Risk-Based Asset Management David J. Mierau, PE, CMRP Director, Reliability Solutions Life Cycle Engineering 10-MAR-2015

Asset Management Risks Robust Quality System: Compliance with Asset Risk Control Strategies such as Preventive and Predictive Maintenance Plans Business Continuity Planning: Integrating the supply chain network and having good governance systems Graphic Source: ISPE Drug Shortages Prevention Plan Introductory Summary, ISPE, August 2014

Impact of Manufacturing Disruptions Drug Shortages by Primary Reason for Disruption in Supply in 2012 From the Strategic Plan: “Quality or manufacturing concerns can involve compromised sterility, such as roof leakage; mold in manufacturing areas; or unsterilized vials or containers to hold the product—issues that could pose extreme safety risks to patients.” 66% of disruptions have a direct connection to physical asset management – most likely all of facility remediation causes and a portion of manufacturing issues 66% of disruptions resulted from: Facility remediation efforts (35%) Manufacturing issues (31%) Graphic Source: Strategic Plan for Preventing and Mitigating Drug Shortages, Food and Drug Administration, October 2013

Recent Focus on Asset Management ISO 55000 (2014): Asset Management Standards BSI PAS 55 (2004, 2008): Optimized Management of Physical Assets Standards ASTM E2500: Pharma-specific Guidance Referenced standards provide the elements of a holistic asset management program and should be referenced when creating a corporate or site asset management policy and program.

Risk-Based Asset Management in Other Regulated Industries Commercial Airline Industry Nuclear Power Generation US Military Space Programs Subsea Oil & Gas Drilling (emerging) Many foundational asset management, reliability and maintenance standards written in 1970s-1980s

Asset Management System Implementation Framework Leadership, Policy & Strategy Asset Management System Asset Management Strategy Business Case Business Case Create or Value Delivery ISO 55000 Compliance Reliability Excellence Process Safety Management Mechanical Integrity ISO 31000 Risk Management Asset Management Plans Asset Criticality Asset Management Objectives Acquire ASSET LIFECYCLE Operate & Maintain Dispose or Discuss elements of the model and how to implement/create an Asset Management System that is in alignment with ISO 55000 Provide more specifics around the value delivery Replace Operate & Asset Management Capability (Processes, Procedures & Knowledge) Maintain Procure & Construct Commission Physical Asset Portfolio Graphic Source: Life Cycle Engineering, Copyright 2014

Connection to Operational Excellence Think about the necessary components to sustain manufacturing operations: Safety Quality Productivity Compare to the “fire triangle” and the need for Oxygen, Heat and Fuel in order for a fire to start. For sustained manufacturing, you must have all three components of Safety, Quality and Productivity. Without one of these items, the operation will be shutdown and/or patients will be put at risk.

Benefits of Risk Management Awareness of real exposures Knowledge of controls quality Cost benefit analysis Improved risk mitigation and transfer strategy INFORMATION Expected Loss – how much do I lose on average? Unexpected Loss – how much I could reasonably expect to lose in a bad year? Control Scores – how good are the controls I have in place? DATA Loss data collection Risk indicator data collection Control self-assessment Risk assessment and analysis Automatic notification Follow-up action reports FOUNDATION Risk strategy, tolerance Roles and responsibilities Policies and procedures Risk definition and categorization Economic Profit © American Society for Quality Management & Control Quality

How can Risk-Based Asset Management impact Quality? Requires management of physical assets across the entire asset life cycle Provides focus on what assets are critical to the patient (quality & supply) and the business (safety & productivity) Provides a process for managing resources and priorities – applying most robust risk control strategies to highest risk assets Concept Design Procure Install Commission Qualification Validation Operate Sustain Decommission Discuss how risk-based asset management is more focused than general asset management and the economic advantages as well as drug shortage prevention advantages

Risk-Based Asset Management (RBAM) Model Focus on Classify, Analyze, Control, Measure sequencing and the Continuous Improvement Cycle The goal at the top is “Operational Stability” – not reliability excellence, maintenance excellence, operational excellence, etc. Graphic Source: Life Cycle Engineering, Copyright 2014

Additional References RBAM: Classify Phase Process flow mapping Value stream mapping Relationship models (hierarchy) The RBAM Classify phase ensures that all assets are documented with parent-child relationships defined. It also defines where value opportunities exist related to asset performance improvements. Additional References Hierarchy: ISO 14224 Expand explanations of each element with some examples – discuss parent-child functional hierarchy example. Value stream mapping helps maintain program alignment to overall business strategy.

