ID0212_The-Total-Cost-of-Ownership.pdf

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WRTSIL TECHNICAL JOURNAL 02.2012

The Total Cost of Ownership:Looking towards a more profitable future

AUTHOR: Reynolds James, TCO Prog ramme Manager, I nnovat ion & Bu s iness Deve lopment So lut ions Management

The profitability of a shipping corporation

is dependent upon many factors, only

some of which are within anyones

abilities to control. The cost of operatinga vessel is one area that is highly

influential on profitability, and, to some

degree, controllable. To evaluate and

optimise vessel operating costs, Wrtsil

launched a Total Cost of Ownership (TCO)

programme some time ago. The aim is

simply to achieve the lowest possible

lifecycle costs for its customers.

e difficulties facing the marine industry

are clear. e global economic climate

has halted shipping volume growth, and

coincided with an influx of new vessels tothe market. e combined result has been

high levels of over-capacity.

Tough competition has driven down

freight rates which, when combined with

increasing fuel prices, has worsened an

already uncomfortable situation. e full

extent of this is demonstrated by many

shipping companies running high deficits,

continuing only with the long-term

expectation that the markets will restore

themselves over time.

Industry changesIn such turbulent times, shipping

management is increasingly driven by the

companies financial performances and

the individual vessels financial indicators.

is focused accounting style of

management is further motivated by

the primary interim goal of maintaining

solvency until more prosperous times arehere. Traditional engineering practices for

defining engine maintenance have, therefore,

taken a back seat.

It is clear to Wrtsil that its own

profitability is closely allied to that of its

customers. Changes must therefore be made

on all sides.

Whilst we would all like the ability to

influence revenues more freely, this is

unfortunately not the reality. Operating costs

are however easier to manipulate, and any

cost savings bring the benefit of being

reflected as improvements to the financialbottom line.

As such, a programme was launched

some time ago within Wrtsil with the

task of evaluating and optimising vessel

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operational and maintenance procedures to

achieve the lowest possible overall costs.Te overriding goal is to ensure alignment

between Wrtsils -stroke offering, and

the needs of its customers.

TCO considerations

otal Cost of Ownership () is a phrase

that has been around for some years in

many industries. Te marine market is no

longer an exception.

is a broad term and, as a concept, can

encompass many influencing factors.

Generally, all considerations are differentiated

under the Capital Expenditure (Capex) andOperating Expenditure (Opex) brackets.

Although the programme has focused

on Operating Expenditure, much progress

has also been made in terms of the Capex of

new engines using a design to cost

approach. Te optimisation of production

processes, the re-design of engine layouts,

and the standardisation of components to

achieve economy of scale benefits, have been

largely successful. Tis is a key issue in the

marketing of many of the new engines.

For example, production cost reductions

in double-digit percentages for the X-seriesengines (per kW compared to references),

have been realised. Such reductions are more

significant given the recent operational trends

and required engine design parameters.

ManningInsurance

Maintenance

Lubricants

Operating Costs Other

Periodic Maintenance Costs

Voyage Costs

Capital Costs

Fuel Oil

Diesel Oil

Port Dues

Fig.1Examplecostbreakdownofamid-sizecontainervessel.

o note a few; load ranges from up to

for near continuous operation, andfuel properties ranging from almost road

diesel standards down to heavy fuel oil

outside of specifications.

Opex considerations are no more simple

than those for Capex. Te increasingly

detailed analysis of a vessels costs by its

customers has, however, naturally guided

and supported the assertions of Wrtsil in

defining the key drivers that require

improvement.

Fuel and lubricating oil costs continually

top the list of Opex costs, although these

concerns oen depend upon the style ofvessel management. Improvements with

these systems are a continual process and are

generally considered in the development of

new engines, systems, and service products.

Many service products are already

available for reducing these costs, all of which

provide different levels of benefits with

different applications. Notably, the Slow

Steaming Upgrade Kit (), Intelligent

Combustion Control (), Retrofit Pulse

Lubrication System (), and cylinder lube

oil Blend on Board (BoB) products offer

impressive benefits for customers withdifferent operational characteristics and

restrictions.

