The relationship between assets and bottom-line profits typically receives scant attention from upper management. This is another reason why the profit potential of Asset Performance Management remains something of a secret from the broader organization. The good news is that because this potential is overlooked, executives and organizations seeking top performance have new profit opportunities. Consider just a few ways that Asset Performance Management positively impacts the bottom line.
Reduced Production Costs and Increased Capacity
Asset downtime disrupts production and drives up both process and per unit operating costs. Executives often lose sight of this because they focus on output, not on the assets used to create it. As one CFO put it, "Companies care about how many cans they make, not the can machine." The irony is that companies can use Asset Performance Management not only to make more cans, but to make each can more profitably. This is because Asset Performance Management can:
* Increase the availability of assets through reduced downtime and improvement in Overall Equipment Efficiency (OEE)
* Reduce capital investment in assets by 15% or more through improved preventive and predictive maintenance and more efficient labor deployment
A specific example comes from a food manufacturer that recently deployed Asset Performance Management with the goal of using longer manufacturing runs and improved uptime to increase manufacturing efficiency from 87% to 92% and create $7M more in sales, with no additional manufacturing costs.
Reduced Revenue and Operating Losses from Asset Failure
As discussed earlier, little matches the punishment inflicted on an organization when critical assets fail. Whether it is a faulty sewer line or a poorly calibrated vaccine machine or a broken oil rig, asset failure can create significant revenue and operating losses. The stakes grow even higher in regulated industries- such as pharmaceuticals, healthcare, food & beverage, and biotechnology-as well as in the highly regulated public sector. Consequences of noncompliance can include not just lost revenue, but fines, plant or location closings, litigation, damage to reputation, and a loss of investor confidence that can pummel a company's stock price. In the public sector, a loss of taxpayer confidence can reverberate through all levels of government.
Asset Performance Management reduces the prospect of revenue and operating losses by ensuring:
* Forward-looking Risk Management Asset Performance Management allows organizations to monitor, model and forecast performance against stringent requirements and key performance indicators (KPIs) across an organization, enabling them to detect problems with high-risk equipment before failure occurs.
* Regulatory ComplianceCombining Asset Performance Management principles with Datastream 7i functionality such as in-depth asset profiling, calibration report documentation, electronic signatures, and audit trail tools enables companies to stay compliant with government regulations including the FDA's 21 CFR part 11, standards set by the Joint Commission of the Accreditation of Healthcare Organizations (JCAHO), the Occupational Safety and Health Administration (OSHA), Governmental Accounting Standards Board statements 34 and 35 (GASB 34/35) and the Environmental Protection Agency's Capacity, Management, Operation and Maintenance (CMOM) program.
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* Improved Asset Quality and Reliability. AssetPerformance Management enables predictive failure analyses and preventive maintenance strategies that keep assets performing longer, better and more reliably. Predictive modeling allows organizations to forecast likely failure points and causes and proactively take corrective measures. Organizations can pinpoint unreliable assets, suppliers and processes, predict reliability issues before they happen, and plan for an asset's timely disposal.
* Reduced Inventory and Inventory Carrying CostsAsset Performance Management can help organizations reduce inventory of heavy machinery and equipment while also reducing spare parts inventory. Premier Manufacturing Support Services has used Asset Performance Management to eliminate the need for more than 60 trucks at one of its 42 plants in just eight months without affecting productivity, reducing its equipment inventory by one-third. The same kind of fine-tuned planning and forecasting can reduce spare parts inventory by 20-30% and reduce inventory carrying costs (such as storage, insurance, handling, and others) by an additional 20%.
* Increased Warranty RecoveriesUnclaimed warranties add up to significant sums for asset-intensive organizations-sums that can be added directly back to a company's bottom line. Consider the example of Coast Mountain Bus Co. (CMBC), a Vancouver, Canada-based transit company with 24,000 assets and more than 56,000 parts records. CMBC uses Asset Performance Management to maintain a complete fleet database to define and maximize multiple warranty recovery for different pieces of equipment. When a work order is opened on equipment with a valid warranty, the system immediately flags it as warranty work and all labor and associated costs can be captured and a proper claim filed. In CMBC's case, the result has been $950,000 of recovered warranties in 6 months' time.
* Reduced Labor CostsWith Asset Performance Management, organizations can model different scenarios to determine optimum maintenance schedules. They can focus labor resources on preventive rather than reactive work, so that more is done in less time with fewer delays and less overtime. In addition, because Asset Performance Management automates functions such as parts ordering, purchasing and payments, less labor is required.
