ED-205.3-3 - Control of Maintenance Expenses in Factories

ENGI NEERING DOCUM ENT
CONTROL OF MAINTENANCE
EXPENSES IN FACTORIES
TECHNICAL GUIDE
ED-205.03-03
Riccardo Cassina
September 2016
For Nestl Internal use

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Table of contents
Introduction .......................................................................................................................... 3
Principles & definitions ......................................................................................................... 4
Labour.................................................................................................................................. 7
Materials .............................................................................................................................. 9
Materials Valuation............................................................................................................. 11
Maintenance budgeting ...................................................................................................... 13
Maintenance expenditure control ....................................................................................... 17
Integration in the standard cost budget .............................................................................. 18
Budget Cycle...................................................................................................................... 19
Annex 1 Maintenance definitions..................................................................................... 19
Annex 2 Cost elements for Factory maintenance in GLOBE ........................................... 23
Annex 3 Special charges................................................................................................. 28
Annex 4 Work orders in GLOBE...................................................................................... 30
ED-205.3-3, 09/2016 Replaces: GI-205.3-3

Nestec Ltd 11/2016 May not be divulged to third parties without proper authorization
Uncontrolled copy when printed, Please visit the site to ensure that you are using the current instruction
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Introduction
Purpose of This instruction supersedes the guideline "Control of Maintenance Expenses in

this document Factories" GI.205.3-2 dated March 2008 It should serve as guidance for both
engineers (in charge of plant maintenance, represented by the PM Pillar in the TPM
environment) and accountants.
This document has been adapted to take into account the latest M&I (Maintenance
& Improvement) principles in Asset & Maintenance Management including the use
of TPM (Total Performance Management) and AMM (Asset Maintenance
Management).
Major changes Instruction updated, major changes mentioned in the introduction
Target Chief Engineers, Engineering Managers, Factory Managers, Factory Controller and
audience key Accounting staff.
Use of this Intended to manage Maintenance Expenses in Nestl factories

document
Implemen To be implemented as part of the Nestl Maintenance Strategy

tation
Reference NCE TPM PM-Pillar Reference Guide

documents NCE TPM Implementation Guideline, TPM Reference Guide
GI-00.900 Nestl Engineering
GI-205.0 Nestl Maintenance Strategy
GI 23.010-2 Managing Manufacturing Performance
TM-205.2 Consequence Driven Maintenance Implementation
Guidelines
GI 23.010-2 Managing Manufacturing Performance
TM-205.2 Consequence Driven Maintenance Implementation
Guidelines
Nestl Accounting Standards (NAS)
Costing Standards for Manufacturing (CSM)
Other detailed Links and reference documents are mentioned in several sections.
ED-205.3-3, 09/2016 Replaces: GI-205.3-3

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Principles & definitions
Maintenance Maintenance covers all activities performed, and materials used, to restore the
performance of an asset, as close as possible, to its original condition.
(The difference between original and restored conditions being the wear and tear
that gives the asset its life span).
This includes the replacement of any software which is required to make a machine
perform its originally intended function, but which does not increase its capacity
above that specified when initially purchased.
From the budgeting and expenditure control point of view, we distinguish between
Routine and Extraordinary Maintenance, also called project maintenance
Routine Routine Maintenance expenses are the expenses incurred as a result of the
Maintenance following work:
Expenses
Jobs budgeted to re-occur yearly or more frequently.
Jobs not re-occurring yearly but costing less than 20'000 CHF.
Demolition work, if not already classified as special charges and costing less
than 20`000 CHF.
They are budgeted as a whole (and not by job), by Cost Centre. They are controlled
at FLOC level. (Functional Location).
Note: Demolition work includes the dismantling of equipment; demolition, sanitation

or restructuring of buildings that are no longer used.
Demolition work that are not Special Charges and cost more than 20'000 CHF
should be allocated to the local Head office (The Head Office should be advised
allowing sufficient time for the necessary budgeting procedure).
Extraordinary Extraordinary Maintenance expenses are those incurred as a result of work not
Maintenance reoccurring yearly (overhauls, major breakdowns, building repairs, painting, etc.),
Expenses not linked with an investment project and with an amount bigger than 20000 CHF.
They are budgeted, justified and controlled individually, for each job, using
Maintenance Projects in the PS Project System in AMM. Please refer to GLOBE
documentation, including data standard DS 503 (Project WBS Elements).
Note: "WBS" means "Work Breakdown Structure". It is a mechanism used in

SAP/PS to plan, collect and monitor the costs linked to a project. In Maintenance
projects, costs are settled to the relevant cost centre.
Continued on next page
ED-205.3-3, 09/2016 Replaces: GI-205.3-3

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Principles & definitions, Continued
Maintenance Maintenance is composed of activities, grouped into categories and sub-categories,

Activities which are, explained in the TPM-PM Pillar reference Guide. For ease of reference
these definitions are included herein as Annex 1, "Maintenance Definitions".
Capital Capital investment expenditure is the cost incurred for investment jobs as defined by
Investment the capital investment guidelines. They cover the purchase of land, buildings,
machines, equipment and other assets, as well as the construction and or
installation thereof, essential to the proper operation and growth of the business.
This includes machine change parts purchased, which increase the capacity of the
machine or the number of different packs that can be produced. Finance lease
contracts are also considered as capital investments. Contrary to the maintenance
expenses, these expenses are capitalised. They are budgeted and controlled
individually, by credit.
Special Special Charges are expenditures related to a capital investment but not capitalised.
Charges Instead they are considered as expenses for the year they have been incurred.
They do not form part of the Maintenance Budget. For further explanation, refer to
Annex 3. Special Charges are controlled using Investment Projects in the PS -
Project System in AMM.
ED-205.3-3, 09/2016 Replaces: GI-205.3-3

