The Hidden Cost of Oil Changes

Ken Brown, Utility Service Associates, www.noria.com
Posted 9-27-03

Proper lubrication is an essential maintenance function and changing oil is one aspect of the process. Unlike changing the oil in your car based upon time or miles, oil changes for industrial equipment should be based on need where no other practical solution to restore proper lubrication is available. Too often, we schedule an oil change to rectify a contamination problem or when excessive wear is detected. In neither case is the oil change a certain correction of the root cause of the problem, and it wastes good money and further stresses the environment with hazardous waste.

There are many hidden costs associated with oil changes that are often not taken into account when the action is scheduled. For example a very simplistic approach might only consider labor to change oil + disposal costs + cost of new oil. But there are other more significant hidden costs such as downtime, administrative purchasing costs, storage, handling, testing and spills, often accounting for many times that of the oil alone. For example, damage to the machine during a change can occur for the following reasons:

• Adding the wrong oil.
• Over/under-filling the sump or reservoir.
• Cross threading a drain plug.
• Starting the equipment dry (it happens).
• Introducing contaminated oil

Over the operating life of the plant, there will be oil spills. Like fires, they happen, but the degree to which you are prepared often determines the extent of the damage. The consequences of spills can range from the need for solvents and cleaning agents to remove oil from equipment and walkways, to replacing pavement or digging up soil, to major expenses and adverse publicity if the oil gets off site and into local waterways. Costs might range from hundreds of dollars to millions of dollars depending, of course, upon the nature and severity of the occurrence. Oil spills can occur at all phases in the oil change process, including the following:

• In storage
• During transport to the equipment
• While draining the old oil
• While adding the new oil
• When disposing of the used oil

It is important to know your options when it comes to lubrication, and the real costs associated with each option, not just for oil changes but also for costs like re-engineering with better seals or filtration equipment. Facts and information reduce uncertainty and improve the quality and profitability of decisions about lubrication. Some of the following activities can, if well thought through, yield tremendous savings to the organization:

• Test oil so that it is only changed when required.
• Use the correct oil for the application.
• Filter oil so it is not changed just because of particulate contamination.
• Purchase good products, not allowing mixtures or cocktails.
• Use extended-life lubricants.
• Upgrade seals to reduce leaks and contaminant ingress.
• Provide staff with proper training and oil change equipment.

The Search for Hidden Costs
Like most activities, changing oil is not as simple as it seems on the surface. There are supply personnel, planners, schedulers, coordinators, health and safety staff and procedures involved in the process. These behind-the-scenes activities add "hidden" overhead cost to the oil change process that is often difficult to clearly define. Maintenance activities have to do with preventing or correcting wear of lubricated surfaces. The behind-the-scenes support often costs multiples of the simple cost to perform the maintenance activity itself.

Other costs such as availability, environmental compliance and risk-based costs need to be factored into the equation also. Below is a discussion of some of these costs as they relate to a power plant. Also, estimated costs for performing an oil change on a small system are identified in each section. The factors and figures may vary for your industry, but based upon the discussion, you should be in a position to make appropriate revisions.

Availability Cost - If the oil is being changed, the equipment is unavailable, not for just the time to change the oil, but from the time it is isolated until the time isolation is removed. The impact of unavailability is estimated to be one day or 0.3% of the annual usage because attempts to get a dollar value have not been successful, mainly because the cost depends upon where in the production cycle the equipment is located. When a machine cannot be shutdown 'just' for an oil change, this can still be done in many cases by bleeding and feeding. Using this approach, availability costs are lowered, but oil and labor costs are increased. Of course, this type of activity always creates some risk that lubrication will be compromised. Estimated as $200 per change.

Paperwork and Permit Costs - Generating permits, tracking, verifying and inspecting work all cost money. Even locking out an electrical panel takes time. Multiple trades may also be required to complete the task. Estimated as one hour of labor, or $27.

Labor and Benefits - The hourly pay is just part of the cost for labor. Benefits and corporate costs to administer human resources functions must be included in the total. Estimated as 1.5 times the hourly rate times the number of direct hours to complete the task.

Ancillary Activity Labor - Estimates of the time required to complete the oil analysis task should account for ancillary activities such as wait time, travel time, tool and material collection.Costs can range from two, to as high as eight times “wrench time.”

