Effective asset management is a must-have in any successful business, regardless of whether it's a tiny local store of a multinational corporation serving millions.
In this post, we'll look into what asset management is, why it is important, and how businesses can take steps to improve their management processes.
What Is Asset Management?
Assets refer to anything owned by organizations that is used in business operations. It can be physical like buildings, machinery, or tools or intangible, which involves assets like employees and capital.
Some examples of common company assets include:
- Printing machines and other machinery
- Desks, chairs, and stationery
- Hardware and software
- Spare parts
- Forklifts and other company vehicles
Good asset management matters because your company's assets are important. Imagine you're running a logistics firm, and your company vehicles break down due to age—how much do you lose in profits and emergency maintenance costs?
Aside from repair costs, consider the potential losses from theft or poor business performance as a result of worn assets. These cost sinks add up quickly, and before you know it, you're paying millions because of poorly managing assets.
Businesses are already losing $1.1 trillion every year to inventory distortion, so it's not wise to worsen the problem with subpar asset management practices.
Now, how does efficient management make the problems above a non-issue?
Proper management of assets takes a systematic approach to maintain assets so they provide optimal value for as long as possible. This reduces asset expenditure and boosts work performance through high-quality equipment.
Businesses need to have a comprehensive strategy in place to invest, operate, maintain, and upgrade or discard assets.
You can improve the lifespan of your assets, even for minor ones like pens and hammers, by designing a usage plan. It may seem tedious, but managing assets down to the finest detail will save your business tons of money and headaches down the line.
The Biggest Challenges in Asset Management
Businesses have many assets under their roof to take care of, which makes management complicated. This leads to several challenges that impede business performance if left unsolved. Let's look at each of these problems in detail.
1. Maintaining Asset Uptime
Investing in the right vehicles and machinery is only one part of the story. The other factor to keep in mind is your assets' uptime.
Are you getting enough value from your assets by keeping uptime high and avoiding downtime whenever possible?
Downtime costs vary between assets but they never come cheap. 80% of companies had unwanted downtime in the last three years,losing $260,000 for every hour of downtime. On the IT side, a minute of downtime costs a mind-boggling $5,600 per minute.
Unnecessary financial loss is not the only impact of poor uptime. When your assets fail, your employees cannot work, which then affects customers since they can't get what they want on time.
The downtime costs mentioned earlier are now amplified as you're losing customers and paying for idle time on top of expensive repair fees.
The solution is to identify issues that affect physical assets before they cause downtime. You can prevent downtime with consistent maintenance schedules or, better yet, through predictive maintenance using technology.
Some telltale signs to look out for include worn parts, substandard asset performance, and increased operating costs.
2. Cost-Effective Asset Maintenance and Replacement
Businesses need to assess whether an asset should continue to be maintained or not. Sometimes, investing in new equipment may have a better return on investment than billing multiple maintenance schedules.
For example, if you want to fix a damaged company vehicle, would it make more sense to buy a new one after factoring in your existing vehicle's mileage, repair costs, and post-maintenance performance?
The challenge here arises from limited knowledge and visibility when it comes to asset maintenance.
Many businesses still use manual inspection to track their assets.
While this is not wrong per se, it takes a lot of time and effort to do so—workers may even miss important details when evaluating company assets.
Another common bottleneck is when companies are unsure whether to get rid of an asset or not. Contrary to popular belief, assets that reach end-of-life do continue to work, although they'll deliver less than optimal performances.
Organizations may unknowingly rely on EOL assets without realizing their assets are no longer performing as expected because of poor asset visibility and management.
3. Total Cost of Ownership
One of the reasons why businesses struggle to manage their assets comes from not understanding the total cost of ownership (TCO). TCO is the purchase price of an asset summed with the total cost of operation, but there's more to it than these two.
There are other key variables to consider, including resale value, insurance, and employee training fees that may have been missed by companies, blurring their TCO calculations.
Failing to manage your TCO leads to wasted expenditure as you're spending on assets that don't provide full value to your business.
For example, you may underestimate your TCO by half a million, which you'll spend on new assets that you don't need in the first place. Inaccurate TCO calculations can also impact financial auditing requirements negatively.
4. Poor Asset Visibility
Businesses struggle to determine the asset's quality and performance because there are too many things to keep track of, way beyond the capabilities of employees—which makes poor asset visibility.
This problem is apparent when talking about serial or model numbers for company equipment. Your staff cannot track number codes all day without losing productivity due to the tedious nature of the work.
Poor asset visibility also affects the movement of tangible assets that are shared across locations.
For example, a company may move tools from one office to another to fill equipment gaps in a project. When the work is done, how can they ensure every tool is returned to its initial storage space?
