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Collaborative Asset Lifecycle Management Vision and Strategies
 

Collaborative Asset Lifecycle Management Vision and Strategies

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Collaborative Asset Lifecycle Management Vision and Strategies
Capital asset management is once again becoming a key managerial concern.
Organizations that have been focusing on developing new products,
expanding services, and making supply chains super-efficient are now facing
challenging markets and expensive overcapacity. Survival demands
that they reduce their cost basis and capital assets, one of their largest expenses,
which are becoming the target for these efforts.
Discussions about postponing asset purchases and eliminating non-critical
assets are dominating many executive agendas. But lack of information
makes any decision a gamble. The importance of an effective capital asset
management strategy that minimizes the need for such discussions and
enables executives to confidently make necessary
decisions is becoming painfully clear.
Manufacturers are used to market swings and frequently
adjust their product inventories to match
reduced demand forecasts. The rapidity of this
“inventory alignment” for the current situation is
clear testament to the effectiveness of new supply
chain management technology. But the persistence
of this slowdown is forcing all organizations
to consider the more complex issue of “structural

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    Collaborative Asset Lifecycle Management Vision and Strategies Collaborative Asset Lifecycle Management Vision and Strategies Presentation Transcript

    • By Sid Snitkin, ARC CALM Team ARC STRATEGIES APRIL 2003 Collaborative Asset Lifecycle Management Vision and Strategies Executive Overview ......................................................................3 Capital Asset Management Is Important..........................................4 Capital Assets Present Unique Challenges and Opportunities..............5 ARC CALM Vision..........................................................................9 CALM Maximizes Asset Lifecycle Value .......................................... 11 CALM Strategy Development Guide .............................................. 13 Stakeholders Drive CALM Success ................................................ 19 CALM Complements Other ARC Concepts ...................................... 20 Recommendations...................................................................... 22 THOUGHT LEADERS FOR MANUFACTURING & SUPPLY CHAIN
    • ARC Strategies • April 2003 2 • Copyright © ARC Advisory Group • ARCweb.com -6 -4 -2 0 2 4 6 1 2 3 4 5 6 7 8 9 10 -10 -9 -8 -7 -6 -5 -4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9 10 Operate/MaintainPlan Acquire Install Audit RedeployReplace Improve Retire Dispose -6 -4 -2 0 2 4 6 1 2 3 4 5 6 7 8 9 10 -10 -9 -8 -7 -6 -5 -4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9 10 Operate/MaintainPlan Acquire Install Audit RedeployReplace Improve Retire Dispose Capital Asset Lifecycles Are Complex SCM OpX SRM PLM Capital Assets Audit/Retire Design/Plan Acquire/Install Maintain/Operate SCMSCM OpXOpX SRMSRM PLM Capital Assets Audit/Retire Design/Plan Acquire/Install Maintain/Operate ARC Model for Collaborative Asset Lifecycle Management (CALM)
    • ARC Strategies • April 2003 Copyright © ARC Advisory Group • ARCweb.com • 3 Postponing asset purchases and dumping non-critical assets dominate executive agendas, but lack of information makes any decision a gamble. A capital asset management strategy that helps executives make rapid structural changes with confidence is no longer optional. Executive Overview Capital asset management is once again becoming a key managerial con- cern. Organizations that have been focusing on developing new products, expanding services, and making supply chains super-efficient are now fac- ing challenging markets and expensive overcapacity. Survival demands that they reduce their cost basis and capital assets, one of their largest ex- penses, which are becoming the target for these efforts. Discussions about postponing asset purchases and eliminating non-critical assets are dominating many executive agendas. But lack of information makes any decision a gamble. The importance of an effective capital asset management strategy that minimizes the need for such discussions and enables executives to confidently make necessary decisions is becoming painfully clear. Manufacturers are used to market swings and fre- quently adjust their product inventories to match reduced demand forecasts. The rapidity of this “inventory alignment” for the current situation is clear testament to the effectiveness of new supply chain management technology. But the persis- tence of this slowdown is forcing all organizations to consider the more complex issue of “structural alignment,” or matching all resources to lower, long-term forecasts. Structural alignment affects the entire enterprise and has long term effects. While human resources may be rapidly reduced, it can be excruciating to rebuild teams with the proper expertise and focus. Capital assets like pro- duction equipment, buildings, IT equipment, and fleets have significant impact on both the balance sheet and income statement, but take consider- able time and cost to adjust. Extreme care is required in making any cost reduction decision regarding a capital asset. Postponing acquisition of new assets to preserve cash can in- crease operating and maintenance costs and limit organizational agility. Extending the lifetime of an asset in favor of replacement may commit lim- ited resources on the wrong asset base and cripple the organization for the market recovery. Targeting assets for disposal to generate cash requires
