Equipment Executive: What Does 100 Percent Mean?

By Mike Vorster, Contributing Editor | November 2, 2012
The illustration drives home four critical points.

I learned a lot about availability and utilization during my railroad construction days when I had the pleasure of working with a very big, very old and incredibly complicated tie tamper. You have not lived until you have worked with a machine like that. It took the full-time attendance of an operator, an oiler and a mechanic. It vibrated itself to pieces at every opportunity and consumed wear parts at a rate that made Niagara look like a trickle.

What would you say if I told you that, over a two-year period, it had 100 percent availability and 100 percent utilization?

It worked like this. Our contract made it clear that we would be permitted to take the tamper out onto the running track and use it for three—and only three—hours a day for the 360 working days in the year. Our owning cost rate was set knowing that we would need to recover all our fixed annual costs (depreciation, interest, insurance, tax and the like) over no more than 1,080 hours per year (360 x 3) and our production targets were set on the basis that the machine would be available to work for 1,080 hours per year.

Our target was 1,080 hours per year. In other words, from an ownership cost point of view, we would recover the fixed annual costs and achieve 100 percent utilization if it worked 1,080 hours per year and, from a production point of view, the tamper would achieve 100 percent availability if it was up, running and able to support our construction operations for 1,080 hours per year.

The tamper worked when required, and both these numbers were achieved. Sure, both the estimated and the actual hourly owning cost rate was high, but this was due to the low number of planned or target hours the tamper was permitted to go on track and work. Sure, a lot of downtime was needed to replace pumps, motors and drive shafts, change out the wear parts and perform preventive maintenance, but none of this occurred when the machine was required to go on track and do its job.

Let’s take what we have learned about the tie tamper and define the following as measures for availability and utilization:

Utilization and Availability Defined

Utilization = The time the machine is used divided by
    The time the machine is required to work and able to work
Availability = The time the machine is required to work and able to work divided by
    The time the machine is required to work
The diagram at top shows how this works over a 24-hour period and gives the following formulas:
Utilization = W / T-D
Availability = T-D / T
Where :
W = Operating hours or the time the machine works.
T = The time the machine is required to work in a given period.
D = The downtime experienced by the machine that prevents it from working when needed.

For our tie tamper, the value of T—1,080 hours per year—was clearly defined by the number of hours we were able to get on track and work. There was lots of downtime, but we worked long and hard when the machine was off-shift to ensure that no downtime was experienced when it was on-shift and required to work. Therefore, D was zero and availability was 100 percent. Utilization was also 100 percent because the machine worked each and every minute of the three-hour working period allotted. There was no idle time in the three hours on track: It did not stand around waiting for instructions, work space or other machines. Utilization was 100 percent.

It is clear that T, the time the machine is required to work, is the key number. Two things are important about T.

First, it is the number you use to divide into the fixed annual owning costs when you calculate the hourly owning cost rate. This means that when you get 100 percent utilization you recover 100 percent of your fixed annual owning cost and, when you get less you will under-recover your fixed annual costs. We like the rates to be low, so we use the highest reasonable number and run the risk of under-recovering fixed costs. The tie tamper worked because we had a clearly defined target, we used it in our rate calculation, and we met it.

Second, if T, the target hours, is high then it is all but impossible to achieve high values for availability. If days are long, off-shift time is not available to do the inspection, maintenance and repair work needed to keep machines up and running. There will be on-shift downtime. If you plan to work 14 10-hour shifts in a week, it is going to be extremely difficult to get availabilities in the high 80s. The tie tamper achieved 100 percent not because it was a “good machine” but because we had lots and lots of off-shift time to prepare for faultless performance when it was required to go on track and do its job.

So, let’s drive home four critical points.

1.The formulas are simple. To make them work, it is critical that you have a well defined value for T, the target number of hours. Both utilization and availability are extremely dependent on target hours. It is impossible to acheive high values for utilization if days are long and if operations are not planned and executed efficiently. You cannot achieve high values for availability if you do not have or if you do not use off-shift time to ensure that equipment is good to go for the whole of the next shift.

2. Availability is not about how “good” a machine is from a mechanical point of view. If you want to know that, you need other metrics. We used “down ratio,” defined as the number of hours down (regardless of when) for every operating hour and “repair factor,” defined as the number of mechanic hours spent on the machine divided by machine operating hours as key machine performance metrics. The tamper pulled a down ratio of about 1.7 hours down for every operating hour and a repair factor of a little over 2.2 mechanic hours per operating hour. In other words, we had a lot of downtime and we used a lot of labor to deliver the availability that production demanded. The cost of on-track downtime was just too high: We had three hours per day to do the required job.

3.Your owning cost rate depends on your target hours. Utilization is about fixed cost recovery. Achieve 100 percent utilization and you achieve 100 percent fixed cost recovery.

4.Availability is about the degree to which the machine supports production. Achieve 100 percent availability, and there is no production-limiting on-shift downtime. The machine is and able to work for every hour that it is required to work.

Well, it is not about tie tampers and exotic machines like that. It is about everyday mixed fleets working on everyday jobs. Most companies expect equipment to work the same hours as their crews and set their target hours at 40 hours per week or 2,000 hours per year. You may have to lower this a little and increase your owning cost rate if you are up in the northeast or the northwest or else you are going to systematically under-recover fixed costs. You may be able to use a higher value if you are in the dry south, lower your hourly owning cost rate a little, and work extended hours.

If you set target hours at 2,000 per year, then you really simplify things a lot. Everything becomes a percentage of 2,000. Ninety percent availability simply means that the machine has been able to support operations for 1,800 hours in the year, and 90 percent utilization simply means that it has been used for 90 percent of the 1,800 available hours.

It is simple, but at the same time, it is complex. As with most things, it is not how you do the arithmetic, it is how well you understand the numbers that drive the arithmetic.