Strategic Asset Management Executive White Paper
Production ■ Facilities ■ Fleet ■ IT
MRO Software, Inc.
100 Crosby Drive
Bedford, MA 01730
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
“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
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.
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.
MRO Software | Strategic Asset Management
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.
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
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.
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.
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
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.
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
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
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.
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.
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.
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 (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
■ 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.
MRO Software | Strategic Asset Management
The Strategic Asset Management Solution As a
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
Companies are running their businesses on a narrow set of critical applications that includes SAM.
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.
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
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MRO Software, Inc.
Fax +55-11-3443-6374 Copyright 2003 MRO Software, Inc. All rights reserved. MRO Software™ is a trademark of MRO Software, Inc.