Summary Table
MAINTENANCE CAPITAL INVESTMENT
CATEGORIES ROUTINE MAINTENANCE EXTRAORDINARY SPECIAL CAPITAL

MAINTENANCE CHARGES INVESTMENT
Type of work and a) Work re-occurring yearly: Work not re-occurring yearly Modification and or demolition Purchase and installation of assets
activities and if above 20'000 CHF: jobs linked to an investment, for:
-Preventive Maintenance: which do not increase the - Replacement
Scheduled Maintenance -Corrective Maintenance earning capacity of the fixed
Predictive Maintenance Breakdown Maintenance asset. - Production rationalisation
Condition-based Maint.
-Preventive Maintenance - Capacity increase
-Corrective Maintenance Condition-based Maint.
New products including additional
b) Extraordinary Maintenance machine parts for new packaging
and Demolition work (not formats.
associated with a capital
investment), if below 20'000
CHF per job.
Budget and Maintenance Budget Maintenance Budget Investment Budget Investment Budget
expenditure
control:
Controlled by: Cost Centre/FLOC Individually within WBS Individually within WBS elements Individual job within WBS elements
elements
Centre
Approved by: Market Market The Board of Directors
Treatment of Not capitalised Not capitalised Not capitalised Capitalised

expenses:
Classification in the CC by Cost Elements CC by Cost Elements CC by Cost Elements Depreciation of capitalised amount is
Std. Cost Budget: charged to main CC on Cost
Element 5006000 - Depreciation
Reference Control of Maintenance Expenses in Factories TMN 205.3
guidelines
Guidelines for the presentation of the Capital Investment Budget
Note: CC: Cost Centre
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Labour
Production Depending on circumstances, the activities performed by technical personnel on a

versus production line may be classified as maintenance activities or as production
Maintenance activities.
Activities
The following sections explain how to distinguish a maintenance activity from a
production activity.
Regarding how to allocate this hours, Nestl has defined three possible scenarios.
However, for those factories starting with TPM, it is recommended to use scenario 3
only. For more detailed information, please click here.
Production The following technical activities are classified as production activities:

Activities
a) All activities performed to operate, set up, adjust, start up, change over or to
clean a line irrespective of who performs the activity.
b) All activities of a technical nature (including reactive, and scheduled

maintenance) performed by the operational crew on an asset, which forms part
of a line, while the line is manned for the purpose of production (NPH).
The labour hours spent to perform the above activities represent the main part of the
"Non-proportional Labour" hours, as defined in the "Costing Standards for
Manufacturing
Maintenance Outside the production cycle (NPH), all technical activities carried out on assets
Activities forming part of a production line are classified as maintenance activities.
In particular, maintenance carried out by the line technicians or by the production
personnel, outside NPH, is classified as maintenance activities.
During NPH, all maintenance (reactive, preventive and predictive) performed on a

line by a person who does not belong to the operational crew, is classified as
maintenance activities.
The chart hereafter summarizes the above paragraphs (2.1.2 and 2.1.3).
GI-205.3-3, 11/2009 Replaces: GI-205.3-2 / March 2008

http://intranet.nestle.com/technicalinstruction
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Labour, Continued
Decision chart
for labour Operational
Is this an operational activity (operate, start up,
classification clean a line) or a technical activity?
Technical
YES Is the technical activity performed on an

asset removed from the line (or bypassed
so that the line can still operate)?
NO
NO
Is the production line manned for the
purpose of production?
YES
YES
Is the technical activity performed during
Downtime hours (DH)?
NO
NO YES
Is the technical activity performed by a
line mechanic or other member of the
operational crew ?
Maintenance activity Fixed cost Production activity Variable cost
Note on the classification of technical labour performing production activities
In GLOBE, the cost of technical labour performing production activities is posted to

the relevant Main cost centres through the following cost elements:
99 0110 0 PO-related downtime labour

99 0125 0 Non-PO related line specific labour
99 0135 0 Other common labour
These costs are included in the category "Non-proportional labour", as defined in the
Costing Standards for Manufacturing and in GI 23.010-2 "Managing Manufacturing
Performance".

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Materials
Valuation of The term "Technical materials" refers to all the materials required to maintain the
technical Company assets (buildings, equipment, etc.). They include spare parts as well as
materials in low value items such as screws, nuts, wires, etc..
the balance
sheet The term "Spare part" designates a piece of equipment that can be used to replace
another similar piece in a machine or other equipment, in order to restore the latter
to its original condition.
The Nestl Accounting Standards (NAS) set out the rules for capitalizing or
expensing technical materials, as follows:
"If the corresponding spare parts have never been held in stock before, then
on first purchase upon the construction of a factory or a warehouse or upon
the purchase of equipment, they may be ordered together with the equipment.
In this case, their value is encompassed in the cost the assets, then
subsequent purchases are carried to the balance sheet as materials.
If the corresponding spare parts have already been held in stock before, then
they should be ordered separately from the equipment. They will then enter
the inventory of technical materials at cost.
However, only important spare parts should be carried to the balance sheet;
other technical items, such as screws, nuts, wires, and other common
maintenance materials that are usually purchased for direct use should be
expensed upon purchase.
For the sake of simplification low value items may be expensed if the local
legislation so permits and if they are not material. The level of materiality
should be determined by the local Market."
In view of the above, there are five scenarios for booking technical materials in
inventory:
Set of spare The spare parts are booked in the inventory of technical materials, with a value
parts for an equal to the price paid to the vendor, plus any freight, custom duties, etc
existing
equipment
Set of spare As mentioned by Nestl Accounting Standards, it is assumed that such spare parts
parts ordered were never held in stock before. They are booked in the inventory of technical
together with a materials, with a zero value.
new
equipment

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Materials, Continued
Repaired Spare parts may need to be repaired. For instance, a spare motor may have to be
spare parts rewound. Whenever spare motors are returned to the workshop in order to be
repaired, they are considered to have lost any value.
Once the motors (or any other spare part) have been repaired, the following
accounting treatment should be applied:
Spare parts repaired by third parties

Post the invoice from the third party to the cost centre PPPP.190.01
"Workshop" (PPPP being the plant code to collect this cost)
Book the spare motors in the inventory of technical materials, with a value equal
to zero (or a token value close to zero, if this is required by the system).
Spare parts repaired in the factory workshop