Supervision - Supervisory tasks always accompany the oil change job. Include time to issue work orders, assign and schedule the work and monitor activities in the estimate. This involves supervisors, maintenance support and maintenance planners. For example, each crew might have a lead hand and there will be a supervisor for every so many maintainers. Estimated as 20% over and above direct labor costs.

Oil Disposal Costs - This is the cost to pay an independent trucker and waste disposal company to collect and properly dispose of non-radioactive and non-chlorinated waste oil. Radioactive waste can be about $2,000 a drum. Alternatively, if it is used as fuel on site or for other purposes there might be a value assigned to the waste oil, but there would still be costs to move it around and if being burnt there are usually regulatory guides that have to be followed. Estimated as $0.50 per gallon.

Transfer Costs- Transfer burden should consider costs for temporary storage site, safeguarding, moving to the shipping truck or to a secondary site and, finally, transfer to the loading dock or long term storage. Estimated as one hour, or $27.

Lab Costs - Laboratory space and equipment, labor and tracking costs associated with sampling all used drums, and the costs for testing such as for radiation, PCB's, chlorine, glycol, water, metals and/or solvents in the waste oil as required. This value may vary depending upon local compliance requirements. Estimated as $100 per drum, or $2 per gallon.

Solid Waste - When oil is changed solid waste will also be generated that should be included in the estimate. This includes gloves, filters, wipes, solid absorbents, plastic bottles and hoses for sampling and the empty oil drums. Estimated as $25 per change.

Liquid Waste - If the oil has been allowed to degrade too far there will be liquid waste in the form of solvents or flush fluid for which disposal is required. This factor is very relevant to cost benefits associated with proactive maintenance and the use of long-life products. Estimated as $25 per change.

New Oil - The list price for new mineral oil is about $5.00 per gallon. Bulk steam turbine oil costs less while hydraulic oil and gear oils will cost more. In comparison, synthetic oils are significantly more expensive. For example, some fire resistant synthetic fluids cost $28 per gallon. Estimated at cost times volume.

New Oil Overhead - These costs include inventory or carrying charges and the costs of storage areas. Costs for the heated storage is taken to be $1/year/cubic-foot, although it would be higher because oil storage and local oil rooms require extra fire protection, venting and grounding. Further, a typical supply crib requires staff. There can also be carrying charges for stock. Estimated as $100 per drum or about $2 per gallon.

Purchase Orders - Several costs are incurred during the purchasing process. These include preparation and submission of the request-for-bid, review of available options, selection of successful bidder, running credit checks, making payments, etc. Estimates for this process range from $250 to $1500 depending upon complexity and scope. Estimated as $400 per order.

Equipment Failure and Spills - Changing oil is an intrusive maintenance action and there is some risk, as previously discussed. It is expected that there will be at least one failure over the life of the plant due to these risks with an estimated cost of $100,000. This is considered conservative because it assumes no outage results. Based upon a forty-year station life, and an estimated 130 oil changes per year, the risk cost is simply spread evenly at $20 per change.

Safety - Changing oils involves a number of potential safety hazards, including slipping, skin contact and lifting associated back injury. With regard to back injuries each 55-gallon drum of oil weighs about 400 lb (180 kg) so that lifting devices are usually required and are often not included in the cost estimation. Estimated as $20 per change.

New Oil Testing - A new oil sample should be taken and analyzed to verify that the correct oil was supplied and to baseline for subsequent testing. The cost of this testing and all aspects associated with it (data management, sampling consumables, etc.) should be included in the cost estimate. The total cost might include the cost of the testing, the labor to take the sample, the cost of the sample bottle, the shipping, the interpretation of the results and the record keeping. Also, the practice of frequently changing oil can greatly complicate used oil analysis. As Figure 1 shows, it is extremely challenging when make-up oil alone is added to the tank. If part of a large program, the associated costs of new oil testing should be very low. Estimated as $100 per change.

The Bottom Line
To calculate the real cost of an oil change, one must add up all the direct costs, the overhead costs and the implicit risk-based costs. The actual "real cost" to change the oil in a rather small system at a power plant requiring 5-gallons of oil (at $5 per gallon), two man-hours of direct labor and a purchase order to obtain the oil is $988.70 ALMOST 40 TIMES THE COST OF THE NEW OIL! While a significant part of the total cost lies in the cost of issuing a single purchase order, there are occasions where this occurs. ...