1 -Financial Figures The application of these figures to the model of Figure 2 is shown in Figure 3. This indicates current financial performance of the business with an ROA of 3.34% and an ROE of 5.01%. Current Assets $167,988,152 Fixed Assets $476,610,000 Total Liabilities $215,241,494 Sales Revenue 428,250,643 Operating Costs $406,728,737 Total Assets $644,598,152 Shareholders Equity $429,356,658 Operating Profit $21,521,905 Figure 3 -Example Calculation of ROA and ROE THE CONTRIBUTION OF MAINTENANCE Return On Assets (ROA) 3.34% Return On Equity (ROE) 5.01% The cost and perf o rmance of maintenance contributes to the ROA and ROE. The degree of contribution of the maintenance function to ROA and ROE can be explored by considering the influence of improvement in maintenance performance on ROA and ROE. The model of Figure 4 shows how maintenance improvement initiatives can impact on ROA and ROE. This model shows the following Operational and Financial benefits of maintenance improvement: • Lower maintenance costs, reduce operating costs, and increase operating profit, ultimately increasing ROA and ROE. Every dollar that is not spent on maintenance has a direct impact on increasing company profitability. • Lower inventory costs decrease operating costs AND decrease assets increasing ROA and ROE. Every dollar reduction in inventory has a multiple impact on increasing business profitability. • Increased equipment uptime can lead to increased revenue, increasing gross profit and profit after tax. • Reducing the incidents of undesirable equipment failure consequences and increasing inventory service levels can reduce risk and lower insurance premiums (either external coverage or self insurance). 57
58 Analyse Equipment Failures Improve PM Effectiveness Improve Inventory Service Lvls Reduce Excessive Inventory Improve Supplier Performance Figure 4 -Impact of Maintenance Improvement Initiatives on ROA and ROE The quantification of maintenance improvement is considered in the following example. Moderate improvements in maintenance p e rf o rmance are arbitrarily applied to the categories of Figure 4 in Table 2. The financial impact of these improvements is summarized in Table 3. The figures from Table 3 are applied to the existing figures in Figure 3 on the following basis: • Increased production is added to sales revenue; • Labor cost reductions are deducted from operating costs; • Material cost reductions are deducted from operating costs; • Inventory reduction is deducted from current assets. The results of these alterations are shown in the model of Figure 5. This shows a net increase of 24% and 25% in ROA and ROE re s p e c t i v e l y. These figures re p resent a significant improvement in the business “bottom line”. To achieve equivalent impro v e m e n t s through sales would require a 24% increase in sales ($104,046,875). Operating Uptime Annual Cost / Recoverable Annual Savings Income Loss Losses due to downtime, quality and rate $428,250,643 1.00% $4,282,506 Labor Resource Excessive Labor Resource Cost $ 8,266,670 10.00% $ 826,667 Overtime $ 827,000 10.00% $ 82,700 Material Resources Excessive Maintenance Inventory $ 4,133,330 5.00% $ 206,667 Excessive Purchasing Transactions $ 125,000 4.00% $ 5,000 Reduce Number of Invoices $ 50,000 4.00% $ 2,000 Reduce Number of Payments $ 50,000 3.00% $ 1,500 Reduce Expediting Costs $ 25,000 25.00% $ 6,250 Overheads Improve Equipment Design Reduce Failure Impact Reduce Unplanned Maintenance Reduce Unnecessary Maintenance Reduce Materials Inventory Reduce Procurement Costs Increase Equipment Uptime Decrease Labour costs Decrease Insurance Premiums Decrease Materials Costs Decrease Operating Costs Annual Budget Over / Under Run $ 13,227,000 0.00% $ 0 Table 2 -Moderate Improvement in Maintenance Performance Increase Production Output Increase Operating Profit Decrease Asset Initiative Impact Operational Benefit Financiall Benefit Increase ROA / ROE
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The Entek product family - complete
Page 5: A journal for all those interested
Page 8 and 9: 8 Maintenance In Iraq When it comes
Page 10: 10 A Asset Management John Wilson (
Page 13 and 14: How many PLCs is your bottom line d
Page 15 and 16: THE LATEST INFRARED CM/PM PACKAGE F
Page 17 and 18: The metric is calculated as follows
Page 20 and 21: 20 Backlog Backlog is one of the ke
Page 22 and 23: 22 Proactive Maintenance Metrics PM
Page 24 and 25: 24 Vendor Stocked Maintenance Inven
Page 26 and 27: 26 Performance Rate Percentage P e
Page 28 and 29: 28 T Reliability Solutions, Inc., (
Page 30 and 31: 30 project or some major maintenanc
Page 32 and 33: 32 Survey 2005 Special Maintenance
Page 47 and 48: 48 Generating Failure Codes Using F
Page 49 and 50: 50 Figure 4: Equipment Failure Mode
Page 51 and 52: 52 Figure 6: Weibull Curve Generate
Page 53 and 54: 54 The Business End Of Maintenance
Page 55: 56 Managerial Performance Financial
Page 59 and 60: 60 Moving From Reactive To Proactiv
Page 61 and 62: 62 The foundation of the maintenanc
Page 63 and 64: 64 CONDITION MONITORING TECHNIQUES
Page 65 and 66: 66 The information data base reside
Page 67 and 68: 68 A key objective in being success
Page 69 and 70: 70 m a i n t e n a n news c e Asset
Page 71 and 72: 72 CSI 4500 Online Vibration Monito
Page 73: 74 According to Product Manager Jim
Page 76 and 77: Strategic Aim Create and justify fi
Page 78 and 79: Maintenance Publications The follow
Page 80 and 81: MAINTENANCE PUBLICATIONS S e rvice
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October - Library - Central Queensland University

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