The labour hours and or materials used for the repair remain in the cost centre
PPPP.190.01 "Workshop" (an intangible FLOC should be created and attached
to this cost centre).
Book the spare motors in the inventory of technical materials, with a value equal
to zero (or a token value close to zero, if this is required by the system).
Spare parts Book the spare motors in the inventory of technical materials, with a zero value.
built in the The labour hours and or materials used to build the spare part will remain in the
factory cost centre "Workshop" within the Cost Centre Group 190 "Technical overheads".
workshop
Materials Small low cost items (nuts, bolts, etc.) are normally purchased in bulk but could also
depreciated on be issued by individual units. To comply with Nestl Accounting Standards (NAS),
purchase and these items should be depreciated on purchase.
stored
For convenience purposes, it is recommended that these items be apportioned to
the appropriate Cost Centres by percentage, based on knowledge and experience.
In other words, there is no need to record how many individual units are actually
issued to each Cost Centre.
These items are booked into the stores at zero cost. For more details please refer to
the Nestl Accounting Standards and to the Cost Management intranet site. Link.
All other items (usually Important items) are stored in store, with its corresponding
value, and tracked under the store management rules. The split between expense
items and capitalized items is not on value but on technical importance. The finance
department will be doing the corresponding adjustments at the period end.

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Materials Valuation
Valuation of The technical materials consumed may be either issued from the technical stores or
technical purchased for direct use:
materials
consumed According to Nestl Accounting Standards, the spare parts issued out of
inventory are valued at their moving average cost.
Technical materials purchased for direct usage are immediately debited to the
Cost Centre concerned via a work order. They should be used immediately and
not kept in the stores.
Treatment of Where a Market has implemented the GLOBE AMM Module, all spare parts are
spare parts created as material type ERSA, if stocked or NLAG if purchased directly. Both
where GLOBE ERSA and NLAG materials are always consumed via a work order. Small low
AMM is cost items such as nuts, bolts etc are defined as UNBW if stocked and are never
implemented consumed via work order.
In AMM, all ERSA are capitalised in the balance sheet. However, as explained
before, NAS require that only "important" (financially important) spare parts be
capitalised.
To ensure that NAS are complied with, a financial adjustment must therefore be
performed in the balance sheet of the company at the end of each month. The
corresponding cost is credited to the inventory of spare parts and debited to the
maintenance cost centres where the parts are most frequently consumed. At the
beginning of the following month, this transaction is reversed.
For more details please refer to the Finance & Control intranet site. Link.
Financial" The value and quantity of material kept at any one time is controlled by the factory
value versus technical stores system. In order to do this effectively it is necessary to keep two
"Technical" values:
value: Financial value - The value of all the items in the technical stores, as per the
General Ledger. Any item depreciated on purchase and stored will not be
included in this value. Similarly, any spare part ordered together with a new
asset and capitalised with the asset, is excluded from this value.
This value is used exclusively for reporting and fiscal purposes and cannot be
used to manage the stores inventory.
Technical value - The "real" value of all the items in the technical stores
(including the spare parts ordered together with a new asset and capitalised with
the asset). In principle, it also includes the items depreciated on purchase and
stored. However, if the value of these items is insignificant in relation to the total
value of the stores, their value does not need to be reflected in the Technical
value.
"Consignment stock" (items placed in our stores by a supplier but only charged
when used) must not be included.
The Technical value is the value used to manage the stores inventory, and it
should also be used for insurance purposes. It is the value given by the AMM
stock reports plus the value of any spare parts purchased as part of a capital
project.

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Materials Valuation, Continued
Jobs Carried This concern all maintenance activities carried out by third parties. The supply may
out by Third cover either labour and material or labour alone. Labour and material are charged
Parties together (no splitting of cost required). Supply of labour only, charged on an hourly
rate basis or on a lump sum basis, has to be considered as a third party job.
Costs to be The list below is not exhaustive. It simply provides some examples of costs, which
excluded from do not belong to the Maintenance budget.
the
Maintenance Type of cost: Allocate to:
Budget Maintenance and repair of
outdoor vehicles (vehicles
CC Group 402 - Vehicles
operation outside the factory
perimeter)
Repair of furniture, office CC Group 410 - Factory common
machines, fire fighting equipment charges
CC Group 410 - Factory common
Labour and material for cleaning
charges or appropriate Main cost
and disinfecting
centre.
Maintenance of land, gardens, CC Group 410 - Factory common
and yards charges
Maintenance of company
Head office
dwellings
Maintenance of equipment which
Head office
is no longer used
CC Group 411 Working clothes
Repair of working clothes
and laundry
CC Group 410 Factory common
Any form of training
charges
Production consumables
(materials under the control of Main cost centre where these
production department such as: items are consumed.
air filters, hygienic pipefitting
gaskets etc.)
Maintenance of commercial
facilities (i.e. if a distribution depot Appropriate Distribution or Sales
and or sales facility exists on the maintenance cost centre.
same property).
Change parts for new products,
processes or packaging formats,
which increase the capacity of the Investment
asset or the variety of packs that
can be produced by the asset.

