accenture asset reliability maintenance management

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Asset Reliability and

Maintenance ManagementStrategic Levers for Driving Shareholder Value



Complex asset owners,

operators and service providersoften view asset maintenanceas expendable. In reality, theopposite is true. Trimmingmaintenance costs may savemoney in the short term. Butover time, cost cutting canhave safety, legal and financialramifications. Moreover,proper asset management—

e.g., increasing equipmentavailability and reducing partsand labor consumption— canactually reduce costs. Emergingperformance-based businessmodels are escalating thecriticality of reliable assetsin driving new, significantrevenue streams.

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The bottom line is asset

reliability and maintenanceshould be an essentialcomponent of an asset intensivebusiness strategy to achievehigh performance.

Accenture has developed anadvanced set of tools thatcan help asset-intensiveorganizations identify prioritiessuch as asset reliability, workmanagement and capitalutilization—all of whichhave a significant impact onshareholder value.



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Higher asset reliability and

better maintenance canimprove operating margins—not just by reducing expensesbut by increasing revenue. Onereason is that higher equipmentavailability often increasesproduction capacity for a “sold-out operation.” Another (morecommon) scenario is improvingprofitability by maximizing

the most profitable andproductive units.

Despite these benefits,reliability and maintenanceare often overlooked leversfor improving shareholder value(Figure 1). They are viewed ascosts of doing business. Yet

the return on invested capital

(ROIC) made possible by theseinitiatives is frequently reflectedin operating margins andcapital efficiency. Key ratiosthat may be positively impactedby effectively managing assetsinclude opex/revenue, net PPE/revenue and (to a lesser extent)working capital/revenue.

Net PPE/revenue is the moststrategic lever associatedwith improved reliability. Bydeploying a formal programfor asset reliability andmaintenance management,high-performance businessesboth sustain the productivecapacity of their equipment

and extend the equipment’s

useful life. Getting longer andmore efficient use from yourequipment often makes itpossible to defer capital costsfor replacement.

Improved reliability alsoaffects working capital/revenue by allowing for reducedspare parts inventories. Forgoods producers, this maybe a relatively small impactcompared to production andin-process inventories. However,a focused effort in spare-partsreduction can be a high impact,short-term initiative that canoften pay for investment inreliability programs.

Shareholder Value Analysis for Reliability and Maintenance

Figure 1. Value Creation Roadmap.

Total Return toShareholders

(TRS)

Value of thediscountedcash flows to

shareholdersor Economic

Value Added(EVA)

Spread

Growth

ROIC

OperatingMargins

CapitalEfficiency

Cost of Capital

Organic

M&A

Value Creation



The following examples

illustrate the benefits fromusing some of the abovemeasurements to driveoperational improvements.

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Opex / Revenue

Depreciation / Revenue

Operating Working Capital / Revenue

2007

2007

2007

2008

2008

2008

TTM

TTM

TTM

Peer

Peer

Peer

Pre-Tax ROIC

5.8%

2007 2008 TTM Peer

6.8% 5.8%

10.8%

19.6%

66.6%

13.7%

15.2%

Goodwill / Revenue

2007 2008 TTM Peer

50.4%35.4% 36.8% 26.6%

Net Other Assets / Revenue

2007 2008 TTM Peer

-14.3% -14.1% -13.6% -13.0%

Net PPE / Revenue

2007 2008 TTM Peer

285.2% 246.6% 270.0%191.1%

13.6% 18.1%10.9%

12.6% 12.9% 9.7%

68.2% 69.0% 69.4%Operating Margin

2007 2008 TTM Peer

19.1% 18.1% 20.9%

Capital Efficiency

2007 2008 TTM Peer

0.30 0.36 0.320.50

x

Figure 2. Power Generation Company ROIC Tree.

In the first case, a power

generation company was behindits peers in opex/revenue, but70 percent ahead of them innet PPE/revenue (Figure 2).The power company’s analysisshowed strong potential returnsassociated with improvingthe reliability of its low-costproduction units. Althoughopex/revenue was trending

upwards, a more detailedanalysis found this to be due torising fuel costs.



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In the second case—a mid-size

oil and gas producer—operatingexpenses were higher thanpeers while net PPE/revenuewas lower (Figure 3). In thiscase, the benefits of improvedreliability would come fromreduced maintenance laborand materials costs. In effect,variation in net PPE was aresult of capital improvements

for a refinery during a plannedshutdown. In order to cost-effectively sustain capacityover time, improvementswould be required in reliabilityanalysis (do only the rightwork at the right intervals)and maintenance planning andscheduling (be more efficientwhen doing the right work).

