Profit Without Risk: MRO Optimization
MRO risk management and profit maximization for complex production systems using simulation modeling and optimization
Get ConsultationWhere do Complex Production Chains Lose Profits in Maintenance, Repair, and Continuity?
Traditional MRO approaches often lead to significant losses:
Complex Chains
Dozens of interdependent processes; failure of one link causes cascade failures throughout the production chain.
High Downtime Cost
Each hour of critical equipment downtime (furnace, conveyor, mill) means direct financial losses and shipping plan disruptions - losses up to $300k/hour.
Limited MRO Budget
How to allocate resources among thousands of technical activities to get maximum effect without wasting money?
Hidden Risks
Non-obvious dependencies and bottlenecks; which minor repair today will prevent tomorrow's catastrophe and loss of annual profits?
Prioritization Challenges
Decisions are often made based on experience or intuition, not objective data about risks and impact on final profit.
Sounds familiar?
Relying on old MRO methods in complex production systems means not seeing the full picture of risks and missing opportunities to protect your profits.
Outdated MRO Approaches: The Hidden Threat to Your Profits
Relying on old MRO methods in complex production systems means not seeing the full picture of risks and missing opportunities to protect your profits.
Preventive Maintenance
Doesn't account for real condition, criticality, and interdependencies. Often leads to unnecessary repairs or fails to prevent failures.
Reactive Repairs ("Firefighting")
The most expensive approach: unplanned downtime, emergency purchases, contract disruptions. Doesn't manage risks, only reacts to consequences.
Expert Assessments
Subjective, difficult to scale to thousands of equipment units, dependent on specific people's experience.
ROI Calculation Complexity
Difficult to prove the economic effect of preventive measures and link repair costs to the overall profitability (EBITDA) of the chain.
Using outdated MRO approaches leads to profit loss and prevents fully realizing the potential for production process optimization.
New Solution: Synergy of Optimization and Simulation Modeling
We combine two digital models for superior results: global optimality of the MRO portfolio within budget and detailed visualization of the production system operation and risk consequences.
MRO Problem
Simulation Model
Deep analysis of risk consequences
Optimization Model
Selection of most profitable activities
Optimal MRO Plan
Result of Synergy IM + OM
- Justified, optimal MRO plan directly linked to profit maximization.
- Reliable picture of residual risks after all countermeasures.
- Balanced decisions without overestimating/underestimating risks.
- Combination of detailed understanding (IM) and optimal choice (OM).
Optimization Model: Selecting the Most Profitable Repairs
Main task: form a portfolio of MRO activities that provides the best financial result within the budget and other constraints.
- 1Selects MRO activities where preventable irreparable damage exceeds costs.
- 2Models optimal adaptation of the technological chain when risks materialize.
- 3Averages the probability of equipment units stopping and time by periods.
- 4Analyzes all risk combinations, selects the best portfolio to maximize profits.
Simulation Model: Deep Analysis of Activities and Risk Consequences
Main task: detailed assessment of potential profit losses from the realization of various risks and response measures.
- 1Visualizes chain reactions of risks for complex production chains over time.
- 2Simulates response measures to accidents with limited reconfiguration of chains.
- 3Inventories, production, and logistics are modeled continuously, while accidents are modeled as random events.
- 4The "cost" of risks is calculated separately for each or for selected risk sets.
Methodology: From Data to Optimal MRO Plan
Our approach combines deep analysis of risk consequences (SM) and mathematical optimization of the activity portfolio (OM) to achieve maximum profit.
Data Collection
Analysis of technological schemes, operating modes, failure history, repair costs, inventories, plans, and economic parameters.
SM Development
Creating a digital twin of key production chains, setting up the logic of failures, repairs, flows.
OM Development
Building a mathematical model to select the optimal MRO portfolio within the budget, taking into account SM data.
Validation and Optimization
Testing models on historical data, calibration, launching optimization calculations.
Implementation and Results
Formation of the optimal MRO plan, integration of results into planning systems, monitoring of effects.