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Maintenance budgeting
Introduction The Factory Manager has the overall responsibility for the plant maintenance. The
factory's Engineering Department prepares the Maintenance Budget Proposal.
Routine Maintenance and Extraordinary Maintenance are budgeted and justified

separately.
Routine Maintenance expenses are budgeted for each Cost Centre with assets
requiring Routine Maintenance.
Extraordinary Maintenance expenses must be justified and estimated individually,

for each job, and subsequently grouped together per Cost Centre.
Budget To prepare the budget the following information is needed:

Preparation
The company's overall strategy regarding maintenance. (Refer to GI 205.0-1
Nestl Maintenance Strategy). The Nestl Maintenance Strategy is
implemented as part of the NCE Initiative, by using Total Performance
Management (TPM) as a pro-active facilitating tool addressing Nestl
Manufacturing activities. The maintenance scope is reflected into the TPM
Planned Maintenance (PM) Pillar, with the corresponding TPM-PM Pillar
Reference Guide.
Forecast of changes in labour cost, social charges, local inflation and exchange
rates.
The following year's production program.
New or abandoned Cost Centres / Lines.
Routine Maintenance expenditure for Cost Centres / Lines (including splitting
between labour, materials and work carried out by third parties) during the
previous budget cycle.
Extraordinary Maintenance jobs intended to be done in the coming year with
their justification and cost estimate.
The Technical Manager (Corporate or Divisional) or, if none in the market, the
Market Head or Country Manager, approves the Maintenance Budget proposal
before the establishment of the Standard Cost Budget.
Maintenance is budgeted without reserves. Should there be an unavoidable

shortfall, additional funds must be requested from Technical Management
immediately when the shortfall becomes apparent. (Refer to section 6.2)
It is often justified to spend more for maintenance activities on a Cost Centre where
the impact of failures has been assessed as unacceptable. Wherever possible, this
cost should be offset by reductions in areas where the impact of failures have only
minor effects on the company's business.
The position "Labour" in the total Maintenance Budget reflects the coming year's
workload for the Technical Services. Fluctuations on labour requirements should,
where economical, be absorbed by third parties.

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Maintenance budgeting, Continued
Routine Routine Maintenance is budgeted for each Cost Centre / Line. It is split into labour,
Maintenance material and work done by third parties. The estimate is based on the previous
years experience with regard to technical and cost aspects. This estimate must be
adjusted to take into account changes in the production program, the impact of
certain failures as assessed by the TPM-PM Pillar methodology, local inflation rate
and exchange rate variations.
Routine Maintenance expenditure can, at the Cost Centre level, fluctuate from one
year to another as repairs and small modifications cannot be predicted accurately.
However, as there are many Cost Centre positions, this should have little influence
on the total budget.
Jobs, which by their nature would fall under the category Extraordinary
Maintenance, are included under Routine Maintenance, if their cost is below
20000 CHF.
Routine Maintenance expenses may cover all maintenance sub-categories and all
types of activities.
Extraordinary Extraordinary Maintenance jobs must be budgeted, justified and controlled

Maintenance individually.
Each job must be managed using the same techniques as used for capital
investment projects
Each job must be split into labour, material and or work carried out by third
parties.
Extraordinary Maintenance expenses may cover either Condition-based

Maintenance or Breakdown Maintenance.
Labour Rate The labour rate is calculated by taking into account the basic labour cost of the
Calculation workers concerned, as well as the social charges which can be traced to these
specific persons.
The basic labour cost includes the basic remuneration of the workers, plus
premiums for night work, standby allowances, shift hours etc. It also includes the
payments made for overtime.

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Calculation of Before calculating the basic labour cost, any requirement for overtime must first be
Labour identified. To achieve this purpose, the "Total Maintenance hours required" as per
Requirements the Maintenance Budget are compared with the "Available Maintenance hours"
(normal working hours of the technical personnel, less the leave entitlement,
statutory holidays, etc. and less any hours spent on activities not related to
maintenance). Any shortfall in available hours should first be eliminated, where
economically viable, by engaging third party labour to undertake "Extraordinary
Maintenance". Certain Routine Maintenance may also be contracted out to third
parties under the following conditions:
The third party response time to breakdowns does not adversely affect overall
line performance.
The third party does not have an open contract and it is restricted to specific
work orders with time frame and defined scope.
It does not jeopardize the long-term availability of resources to maintain our
assets.
It does not require the divulging of propriety knowledge.
If these measures do not eliminate the deficit in hours, then overtime hours need be
employed. The basic labour cost is the weighted average cost of the normal working
hours and of overtime hours including all premiums.
Workers Workers' social charges may include payments to official organizations (e.g. for
Social social security and unemployment insurance), cash bonuses paid directly to the
Charges personnel, and social services instituted by the Company (e.g. pension fund).
Summary of The budget should be prepared for each Cost Centre and for each job controlled
the Factory individually within the Cost Centre, but to facilitate comparison between factories,
Maintenance the budget should be summarised as shown in the following example.
Budget

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Summary of Analysis of expenses charged to Factory Maintenance:

the Factory Anticipated
Maintenance Approved Proposed
expenses
2006 Variance 2007
Budget budget
@
budget
31.12.2006
(For example)
a Main cost centre A x
b Main cost centre B x
c Etc. x
d Auxiliary cost centre x
a+b+c+d =
E Maintenance xxxx'
E
Split into the following budgeting categories
Routine Maintenance
f xx'
g Extraordinary Maintenance xx'

E Maintenance f+g = E xxxx'
Which is broken down into:
h Labour x'
i Materials xx'
j Third parties x'
E Maintenance h+i+j = E xxxx'
Plus
k Workshop x'
l Technical stores x'
m Technical office x'
N Tech. Overhead k+l+m xxx'
O Total Factory Maintenance E+N xxxxxxx'
p Total production (tons) xxxxx'

q Total cost of production xx'
r Manufacturing cost* xx'
s Depreciation xx'
t Line monitoring hours xx'
Comparative statistics
Factory maintenance / O/p xxx
Total production quantity (Cost/Ton)
Factory maintenance /
O/r xx.x %
Manufacturing cost
For factories producing more than one product, it is essential, for internal control
purposes & benchmarking, to prepare the above statistics for each product category.
* Manufacturing cost = Total cost of production - (Cost of Raw & Packing material)

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Maintenance expenditure control
Introduction The factory keeps a monthly, cumulative budgetary control of the maintenance
expenditure. This can be obtained in GLOBE using the cost centre report filtering on
the factory and the AMM cost element group defined in a market. It should be noted
that these secondary elements only cover expenses through work orders and WBS
elements. Should any cost be outside these elements then these will be seen on the
primary cost elements.
In order to perform this control accurately, the following information is required for
each CC and each job treated individually:
Name of responsible person