    • ARC Strategies • April 2003 4 • Copyright © ARC Advisory Group • ARCweb.com In the ideal world, structural alignment would be as straightforward and rapid as inventory alignment…and companies would get the most out of the assets they retain… CALM enables companies to reap the maximum value from assets throughout their lifetime and maintain continuous structural alignment. extreme confidence in understanding future organizational needs and the full costs of replacing the asset if needs change. In the ideal world, structural alignment would be as straightforward and rapid as inventory alignment. Companies would have a deep understand- ing of all of their capital assets and their “Optimum Performance Capabilities” for a variety of product mixes and production levels. Like- wise, they would understand the upgrade potential of each asset, what it takes to acquire new assets, and what opportunities exist for asset disposal. And this information would be available on-demand in a form that supports all stakeholders. In the ideal world, structural alignment would also not be viewed as a unique, distasteful event. Organi- zations would recognize the need to continuously reduce their cost basis and their marginal asset re- quirements. They would be focused on achieving the most effective mix of availability, utilization, lifetime, and operating costs from all assets. This report discusses ARC’s vision for Collaborative Asset Lifecycle Man- agement (CALM), a capital asset management strategy that considers all classes of capital assets, recognizes the needs of all stakeholders, and sup- ports best practices for all lifecycle stages. CALM enables companies to reap the maximum value from assets throughout their lifetime and main- tain continuous structural alignment. Capital Asset Management Is Important Investments in capital assets are staggering. Manufacturers in process in- dustries such as petrochemicals, chemicals, metals, and pulp paper have billions of dollars invested in each of hundreds of plants around the world. While the nature of the assets may differ, discrete manufacturers of auto- mobiles, semiconductors, food & beverage, aerospace, semiconductors, and electronics can be equally asset intensive. Over 65 percent of these manu- facturing investments are in production facilities that directly affect their ability to generate revenue. Acquiring, maintaining, and disposing of these assets are very serious business. A few percent of improvement in per- formance can be worth billions annually across all manufacturers.
    • ARC Strategies • April 2003 Copyright © ARC Advisory Group • ARCweb.com • 5 Investments in capital assets are staggering…. Process manufacturers, discrete manufacturers, and service providers like airlines, hospitals, and utilities have invested trillions of dollars in capital assets and spend an equal amount each year for maintenance and replacement…. A few percent of improvement in performance can be worth billions on an annual basis. Asset operators like airlines, railroads, ship lines, trucking companies, construction companies, tele- communication providers, utilities, governmental agencies, the military, hospitals, educational institu- tions, and real estate managers have equally immense investments in capital assets that enable them to pro- vide their services. The cost for maintenance and replacement of these capital assets represents a major share of their operating costs and limits their ability to compete. In many cases, service rates are regulated and their very survival depends upon efficient man- agement of capital assets. The potential for savings from proper management of capital assets is immense. And these savings go straight to an organiza- tion’s bottom line. In manufacturing, where the contribution margin is only a small percentage of revenues, sales increases of 10 to 20 times these values would be required to achieve the same financial performance improvement. Similar relationships hold when savings are compared to inventory reduc- tion programs, whose one-time cash flow benefits may be dramatic, but ongoing benefits are primarily interest savings. Capital Assets Present Unique Challenges and Opportunities Enterprises have a broad range of assets and each type deserves attention. Intangible assets, like designs, formulas, and processes, are critical to sur- vival and profitability. Patents, trademarks, and licensing agreements are proven methods for protecting this intellectual property, and many Product Lifecycle Management (PLM) systems incorporate IP management as a key feature. Cash, inventories, receivables, and securities are tangible assets, but relatively short-lived. Management of these liquid assets is focused on proper transaction accounting and portfolio optimization. Financial sys- tems generally support these requirements. Fixed assets include Capital Assets, long-term investments, land, and other items than are not readily marketable. Capital Assets like buildings and facilities, office equipment, IT equipment, production equipment, and fleets
    • ARC Strategies • April 2003 6 • Copyright © ARC Advisory Group • ARCweb.com have a unique set of characteristics that dictate the need for a separate strat- egy. Cash Management, Portfolio Management Licensing, Protection Capital Assets The Focus of CALM Fixed Buildings & Infrastructure Office Equipment IT Equipment Production & Service Equipment Fleets Other Liquid Cash A/R Inventory Short Term Securities Other Patents Trademarks Designs Formulas Processes Other IP Intangible Assets Tangible Asset Classes and Management Strategies Capital assets are expensive and demand constant accountability and care to extend their useful lifetime. They are complex and have lifecycles that must be managed through best practice methodologies and business proc- esses. Their impact on the organization is broad and involves many stakeholders who require visibility into asset information. Multiple stake- holders also introduce the need for synchronization between capital asset management activities and other processes like production management and sales. Finally, capital assets are expected to provide value over an ex- Capital Asset Characteristic CALM Requirements Expensive Constant Accountability – location, status, who uses, who controls, etc. Appropriate care of asset needed to get the most effective lifetime Complex Process management across all significant lifecycle stages. Use of advanced capital asset management methodologies and technologies Broad Impact on Enterprise Comprehensive view of asset information. Effective visibil- ity of asset information by multiple stakeholders. Synchronization of ALM with other enterprise processes. Extended Lifetime Asset and CALM performance management. Continuous improvement process Capital Asset Characteristics and Management Requirements
