How to Calculate and Improve Asset Utilization

Your assets are expensive. So it’s no surprise you want the greatest possible return on them. But how do you guarantee that?You could underutilize assets, extending their life and lowering maintenance costs but reducing output. Or you could over utilize assets, significantly increasing output but running them into the ground and sending maintenance costs soaring. It’s a tricky balancing act. That’s why smart companies measure asset utilization to determine how much they use their assets and identify ways to optimize asset use. In this article, we’ll show you a step-by-step method for calculating asset utilization and five ways to improve it. 

What is asset utilization?

Asset utilization is a measure of how effectively and efficiently you are using your machinery and equipment. It’s a maintenance-focused gauge of how hard an asset works compared to its potential. In general, high asset utilization is a good thing. It shows assets are being used as productively as possible and that your business is getting its money’s worth. But asset utilization shouldn’t be near 100%. That would suggest machines are being run too often and maintenance is not being carried out. You can measure asset utilization for a single piece of machinery across your organization. It’s usually calculated for fixed assets like machinery, vehicles, and IT equipment, but in theory, you could calculate the asset utilization of anything.

fixed assets

Most fixed assets — particularly those in a manufacturing setting — are costly, so businesses need to get as much value from them as possible. That means they run as often as possible while avoiding breakdowns and expensive repairs. You will never be able to run your assets non-stop around the clock. But there are almost always opportunities to improve. However, optimizing asset value is a juggling act, which is why companies use asset utilization to understand precisely how assets can be used more efficiently or effectively. That could be by avoiding unscheduled downtime because of an issue or by reducing quality losses. 

Why asset utilization is so important

Poor asset utilization is one of the biggest problems for companies with fixed assets. You want to get the most from your investment, but you must also be conscious of the factors that prevent you from using an asset to its potential.

2.Asset Potential Prevenial

Things like unexpected downtime, scheduled maintenance, staff breaks, and annual holidays can significantly reduce the time your machinery is in use. Most factory managers don’t tend to keep track of how all these small pieces of downtime add up and to what extent it impacts how assets are used or the profitability of the factory. Asset utilization forces stakeholders to come to terms with these factors and allows them to start making decisions to improve the business. By understanding your asset utilization, you can look for ways to improve an asset’s lifecycle and ROI. For example, manufacturers may be able to adjust machine settings or schedules to optimize longevity or improve equipment wear. Asset utilization can also help you uncover underused assets and develop strategies for improving their ROI. Identifying underused assets may seem obvious, but it’s not straightforward in a plant with hundreds of machines. Asset utilization may even help businesses in planning for the future. It’s a great way to gauge exactly when fixed assets need to be replaced and can help when sourcing new machinery, too. The data can be used by purchasing teams to acquire the most effective piece of machinery or by design teams looking to build better, longer-lasting, and more profitable equipment. 

How to calculate asset utilization

The easiest way to calculate asset utilization is to add up all of a machine’s total losses in hours and subtract them from the total number of hours it could be at work across a year — that’s 8,760 hours, by the way. So, for example, if your asset is idle for a total of 3000 hours, then your asset utilization is 8760 - 3000 = 5760 (or about 65%).To better identify areas to improve, it’s worth breaking down lost hours into several categories, as shown below:

3.How to Calculate Asset Utilization

Start with annual planned downtime

Annual planned downtime is the number of hours the equipment will not be available during the year. This can be for several reasons, such as planned maintenance. While you may want to keep this as low as possible and limit planned maintenance as much as possible, proactively addressing issues can result in better asset utilization. 

Calculate lost operations time

Lost operations time is any other amount of time where the equipment was inactive. This can include holidays, maintenance periods, and changeover time.

Production hours lost

Production hours lost is when machines were not in use due to low asset utilization. This is usually a result of machines not being needed because of supply chain, low sales, or other changes in demand.

Add unscheduled downtime

Occasionally, your equipment will stop without notice or warning. This is unscheduled downtime. This could happen due to a breakdown, equipment failure, or an accident requiring production to shut down.

Calculate quality losses

Every hour your machine spends creating products you can't sell wastes time. You’ll need to calculate product yield here (see below) and then turn that yield into units of time. For example, if your product yield is 80%, 20% of your machine’s time is spent creating faulty products. If your machine runs for 5,000 hours, then 1,000 hours are lost due to quality.

Add production rate losses

Almost every machinery or equipment will have an advised production rate, but few machines will run at this rate. So, calculate how your machine's production rate compares to the theoretical maximum. 

