What Gets Measured, Gets Done: Preliminary Results from the AEMP Joint Taskforce

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WHAT GETS MEASURED, GETS DONE:

PRELIMINARY RESULTS FROM THE AEMP JOINT TASKFORCE

BY GEORGIA KRAUSE

To be successful, you need to have a set of measurements to evaluate the effectiveness of your enterprise’s progress. Working without that information is like driving a car without an instrument panel. Progress is made when you know the vehicle’s speed, fuel needs, temperature, etc. Business has the same requirements. You must constantly monitor and measure your progress to ensure you are applying materials, labor, and capital effectively. We have noticed a severe shortfall in most fleet organizations in measuring performance and cost. Most fleets only measure the cost of their efforts, with only a few showing their net benefits or returns on investment.

We ask senior leadership to pour millions of dollars in CAPEX and OPEX investments with little to show for that investment. Imagine spending a large sum on a stock purchase with no feedback on that investment. The only measure you have is the amount of money spent on acquiring the stock but no information on its yield or performance. As outrageous as that may sound, many fleet organizations do 8 just that.

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What Gets Measured, Gets Done:

Preliminary Results from the “Measurement AEMP Joint Taskforce is the first step that leads to control and www.aemp.org 2 When asked if survey respondents would value having KPI benchmarks, almost all - 92 percent - said yes, they saw the benefit of common and consistent benchmark metrics to measure activity and results. Respondents were asked if they would be willing to participate in a confidential and anonymous survey to help establish KPI benchmarks to track fleet performance and costs. The majority - 74 percent- said yes. The taskforce will be expanded into a larger committee of experts whom will move to the study to the next level of research and eventually deliver a standardization product. The taskforce’s objectives are:1. Decide on which metrics or KPIs for tracking both performance and costs should be recommended.2. Decide what constitutes that specific metric (how is it calculated—the numerator and denominator).3. Develop guidelines to acquire that information.4. Develop criteria to select the industry’s Best of the Best (top 5 to 10 percent).5. Administer a survey to a larger group including all of AEMP membership (with heavy equipment) and CFMA’s Highway Heavy Subgroup (approximately 220 companies)—participants will be anonymous and referred to as an alphanumeric designator to maintain confidentially of the numbers.6. Collect and compile results.7. Using correlative analysis, identify the top 5 to 10 percent to classify as Best of the Best.8. Develop a report showing the results of the industry average compared to the Best of the Best compared to world class (using SMRP’s multi-industry WC metrics). We are all excited by this study and look forward to having a common or standard set of metrics the construction industry can use to track both leading (measuring the process) and lagging (measuring the results) metrics. The benefits for both organizations include:1. A standard on how to track maintenance activity and practice efforts.2. A standard to track maintenance-related costs.3. A standard to identify ROI from the asset management function.4. A means to compare metrics against others with similar operations.5. A means to compare to the Best of the Best in the industry, and the potential return or costs savings if able to close that gap.6. A means to compare to the best across all industries (World Class)7. A process to measure progress of improvement efforts Famed writer and engineer, Robert Heinlein, once said, “If it can’t be expressed in figures, it is not science. It is opinion.” AEMP and CFMA are extremely excited and motivated to move this project forward and set the standard for fleet performance and cost measurement. www.aemp.org The following graphic shows the various metrics and the response percentage for each: Maintenance costs as a percent of estimated replacement value (ERV) 23.08% 33 Maintenance cost as a percent of annual revenue 54.55% 78 Maintenance labor costs as a percent of annual revenue 34.97% 50 Total planned maintenance 38.46% 55 Total preventive and predictive maintenance as % of maintenance hours 26.57% 38 Total percent of emergency work (EM) as % of maintenance hours 16.78% 24 Maintenance overtime % 25.87% 37 Maintenance labor dollars as a percent of maintenance material dollars 11.19% 16 Maintenance store value as a percent of estimated replacement value (ERV) 2.80% 4 Pieces of equipment per mechanic (mobile fleet only) 20.98% 30 Contractor cost as a percent of total maintenance costs 13.29% 19 Inventory turns ratio 17.41% 25 Inventory service level 5.59% Inventory stockout percentage 6.99% 10 Stores value per stores person 2.10% 3 Percent of man hours charged to work hours 27.27% 39 Total number of store line items per attendant 1.40% Average backlog per mechanic (weeks) 11.19% 16 Percent of maintenance hourly employees to total plant hourly personnel 4.90% 7 Maintenance hourly to maintenance supervisor ratio 8.39% 12 Training dollars spent per year per mechanic 13.29% 19 Maintenance mechanics to maintenance planner ratio 4.90% 7 Maintenance mechanics to maintenance engineers ratio 0% 0 Training hours per mechanic 16.08% 23 Annual CAPEX as a percent of annual sales 39.86% 57 Prevented (PM) and predicted (PdM) schedule compliance 41.20% 59 Planned maintenance schedule compliance 31.47% 45 Inventory price data currency (percent) 4.90% 7 Equipment utilization 74.83% 107 Equipment availability percentage to schedule 28.67% 41 Idling percentage for off-road equipment 41.26% 59 Idling percentage for on-road equipment 25.17% 36 Corrective maintenance (CM) from preventive Maintenance (PM) 20.28% 29 Planned maintenance accuracy percentage estimated to actual 13.99% 20 Percentage of rework / call backs 18.18% 26 Root cause of analysis (RCA) to RCFA completed 17.48% 25 Overall equipment effectiveness (OEE) 11.19% 17 Return on net asset (RONA) 30.77% 44 Return on capital employed (ROCE) 14.69% 21 Mean time between failure (MTBF) 11.19% 16 Mean time to repair (MTTR) 5.59% 8 Fuel burn & downtime 38.46% 55 Total respondents - 143 Answer Choices Percentage of respondents with Interest in topic Number of