    • ARC Strategies • April 2003 Copyright © ARC Advisory Group • ARCweb.com • 7 tended period. Performance of the asset and the capital asset management program must be periodically assessed, responsibly managed and continu- ously improved to reap maximum value. Lifecycle Is a Key Issue for Capital Assets The lifecycle for a typical capital asset involves several interdependent stages. Coordinating these processes is vital to effective capital asset man- agement. -6 -4 -2 0 2 4 6 1 2 3 4 5 6 7 8 9 10 -10 -9 -8 -7 -6 -5 -4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9 10 Operate/MaintainPlan Acquire Install Audit RedeployReplace Improve Retire Dispose -6 -4 -2 0 2 4 6 1 2 3 4 5 6 7 8 9 10 -10 -9 -8 -7 -6 -5 -4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9 10 Operate/MaintainPlan Acquire Install Audit RedeployReplace Improve Retire Dispose Capital Asset Lifecycle Stages The cost and complexity of capital assets demands considerable planning to identify appropriate solutions and evaluate alternative investment oppor- tunities. These same characteristics are reflected in the need for an extended acquisition process, a comprehensive request for proposal (RFP), and an equally comprehensive purchase agreement that addresses guaran- tees and warranties. Installation and placing in service of capital assets is also complex and requires a proper set of processes to manage contractors. Operation and maintenance is the longest lifecycle stage. Capital assets generate value during this stage and demand care to maintain their per- formance. This has been the dominant focus of solutions like Computerized Maintenance Management Systems (CMMS) and Enterprise Asset Management (EAM). This lifecycle stage involves management of asset information as well as the health and performance of the physical as- set. Doing this efficiently requires considerable attention to labor and parts inventories. The need for collaboration among organizational processes affected by asset performance also peaks during this period.
    • ARC Strategies • April 2003 8 • Copyright © ARC Advisory Group • ARCweb.com Retire is the final lifecycle stage and involves equipment decommissioning and disposal. Even when capital assets are retired, they often require man- agement for safety and environmental compliance. Disposal of capital assets involves identification and evaluation of sales opportunities and management of physical removal and site restoration activities. Audit is a key activity that is associated with capital assets throughout their operating and retired lifetime. Audits evaluate the asset’s current capabili- ties relative to the organization’s needs. Outputs of the audit process include recommendations for asset improvements to extend lifetime and capabilities, redeployment, or final disposal. Value extracted from effective lifetime extension, asset redeployment, and disposal can be significant, is often overlooked, and is a key benefit of formalized audit processes. Audits provide the basis for maintaining structural alignment between the organization’s needs and capital asset structure. The more frequent the au- dit process is performed, the more responsive the company’s structural alignment is to major market changes. Relying upon end of life as the only impetus for an audit is simply letting the tail wag the dog. Plan Acquire Install Operate / Maintain Audit Management √√ √ √ Evaluate √√ Finance & Accounting √ √√ √√ Evaluate √ Purchasing √√ √√ √ MRO Product Design √√ √ Incorporate √ Plant Engineering √√√ √√√ √√√ Support √√√ Maintenance √√ √ √√ Maintain √√ IT (for IT Assets) √√√ √√√ √√√ Maintain √√√ Operations √√ √√ √√ Operate √√√ Sales √ Sell Output √√ Compliance Office √√ √ Monitor √√ OEM & 3PS √ √√ √√ Support √√ Typical ALM Stakeholder Involvement √√√-Primary, √√-Secondary, √-Support/Interest
    • ARC Strategies • April 2003 Copyright © ARC Advisory Group • ARCweb.com • 9 Capital Assets Have Many Stakeholders Focusing only on the needs of personnel involved in asset maintenance se- verely restricts the value that capital asset management can bring to the organization. Supporting the needs of other stakeholders like management, finance & accounting, purchasing, product design, plant engineering, op- erations, sales, compliance, OEMs, and external service providers, has synergistic benefits that amplify the impact of all capital asset management activities. ARC CALM Vision ARC believes that every organization should have an active, effective capi- tal asset management program. Achieving this requires the organization to develop a capital asset management vision that includes the following ele- ments: • Beliefs regarding the importance of capital asset management • Goals for the program • Basic principles to be used in evaluating different strategies • Specific strategies to be used in achieving the goals • An implementation program for each strategy Visions need not be complex. The primary requirement is that it matches the needs of the specific organization and is sufficiently comprehensive to ensure that the program is executed properly and that goals are achieved. Individual strategies will vary according to asset class, how the asset is used, asset criticality, etc. It is also appropriate to have different strategies to meet the unique needs of different asset groups and different organiza- tional contexts. But every strategy should be consistent with the overall vision. ARC Advisory Group has developed a vision for capital asset management that can be applied by any organization in developing an appropriate capi- tal asset management program. Collaborative Asset Lifecycle Management, or CALM, replaces restrictive, asset-specific, maintenance-centric views of capital asset management with a comprehensive vision that addresses all capital asset classes, all lifecycle stages, and all stakeholders.