Asset Functional Hierarchy (1) Business Category (2) Installation/ Business Unit (3) Cost Center/ Op Unit (4) Function (5) System (6) Sub system/Asset (7) Component/Maintainable Item (8) Part/ BOM Use/ Location Data Equipment Subdivision Typical application of asset criticality is at these levels of the functional hierarchy – referenced in ISPE C&Q Baseline Guide Graphic Source: ISO 14224

Functional Hierarchy Example Benefits of an Optimized Functional Hierarchy: Event tracking and trending by various groupings: function, systems, etc. Appropriate system definitions for asset criticality analysis Comprehensive asset listing of all site components and parts along with associated systems

RBAM: Analyze Phase Equipment Criticality Failure Analysis Risk Analysis Risk Ranking The RBAM Analyze phase evaluates risks associated with potential asset failures, quantifies risks and provides a way to prioritize risk control activities. This phase of RBAM is where risk analysis and risk ranking are utilized

Equipment Criticality Holistic Equipment Criticality includes the following impact elements: Quality Impact Business Health, Safety & Environmental Customer/Patient Supply Mean Time Between Failure (MTBF) Mean Time to Repair (MTTR) Utilization Single Point of Failure Additional References Criticality: ISPE Baseline Guide for C&Q, Impact Assessments Holistic asset criticality considers various aspects of what makes a system/asset critical. Discuss how criteria is created and how all systems are rated with cross functional teams. Ultimate responsibility for each category is by functional area e.g. quality owns the quality numbers, etc.

Asset Criticality Thought Process Determining function of equipment, system, item process, etc. Is it main equipment or an auxiliary item? Is it a unique item or common with others? Redundancy – Duplication – Alternative Do you have a standby backup? Do you have alternative means to continue normal operation? What is the likelihood of a failure mode occurring? (High/low) Consider history of failures for equipment Consider possibility and frequency of failures What are the consequences of failure? Any production losses as a result of failure? How much? Any safety, environmental, or business losses as a result of failure? What is the likely period out of operation? Can the repair be done onsite? Are spare parts available? How long to get parts if not in stock? What is the longest time for repairing the failure?

Typical Asset Criticality Considerations Quality/Reg. EH&S Business Reliability Maintenance Supply Chain Decom. Asset Recap. Value Environmental, Health & Safety Impact Downtime Impact Yield/Discard Losses Failure Rate (MTBF) Utilization Single Point of Failure Inventory Logistics Mean Time to Repair (MTTR) Maintenance Cost

Asset Criticality Criteria Example

Criticality & Risk Control Strategies Asset Criticality Tier Additional Analysis Risk Control Strategy Criticality Top 15% A Asset Specific FMEA PdM, PM, NDE/MI, OC, Redundancy Top 35 to 15% B Asset Type FMEA PdM, PM, NDE/MI, OC Top 65 to 35% C Simplified Maint. Review PdM, PM Top 85 to 65% D OEM Maintenance Minimal PM - Contractor Asset criticality is broken down into 3-5 tiers or levels based upon overall risk. The tiers are reviewed by all stakeholders for “outliers” that need to be moved. Lowest 15% E None RTF – Run to Failure

Analyzing Criticality Data Look for quality and safety “outliers” – High quality and safety scores in lower tiers (low overall criticality value scores)