Tasks like these become near impossible to do efficiently, which highlights the importance of visibility in asset management.
5. Making Asset Purchase Decisions
Major company assets require a significant amount of capital to purchase, which can affect your bottom line. Managing them becomes an uphill challenge because company budgets need to be balanced well between investment costs and ROI.
Purchasing can lead to infinite paperwork and discussions with higher-ups just to get approval.
Understandably, business leaders don't want to spend unnecessary money. However, this reservedness can impact lower-level employees who need better, modern equipment to work better.
Why Asset Management Matters in Businesses
1. Spend Less on Storage
Warehouses are not cheap. A mistake many companies make is to store unused or underutilized assets in warehouses. Warehousing is a massive waste of money as companies are paying for worthless storage—a problem that gets worse the longer an asset idles.
Proper asset management fixes this problem by identifying assets in storage that generate little to no business value. These assets can be discarded or resold if functional to recover a portion of the initial investment.
For example, you may end a rental contract for a machine that has only been used a few times in the last few years, saving your company hundreds of thousands in excess spend.
Asset management also deals with minor assets like spare parts, which are often forgotten because they seem insignificant. Something as small as a screw of a few cents can add up over time to surprise your year-end financials.
With efficient management, you're able to identify how many parts you actually need to maintain company assets without having to deal with over or understocking.
2. Improve Cash Flow
Following the point above, paying less for warehouse fees gives your company more room to spend on other areas of the business. This boosts cash flow, which is essential for growth or as a safety net in case things go south.
Since you're acquiring only the assets you need, your company can pay off purchases easily and negotiate better contracts thanks to the increased spending power.
3. Theft Prevention and Management
It's almost impossible for businesses to track assets stolen by employees or customers without asset management.
Large physical assets like trucks or machinery would obviously set off alarms the moment they disappear, but what's more concerning are the minor assets that vanish unnoticed.
A recent study showed that company equipment theft accounts for 63% of all theft cases, with only a meager 21% of stolen assets successfully recovered.
Asset management involves tracking and prevents this problem by making it easier to detect when things disappear, be it stolen or lost.
Management systems with GPS can identify where a lost tool was last seen or utilized. As a result, businesses can recover stolen goods quickly, which limits the costs incurred from equipment theft.
4. Eliminate Inefficient Tasks and Processes
Effective asset management eliminates activities that don't contribute value to the business operations.
For example, if you have staff members tracking serial numbers all day, wouldn't it be more resource-effective to deploy automatic scanners and shift the employees to higher-level tasks instead?
Less time spent on inefficient tasks grants extra resources for your employees to work on tasks that generate more business value.
Assigning repetitive and menial work causes employee mistakes due to complacency and lapses of judgment—a problem that affects 90% of employees today.
5. Top-Notch Reliability and Safety
A good asset management policy champions safety procedures to keep employees and assets safe.
When you train staff members to handle assets with care, the lifespan of company equipment extends while the likelihood of workplace accidents decreases.
Maintenance becomes a breeze thanks to longer-lasting equipment.
Reliable assets are ideal for businesses as they deliver results with optimal efficiency due to minimal downtime. Not having to purchase new equipment all the time to replace the broken one is a boon to company finances, especially if the asset requires a significant investment.
6. Board Support
For a very long time, maintenance teams were managing company assets—from procurement to disowning equipment. This made it difficult for employees outside of maintenance to understand what was going on in terms of equipment decisions.
Effective asset management grants every stakeholder valuable insights for making informed decisions regarding assets—including board members and business leaders.
C-suite leaders will understand why investing in modern assets is essential, department heads will be able to meet KPIs better, and employees will perform better thanks to higher-quality work equipment.
Strong executive support also boosts investor confidence since shareholders see a united organization that strives to become the best in every business aspect.
Good management can do wonders for a company's reputation, ultimately influencing its share value by sparking increased interest from investors to put money in the company.
Best Practices of Managing Assets To Implement in Your Company
1. Aim For Resource Efficiency
It's important to be as efficient as you can when managing company assets. Eliminate unnecessary work and utilize technology to automate repetitive tasks that take up too much time if done by hand.
Refine processes to use as little resources as possible by identifying exactly how much manpower and equipment a task requires.
Error tracking is also vital in effective asset management.
No matter how skilled and experienced your employees are, mistakes will happen, and it's your responsibility to ensure they don't impact company assets significantly.
If tasks are involving lots of employees but produce results similar to one or two-person work- you've identified double work.
For example, do you really need ten people to collect info about the conditions of your assets? Besides, manual data entry can cause errors that hamper operations if not done with an eye for detail.