    • ARC Strategies • April 2003 10 • Copyright © ARC Advisory Group • ARCweb.com CALM Beliefs, Goals, and Guiding Principles CALM is based upon the belief that capital assets are some of the organiza- tion’s most important resources and that the processes associated with all lifecycle stages must be carefully managed to ensure organizational sur- vival and effectiveness. CALM has the same organizational importance as associated programs like Supply Chain Management (SCM), Product Lifecycle Management (PLM), Sup- plier Relationship Management (SRM) and Operational Excellence (OpX), and these programs must be fully integrated to exploit the inher- ent synergy of the underlying processes. CALM uses maximization of “Asset Lifecycle Value” as the overall goal of capital asset ownership. Recog- nizing all benefits and costs is vital to getting the most out of these re- sources and to establishing an appropriate program for structural alignment. CALM incorporates the following principles as guidelines for development of specific asset management strategies: • All classes of capital assets, all asset lifecycle stages, and the needs of all stakeholders must be recognized. • Integrating and synchronizing CALM activities with other organiza- tional processes is critical to achieving maximum Asset Lifecycle Value. Collaboration, as represented in ARC’s CMM model, is the Best Practice for achieving integration and synchronization among stakeholders and complimentary systems. • Formalized business processes provide the means for ensuring proper execution of a strategy. Best Practices provide the basis for developing the most appropriate business processes. ARC’s CALM Model SCM OpX SRM PLM Capital Assets Audit/Retire Design/Plan Acquire/Install Maintain/Operate SCMSCM OpXOpX SRMSRM PLM Capital Assets Audit/Retire Design/Plan Acquire/Install Maintain/Operate
    • ARC Strategies • April 2003 Copyright © ARC Advisory Group • ARCweb.com • 11 • Technology enables Best Practices, but does not replace the need for appropriate business processes. Technology should be selected based upon its ability to enable the most appropriate Best Practice, interop- erability with existing infrastructures, standards, and open principles • Use of software solutions and standards that promote efficiency and cost effectiveness is implicitly assumed for all processes. • The impact of CALM is too broad to be the sole responsibility of a sin- gle enterprise department like Technical Services. All stakeholders must be educated with regard to the impact of their actions and their role and take responsibility for supporting CALM within the organiza- tion. • Assignment of specific responsibility for each CALM process is the ba- sis for effective implementation. Outsourcing is one option that should be considered for each process. • Continuous improvement underlies all CALM processes. This ad- dresses both asset performance and the performance of processes. Operational Excellence (OpX) and Real-Time Performance Management (RPM) are the Best Practices for continuous improvement. CALM Strategies and Implementation Program CALM supports strategy development by identifying the key processes that must be supported and how these processes work together to create an ef- fective program. These processes encompass all of the activities that should be managed for each lifecycle stage and the technologies and Best Practices that should be considered. CALM supports program implementation by identifying Best Practices for responsibility assignment and external relationship management. CALM Maximizes Asset Lifecycle Value The goal of CALM is to maximize Asset Lifecycle Value for each capital as- set while respecting appropriate constraints related to Safety, Security, Public Health, Environment and acceptable business practices. Asset Life-
    • ARC Strategies • April 2003 12 • Copyright © ARC Advisory Group • ARCweb.com Asset Lifecycle Value is determined by three factors: • The benefits derived from use of the asset. • The length of time that the asset provides useful benefits. • The costs incurred in acquiring, maintaining, and disposing of the asset. The Goal of CALM - to maximize the Asset Lifecycle Value derived from the acquisition, operation, and disposal of assets while respecting appropriate constraints related to Safety, Security, Public Health, Environment, and acceptable business practices. cycle Value equals the difference between Benefits and Costs across all life- cycle stages. Recognizing all benefits and costs is challenging, but vital to developing an effective CALM program. Benefits Come in Many Forms Benefits of capital asset management come in many forms such as revenue generation, expense reduction, regulatory compliance, more efficient proc- esses, better operation of other assets, etc. The ability of organizations to use capital asset management as a competitive ad- vantage is another key benefit that must be considered. Rapid structural alignment and “Lean Enterprise” operation are two benefits that can pro- vide competitive advantage. Methodologies for measuring benefits vary according to the asset’s role within the organization. Is it used internally for production? Is it leased to others who use the asset’s capabili- ties for their own purposes? Is it part of the infrastructure that supports certain organizational functions? When assets are used for internal operations, their benefits depend upon how effectively they are applied by operating departments (Operations, IT, Logistics, etc.). Benefits reflect utilization levels and the value of products produced. Likewise, benefits generated from assets that are leased to oth- ers depend upon occupancy or use level and rental rates. Infrastructure assets, like IT and facilities, derive their value through enabling of other benefit-generating activities. Allocation of benefits is always a challenge for infrastructure assets. The lifetime of an asset naturally affects the benefits that can be derived. Assets that are continuously op- erated at maximum capacity may generate strong revenue streams, but only for a short time. Interrupt- ing use for maintenance may reduce current revenues, but increase overall benefits through an extended use- ful lifetime. Balancing benefit generation with lifetime is one of the most challenging issues in maintenance of capital assets and demands close collaboration between operating and capital asset manage- ment organizations.
