An incremental approach to transformational change
The internet of things (IoT) has created an incredible opportunity for industry. Today, manufacturers can use enterprise asset management strategies that would have been unthinkable a decade ago.
Despite this amazing rate of change, the best way to take this opportunity is with incremental iterations.
Industry is attaching physical assets to data streams through IoT. Creating an effective enterprise asset management program requires a data-driven organization – a shift in culture and process along with technological investments. Data-driven organizations collect, analyze and ultimately use data to drive their businesses. In these organizations, data isn’t simply present, it is at the core of every decision the business makes.
Data-driven organizations use enterprise asset management to address the oldest and most basic challenge in business: How do you maximize returns on your investment? An organization that answers this question better than its competitors will win.
Fix the break-fix mindset
In asset-intensive industries, many organizations think of asset management strictly from a break-fix standpoint. However, it should be much more than that. Enterprise asset management can change how business decisions are made. It is the key to reducing cost of ownership and risks, while improving utilization, capital decision making and regulatory compliance.
Modern enterprise asset management begins where conventional asset management ends, with capital planning and budgeting. How is the operation and maintenance of my asset impacting our capital planning and budgeting decisions this year? In 3 years? In 5 years? By combining data around the effectiveness of the assets purchased with the ongoing operation and maintenance data of those assets, companies can determine whether equipment that has a 5-year useful life will actually last 7 years – or if money should be budgeted to replace it in 3 years. This resulting process is cyclical, rather than linear, and allows companies to get more precise with their capital planning process rather than just keeping a rainy day fund to replace equipment as it breaks.
This decision-making process, when used effectively, can elevate a company’s approach to asset performance. Grant Thornton has identified five levels of asset maturity, from undefined and ad hoc to transformational and optimized. During a recent Grant Thornton manufacturing webcast, most companies said they are somewhere in the middle.
This holistic approach to asset management is most effective when it evaluates the entire lifecycle of an asset and all the data points along the way from planning through the design, procurement, commissioning, operation/maintenance and decommissioning stages. The focus of asset management programs is often on the operation of assets and misses significant opportunities throughout the rest of the asset lifecycle to reduce cost or improve ROI.
“Often, the plan or the ROI is calculated prior to procurement of the asset but is never revisited to measure success.”
Nick Morteo, Grant Thornton Senior Manager of Transformation Advisory Services, noted that “Often, the plan or the ROI is calculated prior to procurement of the asset but is never revisited to measure success. As the asset is put into its useful life and commissioned, we rarely see companies coming back and asking, ‘Were we able to achieve our plan?’”
Morteo said an example of more thoughtful decommissioning could shift a piece of equipment that no longer meets high-volume demands to a low-volume location rather than simply scrapping it. On the flip side, equipment that has not failed but is requiring more maintenance might be a candidate for replacement because it is eroding margins and becomes a failure risk.
Move decisions from the basement to the boardroom
Modern asset management not only looks across the entire asset lifecycle, it takes a broader view of the asset. This view places the asset within the context of the plant and the entire organization, assessing it as a capital investment among other potential investments across all plants. This broad, data-informed view leads to better discussions about assets at the executive levels. It elevates the discussion about assets from the shop floor level to the C-suite.
The first question executives will want to answer is “What are the most valuable assets?”
Morteo explained, “While you might have the highest dollar items in one asset class, that might not be the most critical one for you. The critical one might be the one where, if it goes down, it takes a half day to break down the line to get to it – and everything else stops. That’s the piece where you’re going to be much better off if you can put effective preventive maintenance program in place.”
As the discussion broadens, the outcome can change. Morteo continued, “An asset might be a critical asset at one particular plant, but it might not be that important in the grand scheme of things for the organization. So, it might make sense to invest elsewhere that will have a more material impact on the broader organization.”
Ultimately, a data-driven approach helps you discuss assets in common terms. At its base level, that is how an asset decision impacts the balance sheet, income statement or cash flow.
Bob Hersh, Grant Thornton National Managing Principal for the Manufacturing Industry, said “Once you can speak in balance sheet, income statement and cash flow terms, you can speak a common language with the CFO and COO. Of course, they might both contribute at different times and in different ways. The CFO is conversant in capital allocation; the COO is better informed on asset effectiveness; and they should both contribute to operation and maintenance discussions. But the beauty of data is that it gives them a common reference point.
“If you talk about asset data, how you’re managing productive assets and applying these analytics in the right way, you can really pull together the financial and operational sides of the business to get the entire organization talking the same language about the performance of assets,” Hersh said.
Don’t boil the ocean
Everyone wants to be transformational, so it’s tempting to leap in… but that could be a mistake.
Hersh said, “It’s really integrating all of the data that comes off an asset, whether that’s off an ERP system or tax systems – even paper invoices. If we can start accumulating all that data and applying integrated analytics around it, that’s where the value is. It doesn’t even have to be complete data. If we start down the journey of accumulating data, we can fill the holes in over time to make our analysis more sophisticated and accurate.”
This is a journey. The most important thing is to understand where you are today and how can you make incremental steps forward over time. That said, there are clear best practices to implement up front.
- Align your data strategy with your business strategy. Align your analytics and reporting strategy to business value and key business performance metrics.
- Democratize data. Insights can come from unexpected places. While there are reasons to limit access to some information, a middle manager in Toledo may see a trend that a CFO in Chicago might not even know to look for.
- Prioritize data. It is the foundational asset for 21st century business. Treat it as such. Allocate budgets, reward people who use it and include it in decisions. Alex Mendonca, Grant Thornton Manager for Transformation Advisory, underlined this centrality in familiar terms: “Data is an asset in itself, and it’s critical that organizations invest in protecting the quality and value of this asset.”
- Train leaders and key decision makers. You can only have a directional conversation if executives are in the conversation. They don’t need be experts; they just to understand what the experts are saying.
- Accept “inconvenient” outcomes. Data may challenge an established practice or overrule a hunch. Mendonca cautioned, “This data can unearth inefficiencies and misconceptions that complicate leadership and disrupt conventional thinking. But business leaders who crush or ignore answers that they don’t like will rapidly undercut the value of data and analytics available to them.”
So, you don’t need to do everything at once. But you do need to invest in the conversation. It’s a conversation that matters.
National Managing Principal, Manufacturing Industry, Partner-in-Charge, Metro New York and New England Business Advisory Services
Bob Hersh is a partner in Grant Thornton’s East region Business Advisory Services practice and the practice leader for the Metro New York/New England market territory. Based in our Boston office, Hersh has more than 25 years of consulting experience in enterprise system design and implementation, IT strategy and planning, process analysis and design, strategic planning, and operations management.
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