Justifying Your Rebuilds – How to talk to Accountants

Rebuild

Equipment rebuilds can be expensive.  However, that is a cost of doing business.  Sometimes they can be capitalized and other times they can’t, it depends on your accounting rules and whether or not you are increasing the life of the machine beyond its original design.  If the rebuilds are routine maintenance, you generally have to expense those items, and that can be hard to put in the budget.  If the rebuild will increase the machine life and you can capitalize it, it always helps to show a savings or increase in performance to help get the capital approved.  Either way, it is valuable to show people what you save when you complete a rebuild.

The other consideration is to determine if the rebuild is worth the money.  If you don’t see any significant improvement in the machine after the rebuild and the machine cost isn’t considerably high, why rebuild it?  Just replace it.  That can be the solution sometimes.

I have attached a worksheet that takes into account some of the simple things that can be used to calculate the value of a rebuild.  Often times we forget to include the labor portion of downtime or even the additional income that can be generated on the machine if it is capacity constrained.  Those are some of the things considered in this worksheet.

Rebuild Justification

I haven’t locked it, so feel free to modify the worksheet for your own use.  I would be interested in the feedback of anyone that tries this out.  I am always open for suggestions and improvements.  If anyone has created something similar or has a different resource, please feel free to comment with those as well.

The Death of Maintenance

When we think of Maintenance we think of upholding equipment conditions.  Rarely do with think of maintenance as anything more than a team that keeps the equipment running.  At best we think of maintenance as having the ability to keep the machine running the way it did out of the crate.  But maintenance as we know it is reaching two extremes.  It is growing and taking on its own experts in larger companies that understand the importance of the maintenance role.  It is dying in small and midsize companies to the stranglehold of short-term gains.

If you are in the maintenance field, you know exactly what I am talking about.  If not, let me give you a quick introduction.  The real job of a maintenance department is to maximize the availability of equipment for production, to improve the performance of equipment and systems, and to maximize the life of assets.  The problem is that this work is done over a long timeline.  Part of maximizing equipment availability is managing when the equipment will not be available (planned downtime).  Part of improving equipment performance is enhancement projects (such as a new, improved low-friction bearing, or marine-grade parts for wet environments).  Part of maximizing equipment life is thorough cleaning, inspection, lubrication and replacement of worn parts.  What do all of these things have in common?  They require machine time and they require investment.

Small and midsize companies are looking at the month-to-month and year-to-year numbers, often without a solid long-term strategy (and by long-term I mean longer than 5 years).  This typically results in putting off maintenance expenses and asking the maintenance team to “just keep it running”.  What the industry has seen is a death of maintenance and a surge of back-yard engineering.

So how do we counter this trend?

  1. Educate
  2. Justify
  3. Prove
  4. Improve

We must educate ourselves and then educate those around us about maintenance.  We need to understand the different methods to maintain equipment and how best to implement them for the largest returns.

We then must justify the expense.  Get the help of the guys in finance and put together a cost justification for larger expenses (like rebuilds and major part replacement).  Extrapolate the costs of the equipment progressively failing by finding a failure model for similar equipment and predicting a performance loss over time.

We then have to prove that the expense was worth it.  Show data supporting the improved performance equipment.  Don’t leave out downtime expenses as these are huge costs that are often neglected when looking at equipment performance.

Once we prove that it works we have to improve our program and expand it.  We have to show a dollar improvement for the business.  Be willing to show that improvement over the life of the equipment and show how dollars would have been necessary for capital spending instead of the maintenance work that you are doing.

What applications can you apply this principle to at your business?

What are some tips you have seen work at getting maintenance dollars approved?