    • ARC Strategies • April 2003 Copyright © ARC Advisory Group • ARCweb.com • 13 Costs and Performance Are Equally Complex to Evaluate Like benefits, costs involved in Asset Lifecycle Management also appear in many forms, including monetary, regulatory violations, customer com- plaints, limitations on process performance, limitations on other asset performance, etc. The opportunity cost of retaining assets beyond their useful lifetime or prematurely replacing assets whose life could be ex- tended is difficult to assess, but no less important. Value from Asset Lifecycle Management -6 -4 -2 0 2 4 6 1 2 3 4 5 6 7 8 9 10 Year of Ownership PeriodBenefits/Costs (M$) -10 -9 -8 -7 -6 -5 -4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9 10 CumulativeValue(M$) Benefits Costs Value Considering the complexity of benefits and costs, difficulty in evaluating the performance of an Asset Lifecycle Management programming is not surprising. Performance is multi-dimensional and requires “dollarizing” of qualitative factors and use of Balanced Scorecard techniques. Likewise, the limited role of the Asset Lifecycle Management program in generating benefits must be considered. While technical staffs may have control of life- time and maintenance costs, they cannot be held directly accountable for under-utilization of available assets. CALM Strategy Development Guide CALM views capital asset management as a set of well defined processes for Information Management, Lifecycle Management, Asset Performance Audit, and CALM Performance Management. Best Practices underlie each of these processes. Technology is a key enabler for Best Practices in Lifecy-
    • ARC Strategies • April 2003 14 • Copyright © ARC Advisory Group • ARCweb.com cle Management and is recognized in the CALM model as circles around each Lifecycle Management process. Collaboration with other organizational programs and stakeholders is sup- ported in CALM through information visibility and shared business processes. The most important collaborative relationships are captured in the overall CALM model as intersections with specific organizational proc- esses (PLM, SRM, SCM, and RPM). Similar collaborative interfaces are intended for other organizational programs and stakeholders, but are not shown to preserve model simplicity. Capital Assets Information Management CALM Performance Management Lifecycle Management Processes Enabling Technology Asset Performance Audit Other Processes (PLM, SCM, RPM) Collaboration with other Processes Capital Assets Information Management CALM Performance Management Lifecycle Management Processes Enabling Technology Asset Performance Audit Other Processes (PLM, SCM, RPM) Collaboration with other Processes CALM Processes Information Management Information Management in CALM supports all forms of asset and process information. This information is centralized to facilitate visibility and col- laboration with all stakeholders. CALM Information Management comprises far more than just database management. Best Practices considered in this arena include integration with Geographic Information Systems (GIS), Web-Access and Role-based Portals for Stakeholders, Mobile Devices, Wireless Devices, and Advanced Methods for delivering Service-centric Information. Traditional solutions like CMMS and EAM provide a natural basis for In- formation Management in CALM. They do a very good job of supporting the needs of Operate/Maintain processes and stakeholders and should be
    • ARC Strategies • April 2003 Copyright © ARC Advisory Group • ARCweb.com • 15 extended to recognize the needs of other lifecycle stages and the broader CALM audience. Lifecycle Management Processes CALM Lifecycle Management Processes address all of the activities in- volved in identifying alternatives, evaluating options, making rational decisions, executing on those decisions, and efficiently managing resources. Lifecycle Management Processes include: • Plan - all activities involved in technical and financial analysis, justifica- tion, and planning for acquisition of new capital assets. • Acquire – all activities involved in managing the acquisition of assets. • Install - all activities associated with the installation, testing, and com- missioning of new and reapplied capital assets. • Operate/Maintain - all activities involved in most effectively maintain- ing asset availability (health), longevity, and capability (quality, performance). • Retire - all activities involved in managing assets that are still owned, but no longer being used, including decommissioning, protection, and disposal. Information about these processes and associated Best Practices and tech- nologies will be the subject of subsequent ARC reports. Operate/Maintain Being the longest and most complex lifecycle stage, Operate/Maintain de- serves additional attention. CALM addresses this by including four sub- processes for this lifecycle stage: Asset Maintenance Planning, Asset Status and Condition Monitoring, Workforce Management and Resource Man- agement. These sub-processes reflect the significant differences in issues, Best Practices, and technologies that occur in maintenance management. This structure also promotes flexibility in the use of outsourcing for indi- vidual Operate/Maintain activities. Asset Maintenance Planning Asset Maintenance Planning addresses the long- and short-term planning requirements in maintenance management. Long-term planning requires
