INTRODUCTION
This handy guide reveals many of the pitfalls that procurement departments encounter when placing a public bid to the public. As it pertains to CMMS systems, or many of the names that are used, such a system is a software program that is made for a utility, manufacturing or municipal environment to track, report and analysis the material equipment that supports utility functions, such as transformers, circuit breakers, water pumps and the like.
This guide is written with examples from companies such as Cargill, ADM, American Airlines and many municipalities and energy utilities and cooperatives. With a few simple steps from this guide, one can determine whether or not value is being received or taken.
“We need a CMMS system”
So you’ve been given the directive to procure a CMMS. You were an expert in paper towels yesterday and today you must get a company-wide integration to track your electrical/water system. Regardless of what is being tracked, monitored or analysed, it will soon become apparent that there are thousands of providers of said software and the pricing is extremely varying. Before we get familiar with a few vocabulary words that will appear and how best to use them to your advantage, let’s first discuss the typical business model of CMMS/EAM companies so you understand where they are coming from.
What They Won’t Tell You
The majority of CMMS/EAM companies use previously developed “one-size-fits-all” software, so that it can be applied to many situations and be considered “OTS” (Off The Shelf). Although we’ll discuss OTS later, keep in mind that the objective is to secure the business or contract and then bill for configuring the software to the specific needs of the company as much as possible. Therefore, unless you went to a bookstore or Amazon, bought the software and downloaded it on the network to use, it’s not OTS. An OTS software solution that fits your particular needs and compliance/audit requirements is rare. If this wasn’t true, there would be no need for “configuration” quoting. In fact, in a recent RFQ in the western USA (JSD 2022), 32 out of 33 submissions for a CMMS claimed to be OTS, but required extensive “configuration” work in excess of the cost of custom programming. Also, keep in mind that a typical software engineer/consultant bills at anywhere from $150-$250 per hour, so configuration can accumulate rather quickly, so ask for Time and Material, Not-To-Exceed pricing.
“Buying an ‘Off-The-Shelf” CMMS is like buying a roll of fabric when you need a jacket. Sure, the salesman will have his technicians make it into a jacket [and charge you for it], but maybe you should have bought a jacket.”
Have you ever tried finding pricing on a CMMS/EAM system? Not terribly easy and there is a reason for it. The profit is in the software maintenance or user fees.
1. Beware of the user fee
Contrary to the industry standard, there is very little additional computing power that is necessary for up to 2,000 concurrent license users. Most companies, such as Hippo, Maximo and Brightly, assume a cash-flow loss for up to 3 years, knowing that the average customer will continue to pay for user fees for 5-7 years. Therefore, don’t request contracts for more than 3 years. It will reveal who is hiding costs with maintenance fees.
Additionally, the industry has convinced many procurement professionals that concurrent users cost more; it doesn’t.
Case Study: Sonoco Products, a large company with approximately 21,000 employees, was researching the costs of a CMMS system that would organize all the electrical/mechanical equipment that needed to be maintained on a periodic basis; internally and OSHA-compliance. It was discovered that they already had over 1,000 licenses of Maximo company wide, with an average cost of approximately $230 per license per month, equating to over $250,000 per month. Maintenance managers still use spreadsheets to track equipment and don’t use Maximo. (jsn 2020)
2. Time to Complete
Quite often a municipality or utility will be approached with an equipment inventory system that may take anywhere from 4 -18 months to complete. There is a reason that the timeframe is quite long, even though it may be touted as OTS. Unfortunately, the reason is not what one would like to hear.
In a discussion with a Brightly, it was revealed that projects are started and then left to start another project so that fees can accumulate in order to reach the break-even point after 3 years. It was noted that there is a reason why the recurring revenue from fees is almost 90% of the companies total revenue (approximately $190M as of 2021) and why Siemens purchased the complimentary company for over $1.5B; it’s the recurring revenue that clients get used to paying for. “Clients get the idea that once a company starts a project, it’s of no use to switch, since they’re already ‘paddling down the river’ with them.”
Therefore, unless there is custom programming or over-worked configuration going on, be careful of overstated timelines.
Case Study: A leader of ADM, Gary G, reached-out to Gimba.io to discuss a CMMS system for all 520 locations for electrical equipment organization as part of a maintenance protocol, starting with a large plant in Peoria, Illinois. After initial discussions where held, it was decided that it would take approximately 9 months to complete the task and another 2 years to gather and enter all the data. The cost of labor would be an estimated $3.5M.
The project was halted as it was discovered that SAP had entered into a contract with ADM to design a CMMS system, authorizing a $50M spend. Although 5 years had past, no product had been produced and all locations still use spreadsheets as of 2021.
3. Where’s the Data?
The most astonishing fact with CMMS systems is the addressing of data gathering, validation and entry. It’s a very significant cost and rarely dealt with until it is too late. Finding a CMMS vendor that understands the equipment, the audit/maintenance frequencies and gatherings/verifies/enters the data into the database is difficult to find, but extremely important. If you don’t select a vendor that enters the data into the CMMS system, you are paying for an empty shell of software that can’t be used until data is entered. Therefore, ask how data migration and gathering is conducted and who is doing it. This is even more important within the utility space where electrical and water/wastewater maintenance frequencies and records are of utmost importance; they need to be accurate. Procurement specialists understand the value of time and the cost that is associated with having internal human resources do the labor. Additionally, make sure that if there is a subcontracted labor to complete such tasks, they meet the Qualified Persons requirements of your facilities.
Cheat Sheet for Utility, Municipal, and Industrial Procurement Specialists
To: CMMS provider
Re: Requested CMMS implementation questions
Please respond to the following questions:
- Who enters-in the data of the equipment? This includes pictures of nameplates, locations, spare inventory, etc.
- What is the cost of gathering/verifying/entering-in all data into the CMMS?
- What is the time needed for integration of the CMMS?
- What is the total cost on an NTE basis? (Not-To-Exceed)
- What format is the data exportable to?
- What auditing entities are commonly associated with your maintenance frequencies?
- How many users can be logged-on at once? How much for 10/100/1,000 concurrent users?
- What services are being provided if maintenance fees are charged?
Answers:
- It should be the software company. If not, then they expect you to have your company do it, and that costs money. Be wary of the subcontractors, as they may or may not be familiar with the equipment being photographed/entered/validated.
- Should be straightforward answers.
- If the timeframe is over 2 months, you’re being charged for configuring a system meant for a different environment.
- If they’re not comfortable with NTE, then you better be comfortable with over-budget.
- Should be an acceptable format that can be transferred to any CMMS. You own your data.
- If you’re a utility/municipality/industry and they don’t know what NFPA 70E/B, NERC/FERC or EPA is, you’re paying for their learning curve.
- There should be no difference in pricing between 10 and 1,000 users. If there is, then their model is based-upon maintenance fee profits.
- Should be “verifying database viability and usage” or “onsite validation”.
About the Author
Jonathan has been a leader in process and management consulting for more than 25 years. Starting his career at the Chicago Board of Trade as one of the youngest CTAs, Jonathan moved his firm to Boston, serving as management and consultant within hardware technology, electrical distribution, financial services, and software technology. From creating the Main Grain program for agricultural cooperatives to the innovations of Project Design-Drive, combining Lenovo and SolidWorks, Jonathan has been an innovator.
Jonathan currently resides in St. Charles, Illinois with his wife and four children. He currently serves as a consultant for CMMS, PDM, EAM, and EEOS integrations.