Actual expenditure
Committed expenditure
Actual plus committed expenditure. (For control purposes this figure should be
compared at least monthly against the Budget.)
Estimated final expenditure
Yearly budget
For the valuation of labour, in principle the standard rates as per Standard Cost
Budget will be considered. However, the operating companies may decide, if
preferable, to use for their monthly controls revised rates and actual rates at year's
end.
Maintenance Routine Maintenance expenditure is controlled per CC. The estimated final
Controlled by expenditure can be extrapolated, taking into account the previous 12 months'
CC through experience, which includes specific maintenance cycles linked to seasons.
FLOCs
Extraordinary maintenance and Special charges are controlled by WBS elements
inside the SAP-PS module, which settle to relevant Cost Centres.
For the application of M&I (Maintenance & Improvement), a detailed cost analysis of
the Routine Maintenance expenses for a given Cost Centre may occasionally be
required. The Routine Maintenance expenses would then be split, during a limited
period of time, into jobs controlled individually.
Deviations In case of significant over-expenditure additional funds have to be requested, as

from Budget soon as the over expenditure becomes evident, from the Head Office with the
necessary justifications.
As a general rule, the individual over-expenditure by Cost Centre does not have to
be covered by additional funds if it can be offset within the total Maintenance
Budget.

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Integration in the standard cost budget
Maintenance The Maintenance Budget as approved by the local Head Office is incorporated in
the Standard Cost Budget which is subdivided into Routine and Extraordinary
Maintenance. The cost of Maintenance is presented by "user" cost centre with
assets requiring maintenance.
For each "User" CC, the corresponding maintenance cost is further broken down
into labour, materials and third party expenses.
The labour rate calculated for the factory Standard Cost Budget will be slightly
different from the rate previously communicated to the Technical Services for the
establishment of the Maintenance Budget. Therefore, all positions of the
Maintenance Budget will be corrected accordingly. The amounts finally calculated,
for the factory Standard Cost Budget, are the valid ones.
Maintenance cost can be seen in the standard CC report using the Cost Centre
Group S-PPPP (where PPPP is the plant number) and the relevant Cost Element
Group.
To see the total AMM group code, use the Cost Element Group 99MR_TOTAL.
All M&I cost element, primary and secondary can be seen in 9VAR_MRT (see
example).
Special Special charges are budgeted on the main CCs under the cost elements listed in
Charges section 4.

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Budget Cycle
Yearly Taking into consideration that the Yearly Maintenance Budget must be incorporated
Maintenance in the factory's Standard Cost Budget, which is due by the end of November, or at a
Budget date fixed by the local management, the latter must fix a reasonable deadline for the
completion of the Maintenance Budget.
Monthly Control of the committed expenditure Cost Centre by Cost Centre, split into Routine
Maintenance and Extraordinary maintenance and split into Labour, Materials and 3rd Parties
Expenditure should be kept locally. This should be kept monthly showing both current and year
Control Report to date cumulative costs. These reports should be ready during the first week of the
following month
Annex 1 Maintenance definitions

Overview
Maintenance & Improvement (M&I)

Maintenance Activity
Maintenance Engineering
Methodology to Implement
Maintenance Strategy
Total Performance Management (TPM - PM Pillar)
Maintenance Management
System (CMMS)
Asset and Maintenance Management (AMM)
Project Corrective
Maintenance Category Preventive Maintenance Maintenance Maintenance
Maintenance Sub-category Predictive Time-Based Project - Based Breakdown

Condition - Based
(Scheduled)
Condition Based Project Workorder Breakdown

Work Order Type (AMM) Scheduled/Predictive (PM03) Workorder (PM02) (PM04) Workorder (PM01)
Calibration (301) Work from Predictive Capital Investment Work Breakdown (101)
Activity Type (AMM) Condition Monitoring (302) Maintenance (201) (401) Breakdown not causing
Lubrication (303) Mods for Line Extra-Ordinary Line Stoppage (102)
Statutory Inspection (304) Improvement (202) Maintenance Work (402)
Planned Service/Overhaul (305) Mods for Safety Special Charges Work
Safety/Environmental Inpection (306) Improvement (203) (403)
Inspection (307) Mods for Environment Training and other hours
(204) (404)
No Downtime
Stoppage Class Planned Downtime Efficiency Loss
Unplanned
Organisation Planned Maintenance
Maintenance Initiative OPTIMISE UTILISE MINIMISE
Extra-ordinary
Budgetting Routine Maintenance Maintenance
Note: Graphic obtained from the TPM-PM Reference Guide

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Annex 1 Maintenance definitions, Continued
M&I: Maintenance and Improvement (M&I) is about achieving the required asset
Proactive capabilities within an economic or business context. It is an integral part of the
Maintenance business operation, which spans the whole spectrum of activities from asset
acquisition to retirement and therefore a vital component of Nestl's success.
Today, maintenance needs to be viewed proactively as an important investment in

asset reliability and overall performance of the plant. It is a competitive activity in line
with business strategy, characterized by teamwork and continuous improvement.
A maintenance philosophy that aims to systematically:

Prevent potential failures from occurring.
Prevent re-occurrence of failures.
Minimise the impact of a failure if prevention is not justified.
Its objective is to improve line performance, extend the asset's life and progressively
reduce the need for maintenance and the impact of failures.
It does this by identifying weak points and making improvements to remove the weak
point, or at least minimise the impact that the weak point has on the line operation.
These improvements may be a modification of the asset or the operating conditions

or a planned maintenance program.
Proactive Maintenance Practices

Characterized by practices that focus on eliminating the root cause of maintenance
requirements, or extend the equipment life, mitigating the need for maintenance.
These practices use the knowledge base. The TPM-PM Pillar approach enhances
that Proactive Maintenance Practices are properly applied across operations.
Preventive Maintenance carried out to prevent asset failure or operation out of an established
Maintenance set of operating parameters. It includes the Scheduled, Predictive and Condition
Based Maintenance sub-categories below.
Preventive Maintenance Practices

Characterized by practices that are periodic and prescribed. Examples are: annual
overhaul, quarterly calibrations, monthly lubrications and weekly inspections.