    • ARC Strategies • April 2003 16 • Copyright © ARC Advisory Group • ARCweb.com decisions on what is the most appropriate strategy for maintenance of each asset. Short-term planning manages the coordination of specific mainte- nance activities with other organizational needs. Use of individual Asset Maintenance Plans is a Best Practice that underlies all CALM maintenance operations. An Asset Maintenance Plan defines the strategy that will be used for managing the asset’s health and performance including assessment, analysis, and restorative/improvement activities. Responsibility for each step is also a key element of the plan. Leasing Model Production Model Infrastructure Model Land, Buildings RTF, Preventive RTF, Preventive Production Equipment Preventive, Mixed- Mode Mixed-Mode Service Delivery Equipment Preventive, Mixed- Mode Mixed-Mode Back-Office Equipment RTF RTF Fleets Preventive, Mixed- Mode Mixed-Mode RTF, Preventive IT RTF, Preventive RTF, Preventive Typical Asset Maintenance Strategies Establishing an Asset Maintenance strategy for each asset is a critical step that directly affects asset availability, lifetime, and maintenance costs. As- set class, asset criticality, and business model are all issues that must be considered. Asset class establishes the failure modes; asset criticality estab- lishes the impact of a failure to the asset operator; and business model establishes the asset owner’s liability for a given type of failure. Typical Asset Maintenance strategies include: • RTF – Run to Failure • Preventive – minimize asset failures by time/use-based inspection (detective maintenance)/repair/replacement • Predictive – minimize asset failures by using actual condi- tion/performance to predict failures • Mixed-Mode – applying strategies according to the asset’s impact upon functional performance (Reliability Centered Maintenance)
    • ARC Strategies • April 2003 Copyright © ARC Advisory Group • ARCweb.com • 17 Short-term planning in Asset Maintenance Planning involves development of work orders, gaining approval for the work, coordinating work with other organizational activities, and tracking that the work is accomplished. Asset Status and Condition Monitoring Status and condition monitoring is a basic activity in all maintenance pro- grams. CALM considers the management of these activities separately to recognize that they often involve specialized technology and specific exper- tise in selecting technology, using that technology to perform the necessary measurements, analyzing the results, diagnosing problems, and making asset action recommendations. Status and condition monitoring concerns vary significantly according to the asset class. Status addresses issues such as physical location, configura- tion, operating status, etc. Asset condition monitoring addresses issues such items as equipment health, capability, performance, etc. Asset Class Status Condition Production Equipment Operating Status, Tank Levels, etc. Vibration, Lubrication, Temperature, Corrosion, Loop Performance, etc. IT Equipment GPS, Software Configura- tion, Network Status Server utilization and duty cycle Buildings AMR, Tank Levels, etc. Temperatures, Condition of Rotating Equipment Fleets GPS, AMR Fuel Use, Operating Hours Status and Condition Monitoring Technologies Integration of CALM with automation systems has particular importance in manufacturing environments. Automation systems are increasingly using smart devices with embedded diagnostic capabilities and on-line, loop-level condition monitoring software that enable increased use of Reliability- Centered Maintenance (RCM) strategies. Close integration also facilitates real-time coordination between process operators and maintenance person- nel. This amplifies the benefits received from strategies like Total Productive Maintenance (TPM). Real-time integration with Test Labs, Laboratory Information Systems (LIMS), etc. is also a key issue addressed by CALM for production assets. CALM recognizes that standards, like those being developed by the Ma- chinery Information Management Open Systems Alliance (MIMOSA), are
    • ARC Strategies • April 2003 18 • Copyright © ARC Advisory Group • ARCweb.com vital to efficiently exploiting the capabilities of status and condition moni- toring technology. Use of such standards is considered an underlying Best Practice for Asset Status and Condition Monitoring. Asset Workforce Management Asset Workforce Management includes those activities related to use of human resources in executing work orders for assessment, restorative or asset improvement activities. This includes supervision, scheduling, and training of in-house staffs and management of external service agreements. Selection of technologies like mobile and wireless devices to improve field force efficiency is also the responsibility of this component. Asset Resource Management Asset Resource Management includes all processes related to management of spare part inventories and equipment used in asset maintenance. This includes management of all inventory transactions and selection of tech- nologies like eMRO and Warehouse Management Systems (WMS) that may be used to improve efficiency. Development and management of inventory pooling agreements with other sites, other companies, and OEMs is also included. Asset Performance Audit Asset Performance Audit includes all activities related to evaluating exist- ing capital assets relative to current and future organizational needs, identifying opportunities for functional improvements that extend lifetime or capability, reapplication or profitable disposal. Asset Performance Audit considers multiple perspectives in assessing asset performance. Lifecycle Management information enables ongoing assess- ment of Asset Lifecycle Value. Information obtained through collaboration with other organizational programs supports evaluation of asset perform- ance with methodologies like Overall Equipment Effectiveness (OEE) and Total Effective Equipment Productivity (TEEP). OEE is a measure com- monly used in manufacturing that combines availability, production rate, and yield to give a single measure of overall performance for anything from a single machine to a complete plant. TEEP also provides an overall meas- ure by comparing actual performance against a theoretical goal and is used in activities like power generation.
