Data - Maintenance Decision
Management teams decide on the total amount they should spend on preventative maintenance. This is an aggregate amount and thus should be increased, for example, when varied when a firm increases its plant capacity.
Expenditure on preventative maintenance may also have a number of effects. Preventative maintenance reduces the likelihood of plant breakdown and hence capacity losses and lead time delays. Adequate maintenance may also serve to maintain the resale price of plant. Finally ensuring the plant is producing within tolerances contributes towards the reduction of defects.
Example: Currently your firm has approximately 25,000 SCU of plant. If it were new it would be worth $4m, however it is a few years old and already its book value is only $1.6m. About 7% of its potential is lost due to breakdowns.
Investment of about $24 per SCU or $600,000/year in preventative maintenance is sufficient to offset deterioration and will keep its operational level (and hence resale) value constant at its current level. Higher investment than this will increase the level accumulated maintenance and hence decrease machine breakdowns. Remember to adjust the amount you spend on maintenance as you increase or decrease your plant size.