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Corrective Repairs, overhauls, modifications & other maintenance interventions in response to

Maintenance the asset's conditions as a result of detected operational problems after failure occur.
Also known as Breakdown Maintenance.
Reactive Maintenance Practices

Characterized by practices such as run-to-fail, breakdown and emergency
maintenance. Unplanned and urgent are common characteristics of Reactive
Maintenance Practices.
Scheduled Preventive maintenance carried out at fixed intervals, regardless of the asset
Maintenance condition. Intervals are usually time based (hourly, daily etc) or based on a measure
of asset usage (kilometers, hours operation etc).
It mainly consists of cleaning and servicing, but can include all maintenance up to
and including major overhauls.
Predictive Planned, systematic monitoring of an asset's performance to assess its condition

Maintenance and predict failures in time to allow action before the failure occurs.
Performance monitoring:
Measuring consumption (energy, oil, water etc).
Listening for unusual noises.
Checking product quality or characteristics.
Inspection:
Checking for leaks (oil, grease, product, water etc).
Visual inspection (loose parts, broken components, leaks etc).
Measurement of wear & backlash.
Condition monitoring:
Vibration analysis.
Oil analysis.
Infrared imaging.
Predictive Maintenance Practices

Characterized by practices that are based on an equipment condition. Examples are:
change bearing based on vibration analysis, replace/repair steam traps based on
ultrasound analysis.

22/31
Condition Planned repairs, modifications & other interventions in response to the asset's
Based condition shown by detected signs of operational problems before failure occurs:
Maintenance
The objectives are to :
Restore function and performance.
Reduce the probability of failures.
Reduce the future maintenance need.
Actions are triggered by:

Results from Predictive Maintenance activities.
Other production & maintenance information (observations, down time recording,
maintenance reports).
Potential failure analysis to determine potential weak points etc.
Condition Based Maintenance is normally a result of good implementation of

predictive maintenance practices.
Repair Restoration of parts of an asset to as close as possible to its original condition.
Overhaul Comprehensive restoration of a complete asset(s), or a major part of it, to as close

as possible its original state. These events normally take place with a frequency of a
couple of years
Modification Alterations to an asset or the way it operates to change its function or to cause an
improvement in its operation or efficiency.
Planned Maintenance that is organised and carried out to a predetermined plan. A plan refers
Maintenance to the time; the duration and the parties involved in the maintenance activities.
Planned maintenance should always be in line with the production plan
Planned maintenance can includes corrective maintenance as a result of an

acceptable failure. However these kind of failures are exceptions as we do not have
many redundant equipment in our factories.
Unplanned Maintenance carried out without any predetermined plan. It is applied in response to
Maintenance an immediate situation, when the objective is to restore the function without delay.
It exclusively consists of corrective maintenance ( PM01) as a result of an

unacceptable failure.

23/31
Annex 2 Cost elements for Factory maintenance in GLOBE
Factory As explained before in this Manual, Factory maintenance includes the following
maintenance categories:
Technical overheads
Routine maintenance
Extraordinary maintenance
Technical overheads consist of overheads closely associated to maintenance.

These overheads are detailed in the corresponding section of this Annex.
In contrast, routine and extraordinary maintenance exclude any overhead. These

categories include only the costs directly incurred by a given maintenance activity,
i.e.
The cost of the own labour hours required

The cost of the technical materials required
The cost of any third party intervention
In Legacy systems, Routine and Extraordinary maintenance correspond to the cost

centre N91 "Maintenance". In turn, this cost centr e is subdivided into six
subcategories (called CCLIs), as illustrated hereafter:
CC 91 Total cost of Total cost of Total costs from

own labour technical third party
materials contractors
Routine CCLI 9101 CCLI 9102 CCLI 9103
maintenance
Extraordinary CCLI 9111 CCLI 9112 CCLI 9113
maintenance
In GLOBE, there is no equivalent to the CC 91. However, routine and extraordinary

maintenance costs are tracked through specific cost elements in the GLOBE Asset
Maintenance Module (AMM).
These cost elements are presented hereafter.
Routine Routine maintenance costs are collected in GLOBE through primary cost elements
Maintenance and secondary cost elements:
Through primary cost elements, costs are transferred from the General Ledger to
Work Orders
Through secondary cost elements, costs are transferred from Work Orders to User
cost centres

24/31
Annex 2 Cost elements for Factory maintenance in GLOBE, Continued
Routine Primary cost elements

Maintenance
Cost element Description in GLOBE AMM Remarks
numbers (GLOBE)
50 1401 0 "Stores Issue" Technical materials stored
50 1402 0 "Third Party Services" Service billed by a
contractor
50 1403 0 "Material & Spare Parts" Technical materials not
stored
50 0448 0 "Rpl Mt Stock Dif" Quantity difference from
Stock checks
50 1406 0 "Price Dif - Spare PR" Technical materials Price
differences
Secondary cost elements
Own labour
(the total amount transferred to User cost centres through these cost
elements corresponds to the total cost collected by CCLI 9101 in Legacy)
numbers (GLOBE)
99 0460 0 "Routine Maint. Technical labour Highly skilled labour
1"
99 0463 0 "Routine Maint. Technical labour Less skilled labour
2"
Technical materials
numbers (GLOBE)
99 0466 0 "Routine Maintenance Technical materials not
External materials" stored
99 0468 0 "Routine Maintenance Technical materials
Stores issues" stored
Third party
numbers (GLOBE)
99 0467 0 "Routine Maintenance Service billed by a
External services" contractor

25/31
Extraordinary In GLOBE, the costs of extraordinary maintenance are assigned to "WBS" ("Work
maintenance Breakdown Structures"). WBS is a mechanism used in SAP to plan, collect and
monitor the costs linked to a project. The cost of the WBS concerned is then
assigned to User cost centres.
Extraordinary maintenance costs are assigned through primary cost elements and
secondary cost elements:
1) Through primary cost elements, costs are transferred:

