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Are you getting the most out of your asset investment? Measuring asset utilization can tell you whether your machines, equipment, and other assets are performing profitably and whether you need to make maintenance adjustments, upgrades, or replacements. Generally, if your assets aren't producing output