    • ARC Strategies • April 2003 Copyright © ARC Advisory Group • ARCweb.com • 19 CALM Performance Management CALM Performance Management is responsible for continuously evaluat- ing the performance of all processes within the capital asset management program. This includes developing and tracking Key Performance Indica- tors (KPI) for each process, analyzing performance deviations to identify root causes, and providing CALM performance visibility to all stake- holders. Stakeholders Drive CALM Success Assigning responsibilities is the basis for implementing CALM. All stake- holders have an impact on program success and must be educated regarding their specific role and responsibilities. CALM considers holistic, collaborative approaches as the Best Practice for assigning responsibilities. These methodologies encourage broad interest in asset lifecycle management and reap the synergistic benefits of team problem solving. ARC’s TEAM model and Total Productive Maintenance (TPM) are two specific methodologies that embody these principles and are considered Best Practices. Since organizations acquire capital assets, spare parts, and supplies from external parties, they are naturally involved in all CALM processes. These relationships demand particular attention and explicit definition to ensure that actual performance meets expectations. Outsourcing Expands Implementation Options CALM views outsourcing as a responsibility assignment option, not a re- placement for any of the CALM processes. Outsourcing is a good approach when a third party is in the best position to execute some CALM activities. At the same time, the organization must recognize that outsourcing is a risk management strategy that generally requires benefit sharing. CALM considers outsourcing as a viable option for all lifecycle stages. En- gineer, Procure, and Construct companies can play leading roles in Plan, Acquire, and Install. OEM’s and third party service providers can be strong candidates for Maintain, particularly when those companies have an ag- gressive service strategy and are willing to assume asset performance
    • ARC Strategies • April 2003 20 • Copyright © ARC Advisory Group • ARCweb.com responsibility. OEMs can also make major contributions in the Audit ac- tivities if conflict of interest issues can be properly addressed. External consultants are another good option for Audit activities. Outsourcing decisions are more complex than partnering and must con- sider strategic issues such as the need to retain core competence, protecting intellectual property (IP), flexibility and agility. Management of outsourced activities also requires a clear definition of KPIs and benefit sharing. CALM Complements Other ARC Concepts CALM compliments several other ARC concepts that have been developed to improve organizational effectiveness in today’s challenging climate. These concepts are the subject of other ARC strategy reports. Collaborative Manufacturing Manage- ment (CMM) is ARC’s model of how collaboration can be used to integrate and synchronize the many inter-dependent processes found in modern organizations. CMM helps companies control their op- erations through use of appropriate collaborative processes, architectures, and relationships. CMM is a basic principle of CALM that keeps activities and resources focused on the real needs of the organization, not the parochial views of what is most important. Recognizing that CALM fits into CMM’s Lifecycle Domain ensures that CALM activities are always co- ordinated with complimentary activities and that they foster better organizational performance. Collaboration is pervasive in CALM and impacts every process. Reflecting up-to-date market forecasts in the timing of new asset purchases helps companies avoid buying equipment that prematurely becomes obsolete. Coordinating installation of product-specific assets with new product re- leases helps companies fully exploit first-to-market opportunities. Synchronizing maintenance schedules with operating plans avoids produc- Lifecycle DomainLifecycle DomainLifecycle DomainLifecycle Domain Lifecycle DomainLifecycle DomainLifecycle DomainLifecycle Domain Value Chain DomainValue Chain DomainValue Chain DomainValue Chain Domain Enterprise DomainEnterprise DomainEnterprise DomainEnterprise Domain Lifecycle DomainLifecycle DomainLifecycle DomainLifecycle Domain Value Chain DomainValue Chain DomainValue Chain DomainValue Chain Domain Enterprise DomainEnterprise DomainEnterprise DomainEnterprise Domain Audit, Reapply, Dispose Operate & Maintain Value Chain DomainValue Chain DomainValue Chain DomainValue Chain Domain Enterprise DomainEnterprise DomainEnterprise DomainEnterprise Domain Business Operations Plant/Factory Operations Supply-Side Materials Management Customer Order Fulfillment Plan, Acquire, Install Lifecycle DomainLifecycle DomainLifecycle DomainLifecycle Domain Lifecycle DomainLifecycle DomainLifecycle DomainLifecycle Domain Value Chain DomainValue Chain DomainValue Chain DomainValue Chain Domain Enterprise DomainEnterprise DomainEnterprise DomainEnterprise Domain Lifecycle DomainLifecycle DomainLifecycle DomainLifecycle Domain Value Chain DomainValue Chain DomainValue Chain DomainValue Chain Domain Enterprise DomainEnterprise DomainEnterprise DomainEnterprise Domain Audit, Reapply, Dispose Operate & Maintain Value Chain DomainValue Chain DomainValue Chain DomainValue Chain Domain Enterprise DomainEnterprise DomainEnterprise DomainEnterprise Domain Business Operations Plant/Factory Operations Supply-Side Materials Management Customer Order Fulfillment Plan, Acquire, InstallPlan, Acquire, Install CALM and CMM
