Enterprise Asset Management: From Cost Center to Profit Center

There was a time when asset management (EAM) was all about maximizing uptime at minimal cost. A relatively simple model that focuses on investing a predictable amount of time and money into our assets to keep the operation running.

While uptime remains critical to the business, today’s operational assets contribute not only fiscally but also strategically to the success of the business.

Leveraging connected devices and IoT, EAM technology provides us with data-rich environments and real-time insights that help increase revenues, improve margins, and optimize CapEx.

With EAM, maintenance is much more than a mere cost to the business. Instead, asset management serves as a department that produces uptime, driving improved revenue and profit margins.

Let’s examine the different ways EAM technology supports additional upside to the fiscal performance of the enterprise.

Profit versus cost

First, we must shift the perspective that maintenance and asset management belong in a cost center. In actuality, the investment ensures the availability of equipment and components that generate business and profit.

However, availability or uptime is only possible if the assets are operational, supported with cost-conscious workflows and processes to increase margin and maximize profitability.

Achieving these outcomes requires real-time oversight of the operation, not only the monitoring of uptime but also asset performance, fuel consumption, predictive maintenance, and other metrics to ensure the operation is productive and efficient.

IFS customers leverage rich data analytics to maintain and quantify the productivity of operational assets—and the value they deliver to the business—down to the dollar.

Measuring value

The conversion from cost center to profit center requires new ways to measure each asset's return and its net present value. Instead of an availability strategy, assets support a business optimization strategy.

When we view assets as a cost center, we focus solely on efficiency, such as the output of a pump, to define an asset's value. But when we adjust to a profit center model, we must also incorporate ROI calculations that include the different revenue streams to which an asset contributes or the economic value the asset provides. These calculations allow us to ascertain an asset's potential net present value.

New technology supports the shift to profit versus cost. For example:

1. Higher output

Higher output generates higher profits, while lower output, utilized by some organizations to extend the lifecycle of assets, impacts productivity while incurring comparable maintenance costs.

Not surprisingly, higher output is achieved when unplanned downtime is reduced, a result that relies predominantly on maintenance and asset management practices. The crux is ensuring actions occur preemptively before the asset degrades to such a state to cause disruptions to the business.

The cost of unplanned downtime

The profitability of higher output is augmented by eliminating unplanned downtime, a cost category that continues to rise.

In Manufacturing, the cost of downtime is approximated at $260,000 per hour, with most companies experiencing about 800 hours of downtime annually, for an estimated cost of $208 million.

In Oil and Gas, it's estimated that a company loses 32 hours of productivity each month due to unplanned downtime. Factoring in an average cost of $220,000 per hour, annual losses for a facility can add up to $84 million.

To achieve higher output, assets must be measured based on KPI performance across all levels of the organization. Best practices must be validated, implemented, and monitored to save time. And preventive maintenance plans must be continuously managed and improved to extend the life of every component.

IFS provides the business with a complete view of every asset. Our customers monitor the health of their assets in real-time, employing predictive maintenance and quickly repairing failures without impact to productivity.

The math is straightforward. A company's net working capital (NWC) is the difference between current assets (i.e., cash, accounts receivable, inventories of raw materials and finished goods) and its current liabilities (i.e., accounts payable and debts).

Organizations that are unable to identify critical assets, including when and how they may fail, must resort to carrying spare parts for every asset within the operation. The alternative is unplanned downtime when an asset fails and the part is not at hand.

This "just in case" warehousing model requires a significant (and ongoing) investment in spare parts and the time/resources to manage extensive inventories. With this model, if and when a part is required, it's not uncommon for it to be obsolete.

IFS Cloud EAM provides predictive maintenance capabilities that support "just in time" parts inventory management. Instead of carrying a spare part for every scenario, these components are ordered as needed without disrupting the business.

3. Servitization

Servitization is a perfect example of asset management serving as a profit center versus a cost center. The model is expanding rapidly, allowing businesses to drive topline growth, build new revenue streams, and improve productivity.

"Manufacturers have turned to servitization to increase revenue streams while ratcheting up customer satisfaction and equipment performance levels."

The Future of Commerce

In these scenarios, IFS customers own and maintain assets that their customers use as a service. Rolls Royce, one of the world's earliest adopters of servitization, relies on IFS Cloud EAM to help improve customer experiences and satisfaction. The company uses a servitization business model built on real-time data analytics and a digital platform.

Instead of focusing on a one-time sale, servitization is based on an ongoing subscription and operating expense (OpEx) revenue model with lower upfront costs for the end user organization.

This "as-a-service" methodology provides hard numbers for precise ROI calculations defining enterprise assets' net present value.

4. Sustainability

Most asset-intensive industries must support sustainability best practices in alignment with ESG, government, and industrial regulations. While emphasizing safety and the environment, energy conservation drives meaningful efficiencies across the operation, increasing margins and profits.

The balance between green (sustainability) and gold (profitability) is almost exclusively dependent upon asset performance. For example, timely asset maintenance ensures energy consumption targets are achieved; but it also minimizes unplanned downtime, protecting profit margins.

Sustainable warehouse management reduces material waste and its impact on the environment, but it also supports greater efficiencies and cost savings for the operation.

IFS Cloud EAM enables our customers to gauge asset performance against established ESG and sustainability objectives. Streamlined reporting provides proof of compliance to avoid financial penalties. Learn more about the role of EAM technology in enterprise sustainability.

Increase profit and margins for your business with IFS Cloud EAM

These compelling examples illustrate how your enterprise assets contribute to the profitability of your business. Leveraging these and other use cases, asset-intensive organizations drive profits and increase operating margins.

If you're implementing or updating an EAM system, be sure to incorporate the intrinsic value of your assets into the ROI calculations for the project. IFS can help you get there.

Get your copy of the EAM: From Cost Center to Profit Center report.

About IFS

This ​Sponsored Industry Article is brought to you by

* The opinions expressed herein are not necessarily those of Reliabilityweb.com.