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Hi all - I am hoping I can get some help settling something that I have been trying to work out.

I have production equipment at my site that will be replaced within the next couple of years. We currently send out motors, gearboxes, and similar items for a 3rd party to repair/rebuild. Due to the age difference between the current and new equipment there will be very little, if any, spare parts carryover. Any items that are not used within the remaining equipment life will become dead inventory that has to be cleared out.

The rub is that my perspective has changed under these circumstances. Currently when I submit a repair/rebuild order, my purchasing team reviews it to ensure the cost is less than 50% of a new item (the order will be rejected if not).  I do understand the long-term cost savings rationale behind the 50% cutoff; but in a situation where there essentially is no long term, my thinking is that it is more beneficial to take the short-term savings of a rebuild even if the cost is, say, 75% of new cost. It doesn't make sense to me to invest in new items that may very well sit on the shelf and never be used. However, I cannot seem to convince my purchasing team of that.

Is there a flaw in my logic that I am missing? If not, how do I communicate this in a way that gets my purchasing team on board? I would appreciate other perspectives on this, especially from anyone who has been in a similar situation.

------------------------------
Haydn Scott
Maintenance & Reliability Engineer
CertainTeed Roofing
Peachtree City, GA
------------------------------

A calculation showing the total cost of ownership may help to persuade someone. It's always about the numbers. However, I've found that in most companies Procurement answers to no one, so you may or may not have any luck with that. They will do what they want. (In your specific case the scrap value of a new gearbox may be much higher than that of a rebuilt one, which would actually tip the scales toward buying new.) If the numbers are big enough the budget owner may be willing to help persuade them to make an exception.

If you aren't able to change anyone's mind, know you are in good company.

------------------------------
Dale Nicholson, PE, CMRP, CRL
Reliability Engineer
Evonik Corp
Lafayette IN
------------------------------

Original Message:
Sent: 07-20-2022 09:48 AM
From: Haydn Scott
Subject: Justifying Short-Term Rebuilds

Hi all - I am hoping I can get some help settling something that I have been trying to work out.

I have production equipment at my site that will be replaced within the next couple of years. We currently send out motors, gearboxes, and similar items for a 3rd party to repair/rebuild. Due to the age difference between the current and new equipment there will be very little, if any, spare parts carryover. Any items that are not used within the remaining equipment life will become dead inventory that has to be cleared out.

The rub is that my perspective has changed under these circumstances. Currently when I submit a repair/rebuild order, my purchasing team reviews it to ensure the cost is less than 50% of a new item (the order will be rejected if not).  I do understand the long-term cost savings rationale behind the 50% cutoff; but in a situation where there essentially is no long term, my thinking is that it is more beneficial to take the short-term savings of a rebuild even if the cost is, say, 75% of new cost. It doesn't make sense to me to invest in new items that may very well sit on the shelf and never be used. However, I cannot seem to convince my purchasing team of that.

Is there a flaw in my logic that I am missing? If not, how do I communicate this in a way that gets my purchasing team on board? I would appreciate other perspectives on this, especially from anyone who has been in a similar situation.

------------------------------
Haydn Scott
Maintenance & Reliability Engineer
CertainTeed Roofing
Peachtree City, GA
------------------------------

Hi Hayden,
Great question. I would approach it by looking at the economics, but the answer will be pretty dependent on how your company values inventory. As Dale indicated, you can look at total cost of ownership. I would compare the NPVs of the two alternatives. If applicable, it would be good to include the risk-adjusted cost of any future failures in the TCO. If applicable, MTBF can be used to calculate the future cost of these failures to include in the analysis.

The other factor that is not considered in the 50% threshold is the fact that most failures are not age-related. Replacing rather than repairing may induce infant mortality failures which may reduce reliability. Many texts have info on this that refer to the Nowland and Heep study or other follow-on studies.

------------------------------
Wayne Griffin CMRP
Consultant/Owner
RCO Consulting
Rochester NY
------------------------------

Original Message:
Sent: 07-21-2022 07:34 AM
From: Dale Nicholson
Subject: Justifying Short-Term Rebuilds

A calculation showing the total cost of ownership may help to persuade someone. It's always about the numbers. However, I've found that in most companies Procurement answers to no one, so you may or may not have any luck with that. They will do what they want. (In your specific case the scrap value of a new gearbox may be much higher than that of a rebuilt one, which would actually tip the scales toward buying new.) If the numbers are big enough the budget owner may be willing to help persuade them to make an exception.

If you aren't able to change anyone's mind, know you are in good company.

