Delete Yourself

The dirty secret behind sustainably reducing maintenance costs.

No, this isn’t about cancel culture. This is about good asset management. I saw a LinkedIn post recently from a reputable consultant cautioning on how to go about cutting your organization’s maintenance costs. I agree, but perhaps for different reasons.

Where this consultant and I likely agree is that the maintenance cost reduction should be earned, not declared. Where the consultant and I perhaps disagree is what a successful sustainable reduction in maintenance really means —a headcount reduction.

In most industrial sectors roughly 80% of the total OpEx costs are labour — people. Only about 20% are parts and materials. Sure, applying cost-effective proactive maintenance displacing costly reactive maintenance can reduce the overall maintenance burden. Yes, letting assets fail destructively is more expensive than intervening maintenance before failure. The dirty little secret is these savings can only be realized largely through reductions in labour.

There is a preferred pecking order in how this labour reduction can and should be accomplished. First, overtime should be reduced which can be achieved with a lower maintenance burden. Second, external contractor support should be reduced perhaps with your own staff taking over activities for which they can be qualified. It can be surprising how many full-time equivalent positions are taken up by contractors to support operations. Third and last, is a reduction in internal staff and maintenance technicians headcount.

This doesn’t necessarily mean layoffs, however. As you earn maintenance burden reductions people can be reallocated to meet other areas of organizational needs. This approach works particularly well when the company is growing in large part because it has superior asset management practices compared to its peers. Even without growth, positions can be gradually eliminated through natural attrition, although that does take a bit of balancing.

Years ago I was responsible for benchmarking activities that my organization undertook every two years. The results had been consistent in several assessments— operational performance was good but the cost for that performance was poor. We were spending way too much on turnaround maintenance and we had too many people in our organization for the assets we were managing compared to our peers. I asked my leadership what we were doing to address this cost of service business challenge and I was politely asked to be quiet. We’re doing “good enough” I was told. Nothing of substance was done.

It wasn’t until five years later when the market had softened and wasn’t bouncing back that the company took action. Unfortunately, by this time the company was in some trouble and had to act aggressively to get their costs more in line with their lower revenues. What action did they take with the proverbial gun to their head? Cut, cut, cut the budget of course!

The company went straight to internal headcount, the third preferred option. Round after round of layoffs occurred over the course of a couple of years. To be fair, there were some other cost-saving and productivity enhancement activities but the people reduction was the largest component. Morale in the organization dropped precipitously yet senior leadership felt confident in their plan to take assertive action to address the ‘new’ business challenge.

But there I was, wondering why we didn’t start this cost savings years ago. Why was it okay now in a soft market to reduce our headcount to manage the same assets and not then? Why couldn’t we have improved our practices to earn the cost reduction over time? Why couldn’t we have reallocated our people or eliminated positions through attrition rather than by layoffs?

Our senior operational leadership had the opportunity and I would even say the mandate to address the business challenges our benchmarking results indicated. We did not take virtuous action when the opportunity was presented and reap the rewards of years of lower maintenance cost burden. Instead, the organization deferred until it was forced to take vicious action out of necessity.

I think back to that inflection point when the organization chose to do nothing. Would my suggestion of addressing the problem have resulted in me working my way out of a job? Would I have effectively deleted myself? Perhaps, as I did eventually get laid off (only to bounce back better off than before).

The lesson here is just because your organization is making money doesn’t mean it is good at asset management. Meaningful and sustainable cost reductions can be earned over time. Or they can be declared under duress which fits the very definition of mediocrity. Operational leadership who take the latter and not the former path should seriously consider deleting themselves.