Calculate actual asset utilization

The final step is easy. Simply add up all the hours you’ve tallied in the preceding six steps and subtract them from 8,760 (assuming you want to calculate asset utilization over a year). You can then express asset utilization as a percentage by dividing the new number by 8,760 and multiplying by 100. If you’re serious about improving asset utilization, you should pair your asset utilization ratio with several other KPIs, including product yield, overall equipment effectiveness, and maintenance speed. Product yield is the ratio of good products in a batch compared to the total planned yield. It shows which machines are inefficient, regularly producing parts that need to be sent for rework or discarded. You calculate product yield with the following metrics: planned units (P), percentage of good products in a batch (G), and percentage of bad products in a batch (R). Then you use this formula:Product Yield = P*G + P*(1-G)*ROverall equipment effectiveness is a measure of how effectively your machine runs. It’s the gold standard of machine productivity. You calculate it by combining a machine’s availability score (how long a machine ran compared to the planned production time) with a machine’s performance score (how closely the process matched your ideal cycle time) and a machine's quality score (where a score of 100% means there were no defects).  If you get an overall equipment effectiveness score of 100%, the machine ran for as long as possible, as fast as possible, and made no defects. Maintenance spend is the total cost engineers spend to keep equipment running. Investing in new equipment may be worth it if assets cost significantly more to maintain as they age. 

How to improve asset utilization

Now you know how to calculate asset utilization, let’s discuss how to improve it. Follow the five steps below. 

Conduct an asset inventory assessment

To improve asset utilization, you should first conduct an asset inventory assessment. By conducting an asset inventory, you can collect data on your equipment's location, condition, and maintenance history. 

Asset Inventory Assessment

If you already have an asset tracking system, it’s as simple as scanning the barcode or RFID tag on each piece of equipment and updating the information in your asset tracking software. If you don’t have an asset tracking system, then now is an excellent time to implement one. In doing so, you’ll be able to create in-depth records about your machinery and build a single source of truth that everyone from stakeholders to procurement managers to engineers can use to improve their performance and make better decisions. 

Improve maintenance processes

If you’re serious about improving asset utilization, you can’t wait until machinery breaks down to take action. You need to take preventative steps to ensure as few lost production hours and as little unscheduled downtime as possible. You can use asset tracking data to optimize maintenance schedules, but incorporating preventative maintenance — where you fix issues before they become a problem — is even more effective. Create a program whereby you regularly inspect, replace, and modify components. Knowing your assets is essential. By referring to the equipment manual, you can understand which parts are most likely to malfunction or require regular checkups. However, taking detailed notes will help future engineers understand what’s gone wrong and what steps you’ve taken to prevent issues. 

Buy more reliable equipment

Reducing machine downtime can go a long way to improving asset utilization. Improving your maintenance efforts is one way to achieve this; another is to purchase more reliable equipment. At some point, it’s no longer worth continuing to proactively maintain old machinery – especially if it is causing other problems that affect your asset utilization, like bad quality yield. Buying newer, more reliable equipment may incur a significant upfront cost, but it can drastically improve asset utilization rates and boost your ROI. 

Invest in employee training and development

As much as asset utilization measures the performance of your equipment, it also measures your employees' performance to some degree. Lost operations time, unscheduled downtime, and quality losses can all be caused by employees who don’t understand how to use your machinery properly. Fortunately, this can be rectified with regular employee training and a detailed onboarding program. 

Implement asset tracking software

Asset tracking software should be the foundation of improving asset utilization. It can play a pivotal role in creating an asset inventory assessment — as we have already discussed — but it can also help you gather and store even more information to bolster your asset utilization efforts. undefined-May-31-2023-07-52-28-0824-PM

For example, you can use asset tracking software to keep track of the location and condition of assets, how long each asset is used, when the most recent issue or repair occurred, and how often input fields have been updated. Asset tracking software can be hosted in the cloud or on your company servers. Ideally, the solution will be web-based, allowing staff to tag assets without being connected to the internet. 

Improve asset utilization with RedBeam

Asset utilization lets you measure how effectively and efficiently you use your company’s fixed assets. The better your asset utilization score, the better your efficiency and the more profitable your assets will become. Measuring asset utilization is relatively straightforward, but it’s a lot harder to improve. Make things easier with a market-leading asset tracking solution like RedBeam that makes it easy to tag, track, and record key data about the condition and performance of your machinery. Try it for free, or contact our team to find out more.