------------------------------
Dale Nicholson, PE, CMRP, CRL
Reliability Engineer
Evonik Corp
Lafayette IN

Original Message:
Sent: 07-20-2022 09:48 AM
From: Haydn Scott
Subject: Justifying Short-Term Rebuilds

Hi all - I am hoping I can get some help settling something that I have been trying to work out.

I have production equipment at my site that will be replaced within the next couple of years. We currently send out motors, gearboxes, and similar items for a 3rd party to repair/rebuild. Due to the age difference between the current and new equipment there will be very little, if any, spare parts carryover. Any items that are not used within the remaining equipment life will become dead inventory that has to be cleared out.

The rub is that my perspective has changed under these circumstances. Currently when I submit a repair/rebuild order, my purchasing team reviews it to ensure the cost is less than 50% of a new item (the order will be rejected if not).  I do understand the long-term cost savings rationale behind the 50% cutoff; but in a situation where there essentially is no long term, my thinking is that it is more beneficial to take the short-term savings of a rebuild even if the cost is, say, 75% of new cost. It doesn't make sense to me to invest in new items that may very well sit on the shelf and never be used. However, I cannot seem to convince my purchasing team of that.

Is there a flaw in my logic that I am missing? If not, how do I communicate this in a way that gets my purchasing team on board? I would appreciate other perspectives on this, especially from anyone who has been in a similar situation.

------------------------------
Haydn Scott
Maintenance & Reliability Engineer
CertainTeed Roofing
Peachtree City, GA
------------------------------

Dale & Wayne, thank you both for your input. I will see if putting some firmer TCO numbers on these items will help.

------------------------------
Haydn Scott
Maintenance & Reliability Engineer
CertainTeed
Newnan GA
------------------------------

Original Message:
Sent: 07-21-2022 03:42 PM
From: Wayne Griffin
Subject: Justifying Short-Term Rebuilds

Hi Hayden,
Great question. I would approach it by looking at the economics, but the answer will be pretty dependent on how your company values inventory. As Dale indicated, you can look at total cost of ownership. I would compare the NPVs of the two alternatives. If applicable, it would be good to include the risk-adjusted cost of any future failures in the TCO. If applicable, MTBF can be used to calculate the future cost of these failures to include in the analysis.

The other factor that is not considered in the 50% threshold is the fact that most failures are not age-related. Replacing rather than repairing may induce infant mortality failures which may reduce reliability. Many texts have info on this that refer to the Nowland and Heep study or other follow-on studies.

------------------------------
Wayne Griffin CMRP
Consultant/Owner
RCO Consulting
Rochester NY

Original Message:
Sent: 07-21-2022 07:34 AM
From: Dale Nicholson
Subject: Justifying Short-Term Rebuilds

A calculation showing the total cost of ownership may help to persuade someone. It's always about the numbers. However, I've found that in most companies Procurement answers to no one, so you may or may not have any luck with that. They will do what they want. (In your specific case the scrap value of a new gearbox may be much higher than that of a rebuilt one, which would actually tip the scales toward buying new.) If the numbers are big enough the budget owner may be willing to help persuade them to make an exception.

If you aren't able to change anyone's mind, know you are in good company.

------------------------------
Dale Nicholson, PE, CMRP, CRL
Reliability Engineer
Evonik Corp
Lafayette IN

Original Message:
Sent: 07-20-2022 09:48 AM
From: Haydn Scott
Subject: Justifying Short-Term Rebuilds

Hi all - I am hoping I can get some help settling something that I have been trying to work out.

I have production equipment at my site that will be replaced within the next couple of years. We currently send out motors, gearboxes, and similar items for a 3rd party to repair/rebuild. Due to the age difference between the current and new equipment there will be very little, if any, spare parts carryover. Any items that are not used within the remaining equipment life will become dead inventory that has to be cleared out.

The rub is that my perspective has changed under these circumstances. Currently when I submit a repair/rebuild order, my purchasing team reviews it to ensure the cost is less than 50% of a new item (the order will be rejected if not).  I do understand the long-term cost savings rationale behind the 50% cutoff; but in a situation where there essentially is no long term, my thinking is that it is more beneficial to take the short-term savings of a rebuild even if the cost is, say, 75% of new cost. It doesn't make sense to me to invest in new items that may very well sit on the shelf and never be used. However, I cannot seem to convince my purchasing team of that.

Is there a flaw in my logic that I am missing? If not, how do I communicate this in a way that gets my purchasing team on board? I would appreciate other perspectives on this, especially from anyone who has been in a similar situation.

------------------------------
Haydn Scott
Maintenance & Reliability Engineer
CertainTeed Roofing
Peachtree City, GA
------------------------------