Aside from fuel and lube oil, the other

common focal point and high concern of

many ship owners and managers is that

of the lifecycle maintenance costs;particularly spare part costs. Over time, the

costs of Wrtsil -flex common-rail

engine components, relative to conventional

engine technology, have been evaluated and

singled out as one area for improvement.

Tis has been one of the main points taken

up by the programme.

The maintenance cost focus

o realise improvements in lifecycle

maintenance costs, much of the work has

capitalised on the experience and knowledge

of -flex systems gained over the past years as the technology has matured.

On paper, the lifecycle maintenance costs

for engine components are incurred as

a function of the individual price, the

frequency of replacement, and the

maintenance concepts applicable. Numerous

tasks and projects have tackled these points

with the overall goal of optimising the

profitability of both Wrtsil and its

customers:

Component costs - Te optimizationof component design, manufacturability,

production procedures and procurement,together with higher volumes, have resulted

in lower component costs. Tis benefit was

shared with customers through several

component price reduction steps.

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Frequency of replacement- Alsocommonly known as the Time between

Overhauls (). Since the introduction of-flex engines, extensive service experience

has been acquired. Design updates and

technical improvements have been made

Projected cost improvements of

an Injection Control Unit (ICU) and Fuel Oil Pump(FOP) over a 20 year period

0 5 1 0 15 20Years of Engine Operation

and implemented to improve both new

and re-manufactured parts. e further

knowledge, understanding, and confidence

gained from the many on board inspections

of -flex parts have resulted in revisions of

the s, as made official in bulletin -.

Maintenance concepts- e remanufacturing of components,

rather than replacement by new components,%C

omponentcostsrelativeto2009

ICU costs 2009

ICU costs 2012FOP costs 2012

FOP costs 2009

is one maintenance concept employed toreduce costs for our customers. e guiding

principle is to reduce the material and

labour required to provide quality

components.

Whilst re-manufacturing maintains the high

standards of new parts, sound non-wear

components are cleaned, tested and

re-used to limit waste. is is mostly

applicable to non-wear parts, such as

component housings, which represent

significant portions of the production costs.

e re-manufacturing process has beendeveloped, implemented and has already

proven successful, with full availability

for the majority of the -flex parts.

e offering continues to expand, with

Fig. 2 Lifetime RT-flex component cost projections and achievements made.

7-cylinder Wrtsil RT-flex 84T, version D

0 5 10 15 20Years of Engine Operation

%C

omponentcostsrelativeto2009

2009

the current focus being on streamlined

processes and a globally aligned offering

for mechanical components, such as piston

crowns, piston rods, and cylinder covers.

Substantial Cost Reductions Achieved

20102011

2012

Over the last few years therefore, a number

of -flex generic lifecycle maintenance

achievements have been made.When looking from a component level,

implementation of the earlier methods

has enabled vast cost reductions.

When all -flex parts are considered

over a -year lifetime, a reduction

from levels has been achieved.

Ultimately, the implications to the

complete engine lifecycle maintenance costs

are the most relevant. When the above

and cost improvements are put into a

calculation tool considering all required

engine parts, the effect is slightly diluted, but

a significant to reduction is stilldemonstrated.

To further expand upon these

achievements,time has been spent

addressing differences between customers

Fig. 3 Lifetime spare parts costs projectio n of a large bore Wrtsil RT-flex engine.

maintenance practices and requirements.

With missing experience of the new

-flex technology, and in particular the

maintenance and component service

lifetimes , the maintenance possibilities were

intentionally limited. Initially, only new

complete -flex components were offered.

As a second possibility, Wrtsilintroduced the re-manufacturing of these

components on an exchange basis as already

detailed. is chosen concept proves itself as

a means to address three important points:

)a lower cost maintenance method

for new parts

)an automatic upgrade of components

to latest technical specifications, enabling

longer s, and

)a convenient maintenance method

offering with a minimized time

requirement, suiting short port stays, andreduced onboard spare part stock

requirements.