Measurable Results: MRO Optimization as a Profit Center
Comparison of the modeled MRO plan with the traditional approach shows significant improvements:
3-5%
Reduction in EBITDA losses from downtime
15-20%
Budget reallocation to critical activities
Reduction
Reduction of technological risks
Increase
Increased Return on Investment (ROI) in the MRO budget
Justification of MRO Costs: Example of Model Analysis
| Code | Equipment Unit Name | Failure Probability | Downtime Duration | % Influence | MRO Cost | Risk-Profit | Model Decision |
|---|---|---|---|---|---|---|---|
| 567002623 | Connecting Path 1 | 10% | 30 | 10% | 100 | 0 | do not pay |
| 8900420023 | Railway Track 1 | 40% | 40 | 100% | 30 | 200 | pay |
| 1230420737 | Railway Dead Ends 1 | 40% | 30 | 100% | 20 | 100 | pay |
| 4560420026 | Railway Track 2 | 40% | 30 | 100% | 50 | 100 | do not pay |
| 7890420031 | Ore Warehouse | 5% | 10 | 50% | 10 | 5 | do not pay |
| 1010420055 | Conveyor Belt #3 | 20% | 25 | 80% | 45 | 90 | pay |
| 1120420099 | Mill #1 | 30% | 60 | 90% | 150 | 400 | pay |
| 1310420111 | Pumping Station | 15% | 20 | 70% | 25 | 30 | do not pay |
What Determines the Cost of Downtime
Key factors that determine financial losses when equipment stops
Traditionally Considered Factors
Additional Factors Considered by the Model
Direct Repair Costs
Cost of spare parts, materials, and repair personnel labor.
Lost Unit Output
Calculation based on nominal equipment productivity.
Simplified Income Calculation
Multiplication of the volume of unproduced products by price.
Direct Penalties
Penalty sanctions for failure to meet delivery deadlines under contracts.
Personnel Salary
Payment for idle production personnel.
Reduced Output of the Entire System
Accounting for the impact of downtime on the entire technological chain, considering buffers and flows.
Dynamic Calculation of Lost Margin
Calculation based on the forecast price minus variable costs.
Domino Effect
Accounting for cascade downtime of adjacent production areas and transport systems.
Effectiveness of Buffers and Reserves
Real mitigating effect of inventory and backup equipment.
Urgency Premiums
Additional costs for emergency repairs and urgent logistics.
Impact of Downtime Timing
Accounting for seasonality, market conditions, and availability of finished goods inventory.
Cost of Alternatives
Calculation of costs for external purchases to compensate for intermediate product disruptions.
Accurate assessment of downtime cost is a key factor for effective MRO planning. Our methodology allows precise quantification of these parameters and prioritization of activities.
Case Study: MRO Optimization in Mining Company
Learn how our solution helped a leading mining company significantly reduce costs and equipment downtime.
Client
A large mining company with a fleet of critical equipment.
Situation
- Frequent unplanned equipment downtime
- High costs of emergency repairs
- Suboptimal allocation of MRO resources
- Difficulty in assessing failure risks and their consequences
Project Goals
- 1Reduce unplanned downtime by 25%
- 2Decrease MRO costs by 15%
- 3Optimize the use of repair crews and spare parts
- 4Increase overall enterprise productivity
Implementation
- 1Collection and analysis of failure and repair data
- 2Development of a simulation model for production processes and MRO
- 3Creation of an optimization model for repair planning
- 4Integration of models and scenario risk analysis
- 5Formation of an optimal annual MRO plan
Examples of Model Analysis
Simulation Model Example: Furnace Substation Failure
- Cascade effect identified (warehouse overflow, semi-product shortage).
- Quantitative assessment of damage ($1.2M/hour of downtime).
- Bottlenecks identified and mitigation measures proposed.
Optimization Model Example: Annual MRO Plan Formation (budget $800M)
- ~15,000 activities analyzed (request $3B).
- Cost/benefit ratio calculated for each.
- Optimal portfolio of ~3800 activities selected within budget.
Global Experience
Examples of applying advanced analysis and optimization methods for managing MRO and risks in resource extraction and industrial companies, similar to the approach presented in this case.
| Company & Size | Economic Benefits | Models Used * |
|---|---|---|
| BHP, $60B | $1.2B Savings Chain | Optimized Strategies |
| Shell, $380B | 10-20% Downtime Reduction, 15% Cost Cut | AI/ML, Simulation Models |
| Rio Tinto, $55B | +5-15% Equipment Utilization | Predictive & Optimization Models |
| Vale, $40B | $7.8M Savings in 18 months | Predictive Models, EAM/APM |
| Copper Mine ~$10B | $1.12M/year Savings | Process & Discrete-Event Simulation |
| Chadormalu $646M | Up to 23.3% Cost Savings | Analytical Network Process (ANP) |
* Many models are components or analogues of the comprehensive IM+OM approach presented earlier.
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