From the General Ledger to WBS
2) Through secondary cost elements, costs are transferred:

From Work Orders to WBS, and / or
From WBS to User cost centres
Extraordinary maintenance
Primary cost elements for technical consumed by "User" CCs
materials and third party costs
See
Note
Work WBS
Orders Secondary Secondary cost
General
Ledger cost elements elements (990xxx0) "User"
(990xxx0) Cost
Centers
Labour pools for M&I

Primary cost (CCs 419.01and 419.02)
elements for
labour
Note: to book materials to project work orders is technically possible, but not recommended. Although these costs
would be assigned correctly from a financial view point, the corresponding commitments would not appear on the
WBS report.
Primary cost
elements Cost element Description in GLOBE Remarks
numbers AMM
(GLOBE)
50 1401 0 "Stores Issue" Technical materials stored
50 1402 0 "Third Party Services" Service billed by a contractor
50 1403 0 "Material & Spare Parts" Technical materials not stored
50 0448 0 "Rpl Mt Stock Dif" Quantity difference from Stock
checks
50 1406 0 "Price Dif - Spare PR" Technical materials Price
differences

26/31
Secondary cost
elements Own labour
(the total amount transferred to User cost centres through these cost elements
corresponds to the total cost collected by CCLI 9111 in Legacy)

number
(GLOBE)
99 0462 0 "Extraordinary Maint. Technical labour Highly skilled labour
1"
99 0465 0 "Extraordinary Maint. Technical labour Less skilled labour
2"
Technical materials

number
(GLOBE)
99 0469 0 "Extraordinary Maint. External Technical materials not
materials" stored
99 0471 0 "Extraordinary Maint. Stores Technical materials stored
issues"
Third party

number
(GLOBE)
99 0470 0 "Extraordinary Maint. External Service billed by a
services" contractor

27/31
Technical In Legacy as well as in GLOBE, Technical overheads are subdivided into the
overheads following three categories of costs
Cost centre number Description
(GLOBE)
xxxx19001 Workshop (Legacy: CCLI 9501)
xxxx19002 Technical stores (Legacy: CCLI 9502)
xxxx19003 Technical office (Legacy: CCLI 9503)
Note: The letters "xxxx" represent the GLOBE factory code.

Example: GLOBE cost centre 101219001 = York Factory's workshop (1012 being
York Factory's code)
Workshop
This cost includes the cost of the persons working in the workshop, as well as the
cost of the materials which they require, the cost of the machinery which they use, a
share of the cost of the building where the workshop is located, etc.
Technical stores
This cost includes the cost of the person(s) working in the technical stores, the cost
of the storage installation, and a share of the cost of the building where the stores
are located.
Technical office
This cost includes the salaries of the Factory Engineer and of his assistants, a share
of the cost of the building where this office is located, office supplies, travelling
expenses by technical personnel, etc.
Technical overheads are allocated to the cost centres "using" maintenance. The
allocation basis is the maintenance cost budgeted / incurred by each "User" cost
centre. For example, if the "User" cost centre X incurs twice as much maintenance
cost as the "User" cost centre Y, it will also bear twice as much technical overhead
as Y.
Note on cost centre numbering

It is important to bear in mind that Legacy and GLOBE rely on different
terminologies and numbering conventions:
In Legacy:
A "CCLI" is the lowest level for collecting costs
A group of CCLIs sharing common characteristics is called "Cost Centre" (CC)
A CC number has 2 digits. Example: CC 95 = Technical overheads
A CCLI number has 4 digits. Example: CCLI 9501 = Workshop
In GLOBE:
A "Cost Centre" (CC) is the lowest level for collecting costs
A group of CCs sharing common characteristics is called "Cost Centre Group"
A CC Group number has 3 digits. Example: CC Group 190 = Technical
overheads
A CC number has 9 digits. Example: cost centre 101219001 = York Factory's
workshop (1012 being York Factory's code)

28/31
Annex 3 Special charges
Introduction Special charges are expenditures related to a capital investment, which are normally
not capitalised but allocated to the factory expenses during the year they have been
incurred. They cover modification work, and demolition work.
Modifications refer to re-organisation and rationalisation of existing buildings or

equipment required in order to be able to execute a Capital investment project.
I.e. work initiated to modify their original condition. If this work in any way
increases the capacity of the asset, above the capacity stated in the original
purchase order of the asset, this work is of a capital nature and the cost must be
included in the capital investment budget and the expenditure allocated
accordingly.
Demolition work refers to the demolition of buildings; the dismantling of

equipment and the sanitation or restructuring of buildings that are required in
order to execute a capital investment project.
Special charges are an integral part of a capital investment project. The procedure
for budget, authorisation, and reporting is dealt with in the guidelines for capital
investment
Special charges must be allocated from the capital investment budget to the product
cost through the Standard Cost Budget.97. In Legacy, the total Special Charges are
collected in the CC 97.
Special charges are budgeted and controlled individually. In GLOBE, this is

achieved by means of WBS (Work Breakdown Structures). The special charges
assigned to a given WBS are then assigned to User cost centres.
Special charges are assigned through primary cost elements and secondary cost
elements:
1) Through primary cost elements, costs are transferred:

From the General Ledger to WBS
2) Through secondary cost elements, costs are transferred:

From Work Orders to WBS, and / or
From WBS to User cost centres
Special charges: primary cost elements
Cost element Description in GLOBE Remarks

numbers AMM
(GLOBE)
50 1407 0 "Special Charges - Third Service billed by a contractor
Party "
50 1408 0 "Special Charges - Technical materials (stored or
Materials" not)

29/31
Annex 3 Special charges, Continued
Special (the total amount transferred to User cost centres through these cost elements
charges: corresponds to the total cost collected by CC 97 in Legacy)
secondary
cost elements Own labour
number (GLOBE)
99 0461 0 "Special charges Technical labour Highly skilled labour
1"
99 0464 0 "Special charges Technical labour Less skilled labour
2"
Technical materials
number (GLOBE)
99 0472 0 "Special charges External Technical materials
materials" not stored
99 0474 0 "Special charges Stores issues" Technical materials
stored
Third party
number (GLOBE)
99 0473 0 "Special charges External services" Service billed by a
contractor
Special charges consumed

Primary cost elements for technical by "User" CCs
materials and third party costs
See
Note
Work WBS
Orders Secondary Secondary cost
General
Ledger cost elements elements (990xxx0) "User"
(990xxx0) Cost
Centers
Labour pools for M&I

Primary cost (CCs 419.01and 419.02)
elements for
labour
Note: to book materials to project work orders is technically possible, but not recommended. Although these costs
would be assigned correctly from a financial view point, the corresponding commitments would not appear on the
WBS report.

