OPTIMUM REPLACEMENT AGES OF EQUIPMENT Carl Kirstein Exxaro Resources Ltd carl.kirstein@exxaro.com
What I’ll Cover • Decisions for Equipment Replacement • ABC LCCs • Putting it all Together • Questions • Key Points to Take Home
Introduction & Overview • Mining Companies such as Exxaro Resources Ltd spend up to half of its initial capital costs and more than half of its sustaining capital- and operating costs on Heavy Mobile Equipment, which amounts to millions of Rands each year. • Saving just a fraction on these costs amounts to substantial decreases in total costs. • This presentation will show how the replacement age of equipment could be determined to optimise the total cost of ownership.
Decisions for Equipment Replacement Question • Current replacement strategy for 40t ADTs is 40,000h, should it be reduced to 35,000h to decrease costs? Answer: • No. The performance will increase, but so will the cost… • … rather replace it much earlier, so that you save costs and increase performance – 29% reduction in overall costs – 60% reduction in required maintenance manpower (convenient if you have numerous vacancies) – Increase of 14.3% availability… the fleet can be reduced in size
Decisions for Equipment Replacement • Choosing the best replacement age in most cases is a balancing act of costs versus performance within constraints Constraints Performance Costs Don’t drop the ball
Decisions for Equipment Replacement • Costs – Direct Costs – History (SAP PM) and Forecasts (SAP PM + MCB) – Indirect Costs – not taken into consideration yet • Performance – Uptime – how many hours it will be operating (reliability also modelled) – Throughput Rate – tons per hour
Decisions for Equipment Replacement • Constraints – statutory requirements – laws and policies – available manpower, tools, and facilities – agreements and relationships with suppliers – operating conditions and fit-for-purpose – required employment duration for the technology
ABC LCCs • ABC LCCs - Activity Based Costing Life Cycle Costs • ABC means to derive costs based on the activities that will be performed by and upon the Asset • These Activities include the following categories – Acquisition – Components and Maintenance Actions – Operation – Support Equipment and Infrastructure – Software and Technical Data – Training – Retirement and/or disposal
ABC LCCs Acquisition Costs • Research and Design – pre-feasibility and feasibility studies; pilot/test; design modifications etc • Construction – premiums on expediting; discounts; site specific construction • Transport – logistics, customs etc • Assembly – on site assembly of components • Commissioning – hot and cold commissioning, Quality assurance certification; inspections; tests etc
ABC LCCs Component and Maintenance Action Costs • Drive train (major and minor) – motors, turbochargers, transmissions, bearings, couplings, differentials, fuel systems, brakes, pumps, rotary joints, v-belts, chains, axles, shafts etc • Work Equipment – pins, bushes, shrouds etc. G.E.T. is not included • Electrical – control systems, reels, transformers, alternators, power supplies etc • Hydraulic – valves, hoses, pipes, pumps, cylinders, motors, filters etc
ABC LCCs • Pneumatic – valves, hoses, pipes, pumps, cylinders, motors, filters etc • Cooling and Lubrication – fans, motors, pumps, valves, oil coolers, inter coolers, top-ups, oil changes, filters, radiator etc • Chassis – idlers, rollers, track pads or tracks, side frames, sprockets, shafts, minor repairs etc • Services – 250h-, 500h-, 1000h services etc. Only costs not included elsewhere • Miscellaneous – safety, cabin, consumables, air conditioner etc
ABC LCCs Operational Costs • Man Power – operations-, engineering-, SHEQ-, HR-, FI-, BI-, SCM-, IT-, IM-, first line management, middle management- and senior management personnel required • Facilities – running costs of wash bays, offices, workshops, warehouses, stores, fuel stations, load bays, laboratories, server, network, etc • Utilities – ground engaging tools (GET), liners, buckets, tyres, track pads etc • Energy – fuel and electricity supply and costs