Speaking of monitoring, it's wise to supervise your assets on a fixed schedule rather than treating it as a one-off.
The longer you wait to review the condition of your equipment, the likelier it is to break down unexpectedly and disrupt company processes.
Assessments should also be complemented with the right KPIs.
Some example of KPIs you can implement include:
- Number of assets needing inspections
- Number of assets reaching end-of-life
- Number of assets with bad or unknown serial numbers
- Asset reliability
- Asset performance over time
Again, technology is a must if you want to monitor resource usage efficiently.
Some tools can perform predictive maintenance with minimal input, which lightens employee workloads and relieves them of tedious, monotonous work.
2. Don't Get Confused Between Assets and Inventory
As your business grows, you'll notice asset and inventory management often cross each other, which can be confusing at first. Assets and inventory are fundamentally different, but they can intersect in some instances.
Consider a business that rents equipment (e.g., servers, machinery) to its clients. Tracking and managing the rented equipment is now considered part of asset management, even if it was classified as inventory before.
Knowing the difference between the two can save your organization from measuring inaccurate metrics and making the wrong decisions.
3. Prioritize Decisions That Generate the Best ROI
Every organization wants to maximize ROI from its investments, including company assets.
With proper management, you can make informed purchases thanks to greater asset knowledge. Your business will also gain more from costly assets as maintenance teams find it easier to service company equipment and enable optimal performance.
By improving the quality of assets across your company, employees can achieve maximum productivity due to more efficient work tools. Not only do they work quicker, but they will be happier at work since they can work on exciting tasks rather than looking at machines all day.
Modern equipment is designed to eliminate waste, which further increases ROI in addition to improving sustainability efforts.
4. Invest in the Right Technology
Data is the core component of any successful asset management program. Information makes asset monitoring tick, and you'd be hard-pressed to manage it effectively without using the right tools to assist you.
Accessories like RFID tags and handheld serial number scanners save you countless hours when tracking assets while also eliminating human errors.
The larger your asset base is, the more you need technology to do the heavy work.
A popular solution in large warehouses is to implement a tracking system that integrates with ERP systems for easy management.
Essentially, all asset serial numbers are scanned and organized (often in visual form) to identify their locations in a warehouse. Such organization solves the all-too-common problem of employees not knowing where a tool or equipment is, thus improving work productivity.
Barcodes can be generated for any asset, regardless of whether they are large-scale machines or tiny office stationery.
Some companies even implement QR codes to enable asset tracking on mobile devices. One significant advantage of asset tagging is that it allows organizations to track asset movements when company equipment is moved or used.
Being able to locate things prevents theft while also ensuring assets are returned where they belong after work.
You can take this one step further by implementing equipment statuses in your asset tracking system. That way, you will not only see where an asset is but could also monitor its condition and performance from one dashboard.
Maintenance managers would be delighted with this feature as it eases asset reporting immensely.
5. Secure Your Assets
Bolstering security is another essential component of asset management. You should implement strict authorization controls for business-critical or valuable assets that require expertise to utilize.
For example, heavy machinery should not be operated by staff outside of the construction team to avoid theft and equipment damage.
Consider limiting access to certain areas in your warehouse and implementing access levels (e.g., employee IDs) to further strengthen security.
Granting everyone unrestricted access can ruin your asset management policies when company equipment is moved constantly without proper tracking.
You can also employ physical security measures like locks on company equipment to deter theft. CCTVs are always a good idea, particularly in high-traffic and restricted areas.
That said, be compliant with labor regulations when installing security cameras. You don't want to invade your staff's privacy and risk paying massive non-compliance fines just to keep an eye on company assets.
6. Have a Contingency Plan
No matter how well you structure asset management, things will not pan out as expected now and then.
What separates excellent companies from mediocre ones is their ability to adapt to unexpected scenarios—and that begins with a contingency plan.
A good contingency plan covers common workplace problems, identifies the stakeholders affected, and proposes realistic solutions to limit the damage.
The table below shows what a sample contingency plan might look like in your company:
Contingency plans are necessary, but in an ideal world, you never want them to happen.
Instead, you should utilize technology to identify equipment that is close to breaking down or is not detected in your asset management system.
You will stop the problem before it impacts business operations, and even if it does happen, your contingency plan is there to save your company from dramatic losses.
Start Managing Your Assets Today
Asset management is crucial if you want to achieve optimal work performance without spending exorbitant sums on company assets.
Optimizing performance means working with a systematic approach when managing assets, utilizing your resources as well as possible by eliminating inefficient tasks, and having a backup plan for unexpected events.
At the end of the day, your employees will work better and happier, which can only bring good things to your company.