* Reduced Capital OutlaysAsset Performance Management improves the reliability and extends the useful life of fleet and heavy equipment, to the extent that new equipment purchases can be reduced at levels of 3-5% annually.
Reduced Production Costs and Increased Capacity
Asset downtime disrupts production and drives up both process and per unit operating costs. Executives often lose sight of this because they focus on output, not on the assets used to create it. As one CFO put it, "Companies care about how many cans they make, not the can machine." The irony is that companies can use Asset Performance Management not only to make more cans, but to make each can more profitably. This is because Asset Performance Management can:
* Increase the availability of assets through reduced downtime and improvement in Overall Equipment Efficiency (OEE)
* Reduce capital investment in assets by 15% or more through improved preventive and predictive maintenance and more efficient labor deployment
A specific example comes from a food manufacturer that recently deployed Asset Performance Management with the goal of using longer manufacturing runs and improved uptime to increase manufacturing efficiency from 87% to 92% and create $7M more in sales, with no additional manufacturing costs.
Reduced Revenue and Operating Losses from Asset Failure
As discussed earlier, little matches the punishment inflicted on an organization when critical assets fail. Whether it is a faulty sewer line or a poorly calibrated vaccine machine or a broken oil rig, asset failure can create significant revenue and operating losses. The stakes grow even higher in regulated industries- such as pharmaceuticals, healthcare, food & beverage, and biotechnology-as well as in the highly regulated public sector. Consequences of noncompliance can include not just lost revenue, but fines, plant or location closings, litigation, damage to reputation, and a loss of investor confidence that can pummel a company's stock price. In the public sector, a loss of taxpayer confidence can reverberate through all levels of government.
Asset Performance Management reduces the prospect of revenue and operating losses by ensuring:
* Forward-looking Risk Management Asset Performance Management allows organizations to monitor, model and forecast performance against stringent requirements and key performance indicators (KPIs) across an organization, enabling them to detect problems with high-risk equipment before failure occurs.
* Regulatory ComplianceCombining Asset Performance Management principles with Datastream 7i functionality such as in-depth asset profiling, calibration report documentation, electronic signatures, and audit trail tools enables companies to stay compliant with government regulations including the FDA's 21 CFR part 11, standards set by the Joint Commission of the Accreditation of Healthcare Organizations (JCAHO), the Occupational Safety and Health Administration (OSHA), Governmental Accounting Standards Board statements 34 and 35 (GASB 34/35) and the Environmental Protection Agency's Capacity, Management, Operation and Maintenance (CMOM) program.
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* Improved Asset Quality and Reliability. AssetPerformance Management enables predictive failure analyses and preventive maintenance strategies that keep assets performing longer, better and more reliably. Predictive modeling allows organizations to forecast likely failure points and causes and proactively take corrective measures. Organizations can pinpoint unreliable assets, suppliers and processes, predict reliability issues before they happen, and plan for an asset's timely disposal.
* Reduced Inventory and Inventory Carrying CostsAsset Performance Management can help organizations reduce inventory of heavy machinery and equipment while also reducing spare parts inventory. Premier Manufacturing Support Services has used Asset Performance Management to eliminate the need for more than 60 trucks at one of its 42 plants in just eight months without affecting productivity, reducing its equipment inventory by one-third. The same kind of fine-tuned planning and forecasting can reduce spare parts inventory by 20-30% and reduce inventory carrying costs (such as storage, insurance, handling, and others) by an additional 20%.
* Increased Warranty RecoveriesUnclaimed warranties add up to significant sums for asset-intensive organizations-sums that can be added directly back to a company's bottom line. Consider the example of Coast Mountain Bus Co. (CMBC), a Vancouver, Canada-based transit company with 24,000 assets and more than 56,000 parts records. CMBC uses Asset Performance Management to maintain a complete fleet database to define and maximize multiple warranty recovery for different pieces of equipment. When a work order is opened on equipment with a valid warranty, the system immediately flags it as warranty work and all labor and associated costs can be captured and a proper claim filed. In CMBC's case, the result has been $950,000 of recovered warranties in 6 months' time.
* Reduced Labor CostsWith Asset Performance Management, organizations can model different scenarios to determine optimum maintenance schedules. They can focus labor resources on preventive rather than reactive work, so that more is done in less time with fewer delays and less overtime. In addition, because Asset Performance Management automates functions such as parts ordering, purchasing and payments, less labor is required.
* Reduced Capital OutlaysAsset Performance Management improves the reliability and extends the useful life of fleet and heavy equipment, to the extent that new equipment purchases can be reduced at levels of 3-5% annually.
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