Many facets to an effective asset management strategy

We've made considerable progress over the past several years in increasing senior management awareness of the importance of reliability principles, the foundation of operational excellence, a condition that is difficult to find in U.S. manufacturing plants. So, this progress has not been good enough, and jobs continue to move to countries with lower labor costs.

04/01/2006


We've made considerable progress over the past several years in increasing senior management awareness of the importance of reliability principles, the foundation of operational excellence, a condition that is difficult to find in U.S. manufacturing plants. So, this progress has not been good enough, and jobs continue to move to countries with lower labor costs. The sad thing is that it's just not necessary. U.S. manufacturers can compete with foreign manufacturers.

Witness the gains in market share by Toyota, Honda, and others making cars here, using essentially the same workforce and technology. The issue is not workforce capability, or technology. It's poor management. U.S. managers are too much focused on the costs and cost cutting, and not enough on overall performance. Costs are a consequence of your business system design; and market share and output are more important than costs. Perhaps more importantly, lots of studies indicate that cost cutting has a very low probability of success. Witness GM and Ford, who have both done extraordinary cost cutting over the past two decades, all the while continuing to lose market share and experience declines in overall business performance.

One issue related to operational excellence that frequently arises is that of physical asset management. A number of articles in the past few years have covered this topic, and have made excellent points on this vital function. But, these articles are typically more related to maintenance management than to true asset management. Calling the process described "asset management" does lend it greater business credibility, and is therefore an important shift in the thinking, hopefully in the minds of those readers who are in management. However, these articles typically still miss several important points. I'd like to add these to the discussion, and perhaps create some additional debate on what asset management really is.

First, if we're going to do a good job at asset management, then it's essential that we understand the business expectations for the assets, both now, as well as in five to 10 years. One of the first questions I ask when helping develop or in reviewing any company's asset management strategy is: What are the company's business expectations for each of the major assets it employs - this year, in five years, in 10 years? The answer to this can have a huge impact on the asset management strategy. It's pretty typical that little or no mention is made in the asset management strategy of the business expectations for the assets in the future, either overall, or by plant. This is a critical omission.

Second, we need to understand the assets' current condition and capability relative to the business requirements, today, and in the future. Is it reasonable to expect the assets to meet our business expectations, given their current condition and capability? Where are the key gaps in performance and related condition, and how do we address those gaps? For example, if our Overall Equipment Effectiveness (OEE) is 55%, and we're expecting to grow at 5% per year for the next five years, then our demand requirements can be met by improving our operational performance, without additional capital. But, if we've been at 55% for the past five years with little change, it's not reasonable to expect this, unless we have a major shift in our strategy and practices.

I believe it's essential that we define current asset performance in terms of several key high-level measures, such as OEE, unit cost of production, injury rate, return on capital, etc., and then set goals for their improvement in order to determine if our asset management strategy is effective. Further, an assessment must be made of our assets' current condition and any gaps in capability identified relative to future expectations, and an action plan developed thereto.

Third, little mention is made of the role of operations in managing the assets. Data from several companies indicate that maintenance typically only controls about 10% of production losses from ideal. More specifically, two-thirds of production losses have little to do with equipment, being related to issues such as changeovers, startup and shutdown, rate and quality losses. Of the one-third that is equipment downtime related, it's common that two-thirds of that is induced by poor operating practices. So, maintenance only controls one third of one third of the assets' production performance, or 10%.

It's common to have up to 10 times as many operators as maintainers in a manufacturing plant. If this data is even remotely accurate, how can we have an effective asset management strategy if operations doesn't take the lead role in our asset management strategy? Much the same as we as individuals "own" the reliability of our cars, with maintenance in support of it, operations must lead and own the reliability of the physical assets, and hence must take the lead role in the asset management strategy and its implementation.

The asset management strategies are typically maintenance-led, and focused predominantly, sometimes exclusively, on maintenance issues. Clearly, having a good maintenance strategy and good practices are essential in a good asset management strategy. But, it's not nearly sufficient, and without addressing operational issues will yield only minimal improvement.

Fourth, insufficient attention is given to life cycle cost principles in the asset management strategy. For example, the capability and reliability, and the ease of asset management, begins with the design, and with the comprehensive application of Failure Modes and Effects Analysis (FMEA) and Reliability Centered Maintenance (RCM) principles in the design. And yet, the Society for Maintenance and Reliability Professionals reports that 86% of its members surveyed do not use life cycle cost principles in their capital projects. If we don't get this right, it will make asset management much more difficult, for the life of the asset.

Maintenance typically has little control over capital projects. Life cycle cost principles, and the use of RCM/FMEA principles in the design, must be made an integral part of our asset management strategy. If we fail there, our assets will never be truly reliable, will be much more difficult to manage, and will be much more costly.

Finally, we must determine how to implement our asset management strategy. Is it a document intended to be used by maintenance for doing better maintenance, or is it a defining policy document that demonstrates how we're going to use the assets for overall business success? Who will lead its implementation - operations or maintenance? How will we train people in its principles and use? How will we know it is being read, and applied- what are the measures that indicate this? Is there a summary document that captures the key points we want to make, and use to constantly remind our employees of its importance? How will we align the organization to our asset management strategy?

If we don't address these issues, and perhaps other questions, the strategy may end up on the dusty end of a little-used bookshelf.


Author Information

Ron Moore is Managing Partner of The RM Group, Inc., Knoxville, TN, and author of Making Common Sense Common Practice: Models for Manufacturing Excellence, now in its third edition from Butterworth-Heinemann. He holds a BSME, MSME and MBA. He can be reached at (865) 675-7647 or by e-mail at RonsRMGp@aol.com .




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