ABC LCCs Support Equipment and Infrastructure Costs • Preparing – Capex for roads, ramps, stockpiles, panto- lines, electricity supply, water supply, air supply, storm water channels etc • Sustaining – Opex for water (roads), dust suppression, waste disposal • Cleaning and Maintaining – equipment for road condition, pit floor condition, equipment move, etc. Capital costs of wash bays, offices, workshops, warehouses, stores, fuel stations, load bays, laboratories, servers, network, etc • Emergency – equipment to deal with breakdowns
ABC LCCs Software and Technical Data Costs • Equipment Manuals and Drawings – hardcopies and electronically provided • Equipment Specific Software – international satellite tracking, GPS, licensing, strength & fatigue simulation, performance simulation, cost simulation etc • Support Software – SCADA, Dispatch, SAP, Pivot, DMS, etc
ABC LCCs Training Costs • Simulators – Capex and Opex • Training courses • Trainers • Training Material
ABC LCCs Retirement and Disposal Costs • Deactivation • Phase-out • Deconstruction • Transport • Storage • Sell • Recycle
ABC LCCs • Acquisition • Components and Maintenance Actions Varies with age • Operation • Support Equipment and Infrastructure • Software and Technical Data • Training • Retirement and/or disposal
Putting it all together – Acquire and Retire Discount Rate 9.0% pa Keys 40t ADT Equipment: Replacement R 3 800 000 user input Cost Study Period 150 000 h calculated Production Hours Information OEM financial Range from 10 000 h parameters Annual Hours 8766 hpa Range To 35 000 h labour Number of holidays 13 pa Team 120 h availability hrs pm Scheduled Production 24 h/day production Team 100% efficiency Site Team Monday 24 h 100% efficiency Team Rates R 710 ph Tuesday 24 h Commission 0 h downtime Wednesday 24 h Commission 0 h Team hrs Thursday 24 h Reliability 35.0% Factor Reliability Friday 24 h 45 000 h period Reliability N Saturday Labour 24 h Reliability N Cost est. Sunday 24 h Reliability N Cost FTE. Total Hours 8448 hpa Reliability Cost 1 h Severity Escalation/ Operation 7 days per week 0% Discount Estimated 3 760h Machine hrs pa
Putting it all together - Acquire and Retire Equipment 40t ADT Utilized per annum simulated hours 3 323 h 60% Calculated Active per annum machine hours 3 760 h User Inputs 50% tactical 2.82 h Maintenance downtime non-tactical 7.17 h 40% Resale Value Shift Change 1.00 hpd 30% Personal 0.83 hpd Operational downtime Fuel / cable move 0.60 hpd 20% Manoeuvre & Blasting 0.60 hpd 10% Face prep 0.00 hpd 0% Lost downtime Waiting 1.00 hpd Maintenance Availability >85% 58.5% Operational Availability >70% 78.5% Machine hours Equipment Availability >60% 45.9% Use of Availability >96% 91.0% Equipment Utilization >57% 41.8%
Putting it all together – Utilize and Support Maintenance Action manhours Start @ Frequency Cost Downtime or Component Replacement required Lubricants 1 001 h 1 000 h R 2 000 2.0 h 4.0 h Services 1 001 h 1 000 h R 28 000 4.0 h 8.0 h Aircon 1 001 h 1 000 h R 7 000 4.0 h 8.0 h Bonnet 25 001 h 25 000 h R 12 000 24.0 h 48.0 h Cab Group 25 001 h 25 000 h R 15 000 24.0 h 48.0 h Gauges 5 001 h 5 000 h R 12 000 4.0 h 8.0 h Hooter Reverse 5 001 h 5 000 h R 1 400 2.0 h 4.0 h Motor Wiper 5 001 h 5 000 h R 800 3.0 h 6.0 h Paint 25 001 h 25 000 h R 12 000 24.0 h 48.0 h Windows 5 001 h 5 000 h R 12 000 24.0 h 48.0 h Windscreen 5 001 h 5 000 h R 12 000 24.0 h 48.0 h R 5 000 000 Cooler Eng Oil 15 001 h 15 000 h R 3 000 12.0 h 24.0 h R 4 500 000 Cooler Inter Turbo 25 001 h 25 000 h R 15 500 12.0 h 24.0 h R 4 000 000 Cylinder Head 40 001 h 40 000 h R 85 000 36.0 h 72.0 h R 3 500 000 R 3 000 000 R 2 500 000 Labour Cost R 2 000 000 Maintenance Cost R 1 500 000 R 1 000 000 R 500 000 R -
Putting it all together – Utilize and Support 100.00% 90.00% 80.00% 70.00% 60.00% 50.00% 40.00% Availability 30.00% 20.00% 10.00% 0.00% 1 200.0 h 1 000.0 h 800.0 h 600.0 h Manhours 400.0 h 200.0 h 0.0 h
Putting it all together
Putting it all together – 40,000h evaluation
Putting it all together – 35,000h evaluation
Putting it all together – 15,000h evaluation
Putting it all together – 25,000h evaluation
Key Points to Take Home • Use the information you have: Maintenance plans, tenders, actuals • You should optimize the replacement interval: more money you pay is more money your suppliers earn, they are not incentivized to help you unless you run a MARC/rental contract. • Add Risk for an even clearer picture: Indirect costs could be added to this calculation without too much extra complication (refer to my risk colloquium presentation)
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