When it comes to industrial operations, industrial maintenance costs are a necessary expense that should be factored into the overall cost of the product or service.
Although it may appear to be an additional cost, it’s essential to remember that in the long run, maintenance is an investment.
While it’s impossible to provide a universal estimate, on average, maintenance costs range from 8 to 12% of the final product cost. While this may not seem significant, it’s critical to have control over these costs since a company’s resources determine the cost of maintenance.
Industrial maintenance costs can be grouped into four categories: fixed costs, variable costs, administrative costs, and failure costs. It’s essential to keep in mind that maintenance is a cost that requires a company to have liquidity and is unrecoverable.
By allocating appropriate resources, a company can control the cost of maintenance, which will positively impact their bottom line in the long run.
Fixed Costs
These costs do not depend on production and sales. Within these costs we have the cost of labor and materials needed to perform scheduled maintenance (preventive and predictive maintenance).
Also, depending on the type of industry, costs such as equipment rentals, services focused on scheduled maintenance, insurance and supplies used for preventive greasing of machines and assets must be taken into account.
This expense ensures the condition of the machines in the medium and long term. Many companies tend to reduce it, believing that they are generating savings, but this saving implies in the future a lower availability of the machines for production; generating greater uncertainty and losses for the company.
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Variable Costs
Unlike the previous ones, these costs are totally dependent on production and sales. Within the variable costs of maintenance, we find the labor and materials necessary to perform corrective maintenance.
This corrective maintenance results from unforeseen failures or also results from the inspections performed by the other types of maintenance. In many occasions with the manpower that the plants have it is impossible to solve all the urgent works, because of this, some companies are forced to hire external services.
The higher the volume of production, the more likely it is that the machines will fail. This type of expense can be reduced by placing greater emphasis on preventive or predictive maintenance, in order to detect and avoid unexpected failures.
Administrative costs
One major component of industrial maintenance costs in industrial operations is administrative expenses, which stem from the need to keep spare parts in stock and maintain standby or replacement equipment to avoid production interruptions.
Stocking spare parts incurs a cost that can reduce a company’s liquidity. When the inventory turnover of these parts is high and they’re frequently used, the cost is considered beneficial for production.
However, keeping infrequently used spare parts results in unnecessary expenses, and taxes must be paid on the entire inventory.
Maintaining standby or replacement equipment comes with an amortization cost that many companies overlook. These machines are purchased to ensure 100% availability, and the maintenance department is typically responsible for keeping them ready.
By taking these administrative costs into account, a company can better manage maintenance expenses and optimize its operations.
Failure costs
Failure costs refer to the losses or costs generated to the company due to maintenance related causes. These costs can be higher than those previously mentioned and sometimes it is not taken into account as a maintenance cost. This cost is seen in both production and service companies.
Some costs that can be identified in production companies are:
- Environmental breakdowns, which involve fines and product leaks.
- Failures that generate risk for workers or facilities.
- Loss of energy due to bad repairs, steam or water leaks.
- Poor product quality due to deficient machine operation.
- Low productivity of operating personnel due to constant machine failures.
- Loss of raw material due to leaks
To these costs must be added the cost of repair. In many occasions the cost of the repair is insignificant compared to the consequences.
In service companies this cost is not so high, but it is important, since it directly affects the customer. When the service is not delivered on time and with quality; the customer will look for another company that will do it with the quality standards required.
Total Maintenance Cost
The sum of the above costs gives us the total cost of maintenance, the equation that represents the total cost is as follows:
TC=FC+VC+AC+FaC
With this figure we can draw conclusions about maintenance management and see what benefits it can generate for the company.
From the analysis made on this cost; an optimal figure of the amount of maintenance that should be performed in a company should be taken. Sometimes the maintenance budget is reduced, believing that it generates savings, but it is not seen in the long term all the problems that this decision entails.
The total cost of maintenance, when analyzed in depth, can help to find out what is the benefit that it entails. An example of this can be seen in the change of lubrication supplies for those of higher cost and with better properties.
At the beginning, this change generates a high impact on the company’s liquidity, but in the long term, the savings will be seen in better machine performance and longer lubricant replacement time.
Knowing the cost of maintenance of a company helps managers and investors to project the profits that the company can have in a certain period of time.
On the part of maintenance managers, it allows them to have an indicator of their management as plant maintainers and to be able to more easily make a budget adjusted to the company’s situation.