    • ARC Strategies • April 2003 Copyright © ARC Advisory Group • ARCweb.com • 21 tion disruptions as well as inefficient remobilization. Whether the result is increased benefits or reduced costs the impact of collaboration is the same - increased Asset Lifecycle Value. Operational Excellence (OpX) is ARC’s model for continuous improvement. OpX extends conventional continuous improvement strategies by recogniz- ing the need to incorporate external factors in defining the “Right things to Do” and in setting the most appropriate organizational goals. OpX is incorporated into CALM in two related, but separate ways. First, OpX is the driving force behind the processes involved in managing indi- vidual asset performance. Assets are acquired with expectations of performance and OpX drives the organization to achieve and exceed these expectations. At the same time, OpX encourages comparison with best-in- class operation of comparable assets to ensure that the organization is get- ting all that it can from each asset. Finally, OpX focuses organizational effort on those assets that are most constraining to current organizational performance. Audit Plan Acquire Install RetireMaintain Sub- Processes CALM Performance Management Information Management Audit Plan Acquire Install RetireMaintain Sub- Processes CALM Performance Management Information Management OpX for CALM Process Improvement CALM also uses OpX as the basis for continuous improvement of the capi- tal asset management processes. This is accomplished through a hierarchy of embedded OpX processes focused on individual process performance. Real-Time Performance Management (RPM) embodies ARC’s vision for optimization of organizational performance through real-time measure- ment and management. RPM has three key principles: • Focus on the Optimum Potential, not incremental improvement
    • ARC Strategies • April 2003 22 • Copyright © ARC Advisory Group • ARCweb.com • Use operationally-appropriate measures with sufficient granularity for evaluating performance of individual assets and processes • Utilize Real-time performance monitoring and rapid reaction to mini- mize the impact of any deviations RPM extends the benefits of CALM’s OpX processes by refining the con- cepts of “Right” and “Well” and by accelerating the continuous improvement process. RPM is reflected in CALM through use of real-time collaboration to facilitate integration and synchronization with other organ- izational processes such as automation systems. Recommendations Capital assets represent an enormous investment for organizations. CALM is a comprehensive vision for capital asset management that addresses all classes of capital assets, all lifecycle stages and all stakeholder needs. CALM exploits recognized Best Practices in capital asset management and concepts like CMM, OpX and RPM to achieve maximum Asset Lifecycle Value by: • getting the most out of assets already owned • minimizing the need for new assets • continuously aligning capital assets with organizational needs ARC encourages all organizations to adopt CALM as the basis for capital asset management. ARC plans to provide continuing support for CALM through a focused se- ries of insights and strategy reports that monitor developments in technologies, methodologies, and Best Practices. These reports will evalu- ate specific solutions and discuss results of user surveys on a variety of capital asset management topics.
    • ARC Strategies • April 2003 Copyright © ARC Advisory Group • ARCweb.com • 23 Analysts: Sid Snitkin, ARC CALM Team Editor: Ed Bassett Distribution: All EAS & MAS Clients Acronym Reference: For a complete list of industry acronyms, refer to our web page at www.arcweb.com/Community/terms/terms.htm AHM CALM Asset Health & Performance Management ALM Asset Lifecycle Management AMR Automated Meter Reading ARM CALM Resources Management ASM CALM Asset Status Monitoring AWM CALM Workforce Management CALM Collaborative Asset Lifecycle Management CM Condition Monitoring CMM Collaborative Manufacturing Management CMMSComputerized Maintenance Management System CRM Customer Relationship Management EAM Enterprise Asset Management eMROE-Procurement for MRO ERP Enterprise Resource Planning GIS Geographic Information System GPS Global Positioning System KPI Key Performance Indicator LIMS Laboratory Information Management System MRO Maintenance, Repair & Overhaul OEM Original Equipment Manufacturer OLAP On-line Analytical Processing OpX ARC Operational Excellence Model PAS Process Automation System PLM Product Lifecycle Management RCM Reliability-centered Maintenance RFP Request for Proposal RPM ARC Real-time Performance Management Model RTF Run-to-Failure WMS Warehouse Management System TPM Total Productive Maintenance 3PP Third Party Parts Provider 3PS Third Party Service Provider Founded in 1986, ARC Advisory Group has grown to become the Thought Leader in Manufacturing and Supply Chain solutions. For even your most complex business issues, our analysts have the expert industry knowledge and firsthand experience to help you find the best answer. We focus on simple, yet critical goals: improving your return on assets, operational performance, total cost of ownership, project time-to-benefit, and shareholder value. ARC Strategies is published monthly by ARC. All information in this report is proprietary to and copyrighted by ARC. No part of it may be reproduced with- out prior permission from ARC. You can take advantage of ARC's extensive ongoing research plus experience of our staff members through our Advisory Services. ARC’s Advisory Services are specifically designed for executives responsible for developing strategies and directions for their organizations. For subscription information, please call, fax, or write to: ARC Advisory Group, Three Allied Drive, Dedham, MA 02026 USA Tel: 781-471-1000, Fax: 781-471-1100, Email: info@ARCweb.com Visit our web page at ARCweb.com
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