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Tis concept has proven to be the most

cost effective for scheduled maintenance

work, and ensures high quality andoperational reliability throughout the

foreseen service lifetime. However, it does

not adequately address situations whereby

unanticipated failures of such components

occur. In these situations, the onboard

crew needs to have the possibility to repair

the failed sub-component without having

to exchange the entire assembly. For this

purpose, the maintenance offering for Flex

parts has been extended. New Onboard

Repair Kits are available for -flex

components so that a failure of any of the

small internal parts of a component willnot necessitate complete replacement

An overview of the solutions available for

all customer segments is shown in Figure .

The TCO future

Strong progress has already been made, and

the benefits of these achievements are

available for implementation. Efforts must

continue however, and future attention

will be given to where the most impact can

be realised.

Te achievements reported throughout

this article very much concentrate onthe ideal case according to the planned

maintenance intervals, and the costs that

would be incurred. However, real life cost

expectations also have to account for

reliability, which can be a large influencing

factor on .

Whether it be from premature component

failure, incorrect operation, sub-standard

fuel or crew mistakes, the source of

reliability issues is irrelevant at the time

those problems become apparent. Te

priority is to restore engine operations

and resume sailing as quickly as possibleso as to limit the lost revenues, penalties

and any increased costs, such as from the

higher speeds required to catch up to the

schedule. Wrtsil therefore recognises

the value of anything which improves the

rectification speed of systems operation.

As the volume of documentation and

knowledge required for the operation of

electronic engines increases, questions are

also being raised in some circles of the

possible decline in manning abilities. Such

trends are far from favourable so innovative

methods must be employed to mitigate theirimpact. One of the support needs was

identified as being clearer instructions,

which do not require the reading of long

texts and difficult-to-understand technical

Onboard Repair kits:To repair a Flex part in case of premature

failure of an internal component

Remanufactured Components:As cost optimised alternative to new parts with

the same quality guaranteed

New Part:For development of a pool for remanufacturing ones

own components

Flex Parts Agreement

1.2.3.4.

Fig. 4 Demonstration of the RT-flex maintenance concepts available.

Fig. 5 Simulation demonstrating the disassembly procedure of fuel oil pumps from an

RT-flex supply unit.

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sketches. o meet this need, Wrtsil has

developed three-dimensional, animated

repair instructions including spoken texts.Te main causes of the off-hire of -flex

engines have been analysed. For the top five

causes, -D animations are being made to be

displayed on the ships computers. Tese

animations clearly il lustrate the necessary

steps to correct failures and return a vessel to

normal operation. Te use of this

animation soware allows the user to pause

a sequence, to rotate components, and to

make housing transparent. Te visualisation

is clear to really understand how the systems

are working and how problems should be

resolved.A final means to improve customer

operating costs very much leverages the

confidence and trust Wrtsil has in its own

products and engineering capabilities.

Agreements are something that have been

around for some time, but are now being

Fig.6RT-flexFuelOilPump.

tailored to each individual customers

requirements. Whether the main concerns

are for the costs of -flex parts, the completeengine, or the complete engine room,

agreements have been made, and can be made,

that bring value to each customer.

Performance guarantees with respect to

fuel and lube oil consumption, planning

of maintenance, global coordination, and

lifetime component guarantees can be made

to enable varying degrees of risk sharing.

And the unpredictability of maintenance

costs can be smoothed via capped, monthly

or yearly subscriptions that provide

stakeholders the cash flow predictability

they desire.

CONCLUSIONSTe shipping industry has drastically

changed during recent years, and financial

figures are today of key importance. Tese

working practices are unlikely to change,

even in future times of prosperity. is

not the only solution, but is an approach

that is aligned to this concern and is here tostay. Within Wrtsil, this is something that

influences the everyday

thinking to achieve this goal.

With this mind-set, vast reductions

have been demonstrated to bring the

cost of -flex common-rail engines

down to the very competitive levels

of the companys series engines.

Improvements will continue across all

portfolio engines. o move forward in the

future, innovative approaches must continue

to be employed, and complete lifecycle

costs must be taken into considerationfor improving customer profitability.

Wrtsils success stems from that of its

customers. Te clear goal is to offer the most

competitive and reliable engines, and to be

the preferred and trusted service provider.

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