Additional Analysis: FMEA Failure Mode & Effects Analysis Evaluation of asset (system) risk Dual focus: functions & components Evaluate each potential failure mode & cause Establish risk ranking scales to calculate risk Risk = Severity x Occurrence x Detection Establish risk thresholds for taking mitigating actions Quantify risk reduction Provide details around steps to execute a FMEA including reviewing all available system information including dwgs, failure history, OEM manuals, etc. Build a functional block diagram, separate major subsystems & components, establish functions and subfunctions, determine failure modes for each combination of functional failure and component, analyze current risk based upon existing risk control strategies, recommend mitigating actions if current risk is unacceptable, analyze to-be risk based upon recommended actions being in-place Additional References IEC 60812 MIL-STD-1629A

Risk Priority Number (RPN) = Severity x Occurrence x Detection FMEA Risk Categories FMEA Risk Calculation Risk Priority Number (RPN) = Severity x Occurrence x Detection

Risk Priority Number (RPN) = Severity x Occurrence x Detection FMEA Risk Categories FMEA Risk Calculation Risk Priority Number (RPN) = Severity x Occurrence x Detection

FMEA Risk Evaluation for All Failure Modes & Causes

Risk Reduction Summaries

RBAM: Control Phase Standard Work Operating Procedures Preventive Predictive Condition Monitoring Remote Monitoring Operator Care Critical Spares Risk control strategies include all items listed above in addition to improvement/project actions where risk can not be mitigated through routine tasks. Give a brief description of each type of work – such as vibration monitoring for predictive maintenance, etc. The RBAM Control phase is the application of risk control strategies recommended from the Analyze phase

Asset Risk Control Strategies Based upon recommendations from the FMEA and analysis of the “to-be” RPNs New or updated maintenance plans Replacement or upgrade projects New setup or operating instructions Risk reduction will not be realized until recommendations have been implemented PdM: Infrared Thermography

RBAM: Measure Phase OEE TCO Asset Utilization MTBF MTTR Expand explanations of each element with some examples The RBAM Measure phase ensures compliance with documented risk control strategies and provides data for continuous improvement

Key Performance Indicators Trending Equipment Quality Events/Deviations

Recognized Industry Standards for KPIs/Metrics SMRP Best Practice Metrics Guide BSI Standard EN 15341 – Maintenance Key Performance Indicators ISPE Good Practice Guide: Maintenance Understand Leading/Lagging Indicators: Low compliance to maintenance schedule (overdue maintenance work orders) is a leading indicator for asset reliability

Risk-Based Asset Management (RBAM) Model Review Focus on Classify, Analyze, Control, Measure sequencing and the Continuous Improvement Cycle The goal at the top is “Operational Stability” – not reliability excellence, maintenance excellence, operational excellence, etc. Graphic Source: Life Cycle Engineering, Copyright 2014

Other Elements of Asset Management to Consider Asset-Related Capital Delivery MRO Stores & Materials Management CMMS & Data Historian Support Organizational Design Maintenance Work Execution Maintenance Planning & Scheduling Reliability Engineering Processes Loss Elimination, Root Cause Analysis, Critical Spares, etc.

Create Your Risk-Based Asset Management Program Establish a Corporate Asset Management Policy and require risk-based processes Your Drug Shortage Prevention Program should reference the Asset Management Policy as one element of the Prevention Program Establish or update procedures and processes for the phases and processes of RBAM Begin with the Classify phase (field data gathering, value stream mapping, relationship models) & Asset Criticality in Analyze phase Note that several major pharmaceutical companies have established formal corporate asset management policies and standards. Also note that asset management is only one element of a holistic drug shortage prevention program – companies need to consider supply chain, notification requirements, etc. as other elements of their shortage prevention program.

Take Action and Measure Results Consider a pilot area/plant to implement and demonstrate improvement Build & implement new risk control strategies for asset operation and maintenance These activities reduce risk and improve operational stability! Note that several major pharmaceutical companies have established formal corporate asset management policies and standards. Also note that asset management is only one element of a holistic drug shortage prevention program – companies need to consider supply chain, notification requirements, etc. as other elements of their shortage prevention program.

Questions & Discussion Risk-Based Asset Management David J. Mierau, PE, CMRP Director, Reliability Solutions Life Cycle Engineering 10-MAR-2015 mieraudj@gmail.com www.LCE.com Exhibit Table #541