Enterprise Asset Management

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Enterprise Asset Management

  1. 1. Strategic Asset Management Executive White Paper Production ■ Facilities ■ Fleet ■ IT MRO Software, Inc. 100 Crosby Drive Bedford, MA 01730 Phone: 800.326.5765 Fax: 770.481.3071 www.mro.com March 2003
  2. 2. Contents 1 .................Strategic Asset Management defined 2 .................What’s a strategic asset? 4 .................The changing world of asset management 5 .................Strategic Asset Management: The way of the future 7 .................Driving corporate performance with Strategic Asset Management 8 .................Asset-centric procurement 9 .................The Strategic Asset Management solution as a mission-critical application 9 .................Conclusions “BASF, the world’s largest chemical company, spent $4 billion investing in new plants and equipment in the United States in the last five years. Like many companies, it will turn to its new machines to increase production before it turns to new workers. ‘Now,’ said Klaus Peter Löbbe, who runs BASF’s North American operations, ‘comes the time to make the assets sweat.’” — New York Times, February 5, 2003
  3. 3. Strategic Asset Management Strategic Asset Management Defined Strategic Asset Management (SAM) maximizes the performance of fixed, physical or capital assets that have a direct and significant impact on achieving corporate objectives. Companies and organizations depend on vital assets to drive their business; however, they often see them as individual, stand-alone objects operating in the background. In reality, companies are a collection of strategic assets that exist as a single system. These tightly inter-dependent assets should be managed as a unified enterprise at higher levels in the organization. To achieve higher corporate performance — whether measured in terms of shareholder value, revenue growth, profitability or customer satisfaction — companies are becoming more sophisticated in their approach to asset management. Companies are looking in two directions to accomplish this. First, they are more focused on managing the interdependencies between all of the different types of assets that drive their operations, assets that have previously been viewed as functioning separately and independent from one another. Second, companies are recognizing the need to manage assets from a strategic perspective across the entire organization, rather than purely from a maintenance perspective. Maximizing the value of asset investment is a responsibility that reaches from the shop floor to the executive suite. Exactly which assets are considered strategic differs by company and industry; however, managing critical assets to optimize their value is universally important. Accomplishing this by integrating and synchronizing management practices, both at a strategic and tactical level, across multiple types of assets and across the entire enterprise is the essence of Strategic Asset Management. Manufacturing companies depend on equipment uptime to meet production goals; for them, plant floor machinery is clearly strategic. Hotels, hospitals and airports require trouble-free facilities to deliver the quality of service their customers and users expect. Public transit and over-the-road transport companies depend on the reliability of their fleets to move people or goods. Meanwhile financial services companies rely heavily on their computer systems to manage transactions and maintain positive customer relationships that drive their business. —1
  4. 4. On the surface, these companies appear to depend on a narrow set of assets. In reality, companies usually depend on a combination of production assets, facilities and fleets as well as their IT infrastructure for operational and financial success. Manufacturing companies are equally dependent on the integrity of the buildings that house their production equipment as they are on the equipment itself. The reliability of trucks that ship raw materials, work-in-progress or finished goods can be just as strategic. Hotels and hospitals need effective IT assets to handle personal information as much as they need efficiently operated facilities. Trucking companies, marine shipping companies and airlines need as much attention focused on their facilities as on their fleets. Financial services companies must be concerned with their facilities as well as their IT assets. Asset management requires the attention of the entire enterprise. Companies need to manage all their assets “on the ground” — on the plant floor, in the machine shop, in the IT department, or in the vehicle repair bay. At the same time, companies must be able to manage them from the “corner office” with an integrated, enterprise-wide asset management strategy across plants, departments, divisions and even continents. The practice of Strategic Asset Management offers this integrated approach to asset management. Companies can obtain an enterprise-wide view of asset performance and possess the tools needed to drive maximum return on asset investment. What’s a Strategic Asset? When we consider Strategic Asset Management we refer to assets that either directly generate revenue or are closely associated with revenue creation. In Strategic Asset Management, this includes fixed, physical and capital assets rather than financial assets or intangible assets such as knowledge capital. The realm of strategic assets includes four broad categories: production assets, facilities, fleet, and IT hardware and software. Production Facilities Fleet IT Strategic Asset Management is focused on four broad categories of fixed, physical and capital assets. 2—