Understanding the processes

that have the greatest impacton shareholder value clarifywhat capabilities actuallyrequire detailed analysis.Accenture has developeda structured approach foridentifying improvementopportunities that yield thegreatest return on investment,while increasing safety and

regulatory adherence.

Opex / Revenue

Depreciation / Revenue

Operating Working Capital / Revenue

2007

2007

2007

2008

2008

2008

TTM

TTM

TTM

Peer

Peer

Peer

Pre-Tax ROIC

25.4%

2007 2008 TTM Peer

24.7%

7.0%14.7%

61.3%

11.6%

1.0%

Goodwill / Revenue

2007 2008 TTM Peer

2.6% 2.9%4.6% 4.2%

Net Other Assets / Revenue

2007 2008 TTM Peer

-4.7% -3.5% -6.2% -7.5%

Net PPE / Revenue

2007 2008 TTM Peer

78.2%107.5% 128.4%145.1%

2.3% 5.6%10.4%

7.4% 11.4%

15.3%

72.8%79.4%

71.5%

Operating Margin

2007 2008 TTM Peer

19.8%27.1%

9.3%13.2%

Capital Efficiency

2007 2008 TTM Peer

0.941.25

0.761.29

x

Figure 3. Mid-size Oil and Gas Producer ROIC Tree.



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Accenture has developed

extensive functional depthin operations strategy, talentoptimization, organizationalperformance and supplychain management. These areinvaluable for identifying andimplementing asset reliabilityand maintenance managementsolutions that address clients’unique business objectives.

We are uniquely positionedto diagnose issues notonly compared to industrystandards but specific tothe organizations businessobjectives and challenges. Ourindustry depth and functionalbreadth provides our clientswith a partner to enablestrategy through execution and

sustained improvement.

To increase competitiveadvantage, a mid-sizedintegrated oil companyinitiated a comprehensivemaintenance improvementprogram. A main focusof this effort was on

maintenance planning, thecompany integrated thisfunction through processreengineering, training andsystem enhancements. Theeffort yielded significantbenefits – reduced

Accenture’s Differentiated Approach

Increasing Competitive Advantage through Asset

Reliability and Maintenance Management

maintenance costs by30 percent, improvedthroughput by 5 percentand aligned leadershipwhich had a positive impacton morale and overalloperational performance for

the company.



About Accenture Supply Chain

Management

About Accenture The Accenture Supply Chain

Management service line works

with clients across a broad range of

industries to develop and execute

operational strategies that enable

profitable growth in new and existingmarkets. Committed to helping clients

achieve high performance through

supply chain mastery, we combine

global industry expertise and skills in

supply chain strategy, sourcing and

procurement, supply chain planning,

manufacturing and design, fulfillment,

and service management to help

organizations transform their supply

chain capabilities.

Accenture is a global management

consulting, technology services

and outsourcing company.

Combining unparalleled experience,

comprehensive capabilities across

all industries and business functions,and extensive research on the world’s

most successful companies, Accenture

collaborates with clients to help them

become high-performance businesses

and governments. With approximately

177,000 people serving clients in more

than 120 countries, the company

generated net revenues of US$21.58

billion for the fiscal year ended

Aug. 31, 2009. Its home page is

www.accenture.com.

We collaborate with clients to

implement innovative consulting

and outsourcing solutions that align

operating models to support business

strategies, optimize global operations,

enable profitable product launches,

and enhance the skills and capabilities

of the supply chain workforce.For more information, visit

www.accenture.com/supplychain.

Copyright © 2009 Accenture

All rights reserved.

Accenture, its logo, and

High Performance Delivered

are trademarks of Accenture.

Contact

For more information on how

Accenture can assist your organization

with the implementation of an

asset reliability and maintenance

management program, please contact:

Thomas Schramm – Senior Executive

Munich Germany

+49 89-93081-68289

Erik Olson – Senior Executive

Atlanta, United States+1 678-657-6104

Robert Giacobbe – Senior Executive

Atlanta, United States

+1 678-657-6282

Patrick Scullin – Senior Executive

Austin, United States

+1 512-912-6582

accenture asset reliability maintenance management

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