30/31
Annex 4 Work orders in GLOBE
Decision Flow The chart below explains in which circumstances the various types of work orders
Chart available in GLOBE should be used.
It is consistent with the decision chart presented in Section 4.1.4, which explains
how to distinguish a Maintenance activity from a Production activity.

31/31
Annex 4 Work orders in GLOBE, Continued
How to track the mentioned operators activities into AMM:
As a factory improves its maintenance performance it is expected that the activity of maintenance
will be undertaken by both technical and operational staff. In GLOBE there are 3 possible
scenarios for the control of technical and production labour. Once a factory has, or expects to have
within the next budget cycle, operators maintaining their lines scenario 3 should be used to ensure
that the correct allocation of costs can be made.
It should be part of a factories preparation for the TPM PM Pillar implementation to move to this
scenario if it is not already being used.
The set up and management of the labour pool cost centres is described in the attached link.
A technical work centre must be created for each labour pool cost centre where labour may be
charged to maintenance. For scenario 3 this will be for both the technical labour pool and one or
more of the production labour pools.
Each of these work centres must be created with a control key PM01, contain a capacity equivalent
to the labour hours budgeted to maintenance and have the relevant people linked in the HR
section of the capacity tab. Should the labour need to be charged a 0 cost from the decision chart
above then the control key should be changed to PM04 in the work order directly.


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ED-205.3-3 - Control of Maintenance Expenses in Factories

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ENGI NEERING DOCUM ENT

For Nestl Internal use

ED-205.3-3, 09/2016 Replaces: GI-205.3-3

Purpose of This instruction supersedes the guideline "Control of Maintenance Expenses in

Major changes Instruction updated, major changes mentioned in the introduction

Use of this Intended to manage Maintenance Expenses in Nestl factories

Implemen To be implemented as part of the Nestl Maintenance Strategy

Reference NCE TPM PM-Pillar Reference Guide

ED-205.3-3, 09/2016 Replaces: GI-205.3-3

Principles & definitions

Note: Demolition work includes the dismantling of equipment; demolition, sanitation

Note: "WBS" means "Work Breakdown Structure". It is a mechanism used in

Continued on next page

ED-205.3-3, 09/2016 Replaces: GI-205.3-3

Principles & definitions, Continued

Maintenance Maintenance is composed of activities, grouped into categories and sub-categories,

ED-205.3-3, 09/2016 Replaces: GI-205.3-3

CATEGORIES ROUTINE MAINTENANCE EXTRAORDINARY SPECIAL CAPITAL

Treatment of Not capitalised Not capitalised Not capitalised Capitalised

Production Depending on circumstances, the activities performed by technical personnel on a

Production The following technical activities are classified as production activities:

b) All activities of a technical nature (including reactive, and scheduled

During NPH, all maintenance (reactive, preventive and predictive) performed on a

GI-205.3-3, 11/2009 Replaces: GI-205.3-2 / March 2008

YES Is the technical activity performed on an

Maintenance activity Fixed cost Production activity Variable cost

Note on the classification of technical labour performing production activities

In GLOBE, the cost of technical labour performing production activities is posted to

99 0110 0 PO-related downtime labour

GI-205.3-3, 11/2009 Replaces: GI-205.3-2 / March 2008

GI-205.3-3, 11/2009 Replaces: GI-205.3-2 / March 2008

Spare parts repaired by third parties

Spare parts repaired in the factory workshop

GI-205.3-3, 11/2009 Replaces: GI-205.3-2 / March 2008

Continued on next page

GI-205.3-3, 11/2009 Replaces: GI-205.3-2 / March 2008

Routine Maintenance and Extraordinary Maintenance are budgeted and justified

Extraordinary Maintenance expenses must be justified and estimated individually,

Budget To prepare the budget the following information is needed:

Maintenance is budgeted without reserves. Should there be an unavoidable

Continued on next page

GI-205.3-3, 11/2009 Replaces: GI-205.3-2 / March 2008

Extraordinary Extraordinary Maintenance jobs must be budgeted, justified and controlled

Extraordinary Maintenance expenses may cover either Condition-based

Continued on next page

GI-205.3-3, 11/2009 Replaces: GI-205.3-2 / March 2008

Continued on next page

GI-205.3-3, 11/2009 Replaces: GI-205.3-2 / March 2008

Summary of Analysis of expenses charged to Factory Maintenance:

g Extraordinary Maintenance xx'

O Total Factory Maintenance E+N xxxxxxx'

p Total production (tons) xxxxx'

GI-205.3-3, 11/2009 Replaces: GI-205.3-2 / March 2008

Name of responsible person

Deviations In case of significant over-expenditure additional funds have to be requested, as

GI-205.3-3, 11/2009 Replaces: GI-205.3-2 / March 2008

GI-205.3-3, 11/2009 Replaces: GI-205.3-2 / March 2008

Annex 1 Maintenance definitions

Maintenance & Improvement (M&I)

Maintenance Sub-category Predictive Time-Based Project - Based Breakdown

Condition Based Project Workorder Breakdown

Maintenance Initiative OPTIMISE UTILISE MINIMISE

Note: Graphic obtained from the TPM-PM Reference Guide

Continued on next page