  5. 5. MRO Software | Strategic Asset Management Production assets Production assets are generally those involved in discrete or process manufacturing. This includes robots on the assembly line at a Volvo plant or the steppers used in chip manufacturing at Intel. However, the definition of production assets is considerably broader. In the utility industry, for example, production assets are turbines and compressors used for power generation; they also include the transmission and distribution assets that deliver output to end users. In the telecommunications industry, the antennas and microwave towers that are involved in producing and delivering output to customers are also production assets. Facilities This asset category includes types of buildings spanning from corporate headquarters, casinos (e.g., MGM Grand), and museums (e.g., The Louvre) to stadiums, shipyards (e.g., U.S. Navy) and passenger terminals (e.g., Zurich Airport). Maintaining these facilities can involve mechanical, HVAC and electrical systems as well as landscaping and parking lots. In addition, there are a variety of specialized facilities such as clean rooms, surgical theaters, laboratories and satellite ground stations. Fleet Fleet assets are often over-the-road vehicles such as cars and trucks; however, this category also includes airborne fleets (aircraft), rolling stock (rail cars) and marine assets (passenger boats and ships). Companies may have mission-critical fleet assets around which the core of their business is built; for example, Federal Express depends on both trucks and aircraft. Trucks for a shipping company like Ruan, Inc. or vehicles for a public transit organization like Long Island Railroad also fall in this first category. Alternatively, companies may have enterprise fleet assets that are important to the overall function of an operation but don’t directly generate revenue, such as employee shuttle buses, repair trucks or fork lifts. IT assets The operations of most companies today are critically dependent on the organization’s IT infrastructure. On the hardware side this includes servers, desktops, laptops, cell phones, PDAs, hubs/routers and telecom equipment. Software is equally important to day-to-day operations, and ensuring software license compliance is an important part of IT asset management. —3
  6. 6. The Changing World of Asset Management “By 2004/2005 there is expected to be increased CXO-level interest in consolidating management of general enterprise assets and an evolution of EAM solutions beyond single-asset categories. There will be an increase in market and management demand for a holistic view of the organization’s entire portfolio of capital assets.” — Kip Martin, Vice President of Electronic Business Strategies, October 22, 2001, META Group Inc. It may help to understand the direction in which we are headed by looking at where we have been. The early days of asset management were centered on the concerns of the shop floor. The first evolutionary phase featured the computerized maintenance management system (CMMS); the focus was purely that of the shop floor with the spotlight on maintenance management of specific equipment. Stand-alone departmental CMMS solutions met the needs of the one person who was concerned about when it was that the lube oil was last changed on a line-critical piece of manufacturing equipment. The CMMS market evolved over time to the current phase of Enterprise Asset Management (EAM). Most companies, as well as the software vendors with products in this space, are focused here today. EAM solutions extend beyond the needs of one department and separate pieces of equipment; they may be integrated to some degree with financial, ERP and other key systems. But EAM solutions do not embrace the breadth of asset types on which a company depends, neither do they provide senior management with the tools they need to take an active and strategic role in managing asset performance. This takes us to Strategic Asset Management (SAM). Asset management has evolved to the next phase of sophisticated Strategic Asset Management using SAM solutions. 4—
  7. 7. MRO Software | Strategic Asset Management Strategic Asset Management: The Way of the Future SAM advances the effectiveness of corporate-wide asset management in two important ways. From one perspective, SAM goes forward where EAM leaves off by recognizing that companies exist as a system of assets. This acknowledges that production assets, facilities, fleet and IT are interrelated, and that by functioning effectively together they contribute to the business mission and success of the organization. SAM moves forward on a second front by enabling all members of the organization, from the executive suite to the shop floor, to take an active role in maximizing the lifetime value of asset investment. In the vision for Strategic Asset Management, companies will enhance asset performance in both ways with the benefit of a single, integrated suite of software applications. 1: Production assets, facilities, fleet and IT assets must be managed together Assets work together. The notion that one asset or set of assets is independent of another is a vestige of the days of CMMS, when asset management focused narrowly on the shop floor. Today we recognize the importance of valuing assets as part of a larger system and synchronizing their management. SAM makes this possible. The tactics of asset management, including work management, materials and inventory control and maintenance planning must be an organized and coordinated effort that concurrently takes into account the requirements of all assets. First and foremost, asset management activities for one asset or set of assets should not conflict with higher priorities for another. The goal of SAM is to ensure that maintenance plans, use of labor, draw-down of spares and expenditure of budget for one asset support and work in concert with the needs of another. Consider some scenarios that demonstrate the interdependency of production assets, facilities, fleet and IT assets: ■ A manufacturing plant producing compressors needs to perform routine maintenance on a portion of the assembly operation. At the same time, urgent structural repairs are required to the plant roof overhead. Repairs that open the roof would expose delicate equipment parts and complicated maintenance procedures to the elements. ■ Software upgrades for shop floor computer workstations are due for installation in a vehicle maintenance operation. However fleet maintenance schedules are calling for a temporary let-up in maintenance activities. As a result, equipment in the repair bays is scheduled for preventive maintenance. With disassembled equipment across the shop floor, IT administrators would disrupt and delay repair activities. ■ Electricians have been assigned work orders to pull cable and install telecom equipment in a new build-out in a corporate office building. During that time critical production equipment in the processing plant has come off line and requires immediate attention. —5
