Background : The top management of a chemical company, with 400 crores turnover, is extremely happy with its internal audit department specially with the cost saving measures recommended by the department. The company has two plants in Thane (Mumbai) and Vapi (Gujarat), with its corporate headquarters. The company is presently facing problems with high cost of production and is finding that the products manufactured at its Thane and Vapi plants are not competitive vis-à-vis other chemical manufacturers in the organised sector. The company also finds that the shutdown hours for the factories were quite high. The Managing Director holds a meeting with the Chief Internal Auditor (CIA) and requests him to conduct a review of Thane and Vapi plant production units’ operations and suggest improvement measures to ensure that the plant is more efficient and effective to maintain its competitiveness vis-à-vis the threat from competitors. He also informs the CIA how important it is to reduce cost of operations, failing which he is concerned that the units would have to be closed down in the near future.

Methodology :

Based on the above background, the CIA had a meeting with his audit managers to chalk out a plan to carry out a review of production facilities. He also decides to include a mechanical and an electrical engineer in his team to carry out this review. He first gets earlier reports on working of the factory and also the shut hours report for last six months and prepares an agenda to work for his team. On a review of MIS and other reports from the plants, he selects two areas — one is the working of electrical motors and their maintenance and the other being quality of consumables like ‘V-Belts’, etc.

Though the focus area is the working of motors and quality of consumables, the review would include :

  • interviews with all production personnel including few workers in the plant to understand the problems being faced.
  • understanding the overall shut hours and analysis of the reasons for shut hours in terms of mechanical failures, electrical failures, absentism, lack of raw material, etc.
  • going through maintenance department reports to understand the areas of concern for production.

In addition, the team also decides to take following steps :

  • Visit two production facilities of competitors. (This visit is arranged by the Managing Director who enjoys good relations with the owners of these factories). This would give a first-hand view of the difference in maintenance procedures and the shut hours in those factories, for carrying out the review.
  • Arrange a brainstorming session with the maintenance staff and workers for coming up with ideas to reduce the shut hours. Again the management gives permission for the same.

Gist of observations :

After a study of above, it came to light that the main controllable reason for shutdown was motors getting burnt frequently. This affected the continuous process plant, as each shutdown for replacing a burnt motor caused a substantial loss to production.

Plant being shut number of times for replacing motors and motors getting burned out frequently

(a) Average life of motors was two years. Usually in chemical continuous plants the life of motors is four/five years.

(b) There was no requisition or system to track the rewinding of motors. It was done in house and the workers would just remove the motor and put in the replacement motor. The burnt motor was sent in the maintenance section where rewinding was carried out.

(c) There was no emphasis on any quality as far as rewinding wire and other consumables required for rewinding motors were concerned.

(d) After rewinding, there was no check on quality of work carried out.

(e) There was also no check on the life of motors and also on the frequency of failure at a particular position in machinery.

(f) All of the above led to frequent motor failures and the management had never paid any attention to this area, which had led the maintenance staff also to take the same lightly. But all these led to frequent shutdowns.

The internal audit team recommended a process, along with the maintenance and stores, for monitoring and rewinding motors.

The team recommended an electric motors register to be maintained in the stores — Exhibit ‘A’ along with an electric motor rewinding requisition to be maintained in the stores — through the Maintenance Department — Exhibit ‘B’.

They also laid down a process for electrical motor rewinding — as given below :

Electrical motor rewinding methodology :

  • List of motors at various locations is available. The motors need to be identified by HP/Sr. No.; so as to track their location and performance.
  • Motors are rewound within the factory/plant. The Electrical Department must give a requisition for rewinding to the Stores — Engineering.
  • The stores initiates the procedure for re-winding.
  • Material for rewinding (as per the requirement) is issued by the Stores.
  • After rewinding, the motor is required to be both inspected and tested.
  • Recording of R/Y/B resistance and insulation resistance is required to be maintained to ensure that the motor is rewound correctly.
  • Materials for rewinding needed to be specified and verified on receipt :

— Wire : electric grade

— Copper : double enamels

— Insulation type : E grade

A study was undertaken for life of rewound motors. It revealed that life could be improved by use of proper grade of materials. It was recommended that for critical areas(under/overheating, moisture), totally enclosed motors should be used.

This will reduce breakdowns/downtime and costs also.

The above was one study among many other improvements in maintenance that the team carried out at the plant and the suggestions were discussed and implemented.

Conclusion :

 

Maintenance management whole-heartedly agreed to act upon the issues raised by the internal audit team, as it was the question of the very survival of this plant against the competitive forces. Adoption and action on these issues led to reduction in shut hours and making the products competitive. The Managing Director appreciated the efforts of the internal audit team.

It led the internal auditing function to be elevated to deliver business solutions.

Exhibit ‘A’

Electric motors register

 

Motor particulars :

 

ID Number :…………………………………..

HP :……………………………………………. RPM :…………………………………

Make :………………………………………… Bearings :…………………..
………………….

Date installed Location Date of removal Reasons for removal/failure* Repairs/rewinding action taken

* Reasons for removal/failure may constitute any of the following, but not limited to :

1. Bearings 2. Shaft 3. Winding

4. Moisture/Water 5. Overheating 6. Others

Exhibit ‘B’

Electric motor rewinding requisition

 

The following motor/s is/are to be rewound :

Sr. No. H.P. RPM. Make Identification number Removed from (Location) Date removed Date of rewinding Test Report R/Y/B, Insulation resistance in Mega-Ohms
01
02
03
04
05
06
07
08
09

To Date : Electrical Engineer

Engineering Stores

Source: http://www.bcasonline.org/

More Under Finance

Posted Under

Category : Finance (3623)
Type : Articles (16265)
Tags : Audit (447) Internal Audit (70)

Leave a Reply

Your email address will not be published. Required fields are marked *