We hope you NEVER find yourself on the receiving end of this type of corporate memo, but if you have been or will be — perhaps this can remove some of the sting.

Beta International Corporation

The Supplier of Choice

Date: January 1, 2013

To: Neely Dunn, Manager, Reliability Engineering

From: Ot to Kraetic, VP of Operations

Subject: Downsizing of Reliability Engineering

As you know, the company is currently experiencing serious difficulty:

The market is soft - sales are down 5%-10%, depending on the products and markets served, mostly due to price pressures from our customers.

Costs are up - the cost of energy, raw material supplies and equipment are up 5% or more, depending on the cost element.

Labor costs are up 6% over the past two years.

While we are confident that the strategy of our new CEO, Stan Backenwatch, will return us to a strong and profitable market position, we have some immediate problems. Our share price is declining, along with our profits and market share. We have quarterly forecasts that we must meet, something we've failed to do the past two quarters, much to the displeasure of Mr. Backenwatch. Never mind that the long-term forecast for our products is bright, particularly in developing countries, we must meet our quarterly numbers.

The Reliability Engineering Group has per formed admirably over the past five years and has been instrumental in reducing our maintenance costs by 30%, cutting our unplanned downtime by 75%, increasing our availability from 90% to 98%, improving our OEE from 70% to 85% and giving greater focus to operational practices that have been the root cause of many maintenance issues. The list goes on, but suffices to demonstrate the performance of the group.

Unfortunately, company performance dictates that we must further reduce our costs in all functional areas. As a result, it is with great reluctance that we must reduce the size of the group by some 50% over the next few months, the plan to be developed for this. We have good reliability now, so it seems that we no longer need as many reliability engineers in the group; the condition monitoring group is now finding only about 25% of the defects that it found in the beginning of the program, so it seems we don't need as many people in that program; the shop floor craftspeople have all been trained in precision practices, so the need for the proactive elements of the group aren't likely as necessary as they were, suggesting the need for fewer people; the PM program is much more robust for avoiding and detecting defects, so the PM optimization function is needed less. I could go on here, but the point has been made - we simply don't need as many people in the Reliability Group as we once did - Mission Accomplished! Congratulations and best wishes for your future.

Beta International Corporation

The Supplier of Choice

Date: January 8, 2013

To: Ot to Kraetic, VP of Operations

From: Neely Dunn, Manager, Reliability Engineering

Subject: Downsizing of Reliability Engineering

Yes, we're aware the company is currently experiencing difficulty, as outlined in your memo of January 1.1 also note that while profits are down about 30%, we're still far more profitable than our competitors, perhaps because of all the good work you mentioned in your memo. All of us in the Reliability Group have a really keen sense for the obvious. We just hope your decisions don't make the situation worse. So, the purpose of this memo is to respond to try to help you avoid that. I'll be retiring from the company next month, thus contributing to your desire to downsize the group and minimizing the impact on at least one person. And given my forthcoming retirement, I feel free, and even compelled, to be totally honest, even blunt, in my comments. These comments are offered not to offend, but rather to inform, so that better decisions can be made.

As I hope you know, as our reliability has improved, our safety performance has also improved. Injuries are down by 66% since the program began. We have data from numerous other companies that demonstrate this principle - a reliable plant is a safe plant is a cost effective plant. Surely, you've seen this over the past few years. The fewer breakdowns and disruptions we have, the fewer injuries we have. Your logic would suggest that we should reduce the safety department and resources by 66%. Are you going to do that? That would be (being politically correct here and not saying what I really want to say) ill-advised, wouldn't it?

You stated that we now have good reliability, so we don't need as many reliability engineers. Is there really logic in that statement? Who will sustain the reliability we already have? Who will work on the improvements, particularly on the operating practices that we still need? Who will provide input into future capital projects for assuring reliability in our new equipment and sustaining our good practices on future designs? Who will interface with procurement to make sure they consider total cost of ownership, not just price? Reliability does not happen through magical forces. It takes a tremendous effort to achieve good reliability, and then at least as much to sustain what has been accomplished, and improve even more.

You're right that we only find about 25% of the defects that we once found. By your logic, we could reduce the condition monitoring by 75% and get the same results. It's not a linear system. We still have to monitor the machinery and equipment to find the defects, and the number of machines has not changed. What machines would you like us to stop monitoring? We now monitor 50% more equipment than we did two years ago and twice as much as we did when we first started, all with essentially the same resources. It's taken us years to find and eliminate the defects, restore the equipment and put in place the good practices that avoid the defects being introduced into the equipment in the first place. If we reduce the resources, then system performance will, in all likelihood, decline. There's an old adage, one that you perhaps hadn't heard: If you remove resources from the system without changing its fundamental system design, system performance will deteriorate. Think about it - you're a smart man. It takes years to build something, but only a few months to destroy it. Your plan will destroy what's been created.

As you stated, our proactive practices for assuring precision maintenance are much better. Alignment and balancing are routinely done to a high standard; precision installation of machinery is now routine; precision installation of piping and pipe flanges is now quite good -remember all the leaks we used to have, but don't now? Yes, it's all good! But, who will keep it that way? We have new people coming in as the older folks, like me, retire. Who will make sure the practices are sustained? The tooth fairy? Pardon my sarcasm and bluntness, but you're just not thinking about the system as a whole and how it gets sustained. More importantly, and as noted above, who is going to interface with projects, purchasing, stores and operations to make sure improvements are ongoing there? As you know, or should, we demonstrated that most of the defects come from upstream of maintenance, in projects, purchasing, startup and operations. We have a long way to go to have excellence in those practices to avoid the defects coming into the systems. Resources are needed to do that.

As you stated, our PM practices are much better. About 40% have been reviewed for so-called optimization. And we improved them dramatically. We eliminated about 20% of the 40%, or 8% total; they weren't adding any value, didn't have enough detail to allow for defect detection, or were being done at the wrong frequency, among other things. Who's going to do the other 60% and save even more money?

The company has been on a path to world-class performance now over the past five years, making the dramatic improvements you articulated. However, it is not world-class yet. In fact, in my estimation, we have another five years to go, along with the commensurate improvements in performance - lower costs, better safety, and better capability to address the markets with quality product, in full and on time. We are not nearly done.

Cutting the Reliability Group in half will likely reduce reliability and increase costs, something that you seem determined to avoid, but bound to achieve. Do you really want higher costs because we've stopped doing the things we've been doing? Or greater risk of injury because of the lack of reliability? I genuinely believe not.

Someone once said that ignorance is bliss, so you must be fairly happy. I'm sure this memo has taken away some of that happiness, but made you better informed. I'd be happy to discuss these points at your leisure, or mine, if you have the courage.

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