  8. 8. 2: Asset Management through the Enterprise CMMS and EAM asset management practices traditionally considered people, processes and systems to have limited scope – specialized labor using point software products dedicated to a single category of assets. There are two intrinsic problems with this approach. First, CMMS and EAM practices create silos of separate functions and departments operating independently; this fails to capture the full opportunity for maximizing asset performance: ■ Handicaps the ability to manage general crafts and labor across the enterprise ■ Fails to yield the benefit of shared asset information and synchronized management activity ■ Does not allow for shared maintenance best practices, independent of asset type Second, EAM fails to capture the potential that lies with greater attention and focus by higher levels of management. SAM brings the necessary and added dimension of asset management to higher levels of the organization, where there is a more strategic view of the organization as a whole, a longer planning horizon and the ability to make broader prioritization decisions. Strategic Asset Management occurs at three levels in the organization: a tactical tier of crafts and direct labor, an operational mid-level of management and a CxO level of executive management. At the first level, there are two types of labor with hands-on responsibility for asset maintenance: specialized crafts with unique and typically non-transferable skills. In addition, there are general crafts with abilities that are more widely applicable; labor management practices that focus on craft flexibility are increasing the size of this latter population. Refrigeration specialists, IT administrators and elevator maintenance crews might fall in the first category; electricians and mechanics in the second. SAM should span all asset classes at three levels in the organization. SAM moves beyond EAM when higher levels of management recognize the critical importance of their involvement in asset management. While the tactical tier is an on-going and critical part of asset management, boosting asset performance across the enterprise means understanding how assets impact one another. Companies must be able to manage all assets together with command and control at higher levels in the organization. 6—
  9. 9. MRO Software | Strategic Asset Management The second, operational, level is typified by the plant manager, who must consider all of the elements that add up to fully functioning plant operation. This person is generally focused on throughput, yields, and product quality. He or she needs to be able to analyze performance, drill down to areas of attention and make trade-offs when it comes to allocating a limited budget and deploying limited labor resources. At the executive officer level, the CFO in particular needs to understand the drivers of financial performance including revenue generation, cost structure and return on assets. This person must make educated allocation decisions among multiple asset investment options. Only with information that includes historical maintenance expenses, projected costs, current asset values and replacement costs can the CFO make knowledgeable investment choices. The CFO is also concerned with ROA as a key financial metric; improving this financial ratio can correlate closely with greater shareholder value and higher stock price. Armed with measurement metrics and key performance indicators such as actual vs. budget maintenance costs, lost-time incident rates and software license utilization rates, the CFO can identify areas for greater scrutiny and delve into underlying drivers in pursuing continuous improvement. Strategic Asset Management gives senior executives, including the CFO, the information they require for informed decision-making and effective corporate governance. Driving Corporate Performance with Strategic Asset Management With pressure mounting to improve financial performance in the face of a difficult economic climate, companies are looking in all directions to increase revenue, reduce costs and mitigate risks. Strategic Asset Management is a more sophisticated and comprehensive approach to extracting greater lifetime value from asset investment; it is one relatively unexplored avenue that offers an opportunity for significant gains. Corporations can pay a high price for failing to synchronize asset management among different categories of strategic assets in a way that includes all levels of management within the organization: ■ Without a unified solution for managing labor priorities across the enterprise, downtime of the equipment may be unnecessarily, and expensively, extended. ■ Conflicting maintenance activities among different assets lower productivity, extend downtime, and drive costs higher. ■ Limited labor resources may be assigned work orders for preventive maintenance that could be deferred while emergency maintenance needs for production line equipment go unmet. ■ Companies don’t know lifetime repair costs for key assets; as a result, they can’t make comparative, strategic decisions about repair, replace or run-to- failure for different assets that impact budgets for the entire company. —7