respondents answering question www.aemp.org AEMP’s CEO, Donte Shannon, FASAE, CAE, has been championing the importance of partnerships in AEMP’s growth. Recently, AEMP created a bold and ambitious strategic plan, envisioning an evolved organization which prepares future professional equipment managers with new education offerings, training, and most importantly, data. “Data is gold and AEMP is striving to be the premiere resource for the data that helps our members and their teams enhance performance and increase the bottom line for company owners,” says Shannon. Additionally, when thinking about how best to launch a study on maintenance practice and costs, partnering with CFMA is an ideal choice because of the strong link between equipment management and construction financial management. Preston Ingalls, Rich King, Donte Shannon, and the AEMP Board, initiated a project task force led also by Dennis Walker, Senior National Accounts Manager for United Rentals, and Randy Bosman, CEM, Equipment Manager with GRANITE, to define overall goals and poll a select group of AEMP and CFMA members to determine what current levels of measurement are being used by members of both associations, and to test the waters for interest in participating in a more comprehensive survey to use for benchmark comparisons. The taskforce polled 143 participants, with an equal percentage of responses from both associations. The majority of responses (74 percent) came from the highway heavy segment as the emphasis of the study was primarily on heavy equipment aka “Yellow Iron.” Participant job titles ranged from CEO, CFO, Fleet Manager, Director, VP Asset Management, Vice President, Equipment Manager, Executive VP, Production Manager, Director of Finance, and Shop Manager. The survey participants were asked to identify which metrics or KPIs they were currently using to measure their fleet management operations. The survey presented participants with 42 metrics developed by the subgroup. Participants also had the option to add other metrics if theirs were not listed. The largest response was equipment utilization, with 74 percent of the respondents saying they used metrics to track equipment uptime or usage. Next was maintenance cost as a percentage of annual revenue with 55 percent stating they tracked this cost metric. The third highest response was a tie between preventive maintenance as a percentage of total hours and off-road equipment idling hours at 41 percent each. Maintenance mechanics to engineer ratio received no responses. Similarly, storeroom performance & costs was chosen by less than 4 percent of participants. Interestingly, this low response validates what consultants often observe - despite the large sums of money spent on purchases of direct buy and replenishment of stock items, few metrics are used to track storeroom efficiencies. www.aemp.org By Preston Ingalls, President/CEO, TBR Strategies LLC Edited by Donte Shannon, FASAE, CAE, CEO of AEMP To be successful, you need to have a set of measurements to evaluate the effectiveness of your enterprise’s progress. Working without that information is like driving a car without an instrument panel. Progress is made when you know the vehicle’s speed, fuel needs, temperature, etc. Business has the same requirements. You must constantly monitor and measure your progress to ensure you are applying materials, labor, and capital effectively. We have noticed a severe shortfall in most fleet organizations in measuring performance and cost. Most fleets only measure the cost of their efforts, with only a few showing their net benefits or returns on investment. We ask senior leadership to pour millions of dollars in CAPEX and OPEX investments with little to show for that investment. Imagine spending a large sum on a stock purchase with no feedback on that investment. The only measure you have is the amount of money spent on acquiring the stock but no information on its yield or performance. As outrageous as that may sound, many fleet organizations do just that. Instead, business owners can ensure the maximum return on their investment with a strong set of Key Performance Indicators (KPIs). It goes back to the classic three bodies of knowledge: 1. There are things we know we know, 2. Things we know we don’t know and, 3. Things we don’t know we don’t know. The dilemma is that measurements fall into the third body of knowledge - we just didn’t know what we didn’t know. To remedy the information gap, you need a good balance of leading and lagging KPIs focusing on measuring equipment maintenance effectiveness and/ or asset management. This means indicators or metrics that not only show your activity but also the results of that activity that answer the question, “Are we overseeing the management of our assets prudently?” The problem with many indicator measurements are they focus only on financials and arrive too late to affect the results and focus on the future. The Society for Maintenance and Reliability Professionals (SMRP), a trade association for maintenance and reliability professionals across all industries, advocates measuring at least 15-20 leading and lagging metrics to track both performance and cost. SMPR’s Body of Knowledge basic set of measures includes: business management, process reliability, equipment reliability, organization & leadership, and work management. Collectively these measures focus on capital, labor and materials (CLM). The Association for Equipment Management Professionals (AEMP) and the Construction Financial Management Association (CFMA) have long recognized the need for commonality in how we measure maintenance practices and costs. Up to this point, there have been several efforts but no definitive list of metrics to serve as a standard. This is changing. eventually to improvement. If you can’t measure something, you can’t understand it. If you can’t understand it, you can’t control it. If you can’t control it, you can’t improve it.” –H. James Harrington, IBM project manager, author, CEO of Harrington Institute Leading indicators (measuring the process) are typically input oriented, hard to measure, and easier to influence. Leading indicators change before lagging ones do and usually result in lagging indicator actions. Lagging indicators (measuring the results) are typically output-oriented measuring results. Lagging indicators are often easy to measure but hard to improve or influence. A good way to think of the balance between the two is cause and effect.