Transforming Care into a Profit Center: A Strategic Approach with Financial Metrics

In my previous article titled "How to Transform Maintenance into a Profit Center from an EBITDA Perspective," I discussed how the perception of maintenance as a money-consuming department can be overcome if supply chain, occupational safety, and maintenance departments work together.

In this article, I will try to explain how the impact of improvements in production and maintenance management on financial metrics can be interpreted from a general perspective.

I believe that the activities of an employee, regardless of their position or level, have a financial impact on the business, and that efforts should be made to turn this impact into a positive one.

I think that only in this way can system improvement efforts achieve their purpose and gain acceptance.

The table below clearly shows the impact of OEE data, which is very well known, on company financial analysis metrics such as EBITDA, EVA, and RONA.

The terms used may be unfamiliar. Therefore, you can find the full forms of the abbreviations at the end.

By carefully examining the table from the top left corner to the bottom right corner, you can see how important goal-oriented management is and how it is a fundamental element of company profitability.

The goals you set and how close you come to achieving those goals—in other words, how close your performance is to your production potential—affect the future of your company.

OEE output determines your company's Total Production quantity, and with the Unit Price Multiplier, it also determines the company's Total Revenue.

EBITDA, which acts as a report card in company valuations, represents revenue excluding COGS (Cost of Production) and General Expenses.

Items Included in COGS

COGS includes only costs directly related to production.

Included:

• Raw material costs

• Direct labor wages

• Energy, fuel, and consumables used in the production process

Expenses directly related to the production site (e.g., factory maintenance, depreciation, transportation)

Excluded:

• Marketing, sales, and distribution expenses

• General administrative expenses

• Financing expenses (interest, loans, etc.)

General Expenses and Indirect Expenses

These are expenses incurred by the business to maintain its operations, which are not directly related to the production of products or services.

In other words, they are fixed or indirect costs that the company must bear to survive even without production.

At this point, Cost Management will be a very important topic for the effective management of Production Costs and General Expenses.

I can state very clearly that the failure to include departments, which are the most important factors affecting opportunities and losses in a business, in budget management means that the financial targets set at the beginning of the year will be revised upwards towards the end of the year.

And of course, if you don't ask your maintenance manager for a budget study for the following year, you have accepted the guarantee that your production and maintenance targets will not be met.

In this table, you can see that I have defined EVA and RONA data as guiding 'North Stars'.

EVA (Economic Value Added)

It is a financial performance indicator that measures the actual economic profit generated by a company.

EVA > 0 → The company is creating value.

EVA = 0 → It is only covering the cost of capital.

EVA < 0 → The company is losing value.

RONA (Return on Net Assets), Net Asset Return

This is a profitability ratio that shows how efficiently a company uses its net assets (assets – short-term liabilities).

RONA = Net Operating Profit / Net Assets

This ratio measures how much operating profit a company can generate using its assets. In other words, it answers the question, "How much profit does every 1 TL of assets invested in the company generate?"

As clearly understood from the definitions, the answer to the questions "Does the business create value? or To what extent does it generate profit?" is hidden in these metrics.

In conclusion, if we were to make a general assessment through Maintenance Management:

The task of maintenance units is to strive for results that create added value in the field with a systemic approach.

This process should begin with root cause analysis of failures and continue with reliability-centered maintenance, total productive maintenance, quality-focused maintenance, project management, cost management, energy management, and occupational safety. Only in this way can maintenance become a PROFIT CENTER.

DEFINITIONS

OEE – Overall Equipment Productivity

COGS – Cost of Production

RONA – Net Return on Assets

NOAP – Net Return on Assets

WACC – Weighted Average Cost of Capital

NOPAT – Net Operating Profit After Tax

EVA – Economic Value Added

EBITDA – Earnings Before Interest, Taxes, Depreciation, Amortization, and Amortization