  10. 10. Strategic Asset Management solves the short-comings of traditional EAM practices and provides value to an enterprise in a variety of dimensions: ■ Management can make prioritized investment decisions for allocating limited budget, labor and material based on more complete information with a longer planning horizon, rather than simply tracking historical maintenance events. ■ Educated decisions that allocate limited labor resources can be made in a way that flexibly balances both long-term maintenance strategies and immediate repair requirements. ■ Repair history and historical maintenance costs can be used to project future budget requirements and determine total cost of ownership for large asset investments. ■ Operating management can intelligently match labor skills and expertise to specific requirements of different types of assets. ■ With more complete information, companies can achieve a clarity of focus on those key assets that are most directly tied to division or corporate objectives. Concentrated focus on, and investment in, the most critical assets translates into a higher ROA. ■ Lifetime cost of ownership information can be used to create strategies that standardize equipment and parts, yielding more efficient maintenance efforts, lower parts inventory and more vendor leverage to negotiate lower acquisition costs. ■ Operating management can reconcile relative urgency and priority of asset management needs on a plant-wide, division-wide or perhaps enterprise-wide basis. Asset-Centric Procurement Asset-centric procurement (ACP) is an important aspect of a complete Strategic Asset Management solution. Different from acquisition of direct material, ACP is focused on efficient procurement and purchasing of the parts, materials and labor required for maintaining strategic assets. This form of e-procurement is strengthened by its tight connection to demand signals for maintenance, repair and operations (MRO) materials. Specifically, asset information, predictive maintenance strategies and inventory management programs together can drive intelligent and automated procurement. Benefits of asset-centric procurement that is integrated into Strategic Asset Management include: ■ An automatic direct procurement system reduces off-contract and maverick purchasing while improving vendor selection and management. ■ It eliminates or significantly reduces paper, improves the quality and flow of information and reduces errors. ■ Inventory management is improved by reducing unnecessary stores, ensuring availability of critical parts and facilitating the ability to locate and obtain parts quickly as needed. 8—
  11. 11. MRO Software | Strategic Asset Management The Strategic Asset Management Solution As a Mission-Critical Application Companies often run the core of their business on just a small set of different mission-critical software applications. This set of applications may include financial software (GL/ERP), customer management software (CRM), supplier and supply chain management software (SRM/SCM) and human capital management applications (HRMS). As companies recognize the value and critical contribution that Strategic Asset Management makes to achieving corporate objectives, CIOs, CFOs and CEOs are including SAM solutions among the inner circle of applications on which they drive the company. Companies are running their businesses on a narrow set of critical applications that includes SAM. Conclusions Asset management has evolved significantly over time as companies have sought new avenues to achieve their business objectives more profitably. Strategic Asset Management brings companies the ability to synchronize management of production assets, facilities, fleets and IT assets as a single system that drives corporate success. With Strategic Asset Management, companies can manage assets at a tactical level — at the shop floor by direct labor and crafts people — and at a strategic level by the senior management team — up to and including the CFO. —9
  12. 12. About MRO Software, Inc. MRO Software is the leading provider of Strategic Asset Management solutions. The Company’s integrated suite of applications optimizes performance, improves productivity and service levels and enables asset-related sourcing and procurement across the entire spectrum of strategic assets. The Company’s asset management solutions allow customers to manage the complete life cycle of strategic assets including: planning, procurement, deployment, tracking, maintenance and retirement. Using MRO Software’s solutions customers improve production reliability, labor efficiency, material optimization, software license compliance, lease management, warranty and service management and provisioning across the asset base. MRO Software (Nasdaq: MROI) is a global company based in Bedford, Mass., with approximately 900 employees, 10,000 customers and more than 260,000 end-users. The Company markets its products through a direct sales organization in combination with a network of international distributors. MRO Software has sales offices throughout North America, Europe, Asia/Pacific and Latin America. Additional information on MRO Software can be found at www.mro.com. MRO Software, Inc. 100 Crosby Drive Bedford, MA 01730 Tel 800-326-5765 Fax 770-481-3071 Asia MRO Software Hong Kong Ltd. Tel +852-2522-4322 Fax +852-2522-5523 Australia and New Zealand MRO Software Australia Pty Limited Tel +61-2-9463-7734 Fax +61-2-9957-2669 Europe, Middle East, Africa (EMEA) MRO Software Tel +44-1-483-727000 Fax +44-1-483-727979 Latin America MRO Software, Inc. Tel +55-11-3443-6289 Fax +55-11-3443-6374 Copyright 2003 MRO Software, Inc. All rights reserved. MRO Software™ is a trademark of MRO Software, Inc.

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