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The Maintenance Ponzi Scheme -  The Cycle of Maintenance Destruction

How does this apply to the maintenance business within a company? An individual (Ponzi Manager - PZM) looks at a plant or division and claims to be able to offer a great return on investment to the existing corporate management. This proposal sounds attractive to corporate executives, so they invest in this scheme, turning control of a plant or division to the PZM. The actual return on investment that has been promised is actually going to create long-term losses just like any Ponzi scheme.

The PZM now starts on a major cost cutting initiative. Production lines are decommissioned and removed from the asset registry; they may be sold at a loss or taken as a tax write off. Spare parts are deleted from inventory, reducing inventory valuation, storage costs, and taxes. The remaining assets are in good enough condition that the PM/PDM program is still detecting defects far enough in advance to order the spare parts and have them delivered before excessive downtime is incurred. However, the RONA (Return on Net Assets) is showing a good trend, since the valuation of the assets and expenses are dropping (even if the profits are not increasing). This is reported to company executives as a positive.

The next step the PZM takes it to begin reducing headcount in the maintenance department. The clerical support is eliminated, forcing the supervisors, planners, and technicians to do their own paperwork. This begins to result in data gaps, creating more undetected problems with equipment, resulting in a slight increase in equipment downtime. The PZM next begins to reduce maintenance headcount by eliminating most of the preventive maintenance program, putting the maintenance business in a reactive mode. The next step is to implement "self-directed" work teams and eliminate maintenance planning and supervisory positions. This forces the "teams" to care for these functions. This eliminates the departmental level controls, and reducing the maintenance manager's role to someone who attends meetings and provides technical staff support to the teams.

The costs are now reduced to a point where they are showing a significant positive impact on the profits at the plant or division. The corporate executives are excited and reward the PZM with a pay increase and a possible promotion offer. However, the PZM knows the time is limited. So the PZM begins searching for another position at another company, highly touting their accomplishments at their current position. Since there are so many companies (other investors for the Ponzi scheme) looking to increase their profits, the PZM has no problem taking another position at a much higher salary. The cycle of maintenance destruction is then repeated at the new company with new investors.

How does the first investor fare in this scenario? The assets that were the responsibility of the PZM are virtually destroyed. They will require a substantial re-investment in major maintenance to restore their original asset reliability and capacity. This further adds to the long-term financial losses incurred by the investors (the company executives and company investors). How great is the damage to the company? One only has to examine the damage being done to company assets during the current recession. Mothballed assets will need to be rebuilt before they can be utilized in the future, due to poor storage techniques. The highly skilled and talented maintenance professionals that were cut from the workforce will have to be identified and hired. Once this damage is identified, consider how long it will take to properly rebuild the maintenance business to properly restore and maintain the company assets. Only then will the duration and the true cost of the damage be determined.

All due to a Ponzi scheme perpetrated on companies, based on a lack of understanding of the maintenance business by their executives. When will business executives gain sufficient understanding of how maintenance impacts their ability to produce a product or provide a service to prevent the losses in the Maintenance Ponzi scheme? Apparently, based on the condition of most company's asset base, not anytime in the foreseeable future. Remember Ponzi schemes usually collapse on themselves when the new investments stop. The question to be answered, is your company investing in a "Maintenance Ponzi" scheme and perpetuating the losses?

The Cycle of Maintenance Destruction
by Terry Wireman, Author, The Maintenance Strategy Series (Industrial Press)

Terry Wireman

Senior Vice President, Strategy
Vesta Partners

Terry is the senior vice president of strategic development. He leads Vesta’s maintenance and reliability seminars and training, and provides strategic guidance to help the firm shape its market strategy and long-term direction. For over four decades, Terry has been specializing in the improvement of maintenance management and reliability.

He helps customers develop “best-in-class” maintenance and reliability policies and practices. As an international expert in maintenance/asset management, he has assisted hundreds of clients in North America, Europe and the Pacific Rim to improve their maintenance and asset effectiveness.

In addition, he has authored twenty four textbooks and scores of white papers and articles related to maintenance management process and technology.

Terry is currently a member of the US Technical Advisory Group working on producing the ISO-55000 standard. Terry is committed to keeping Vesta on the forefront of thought leadership pertaining to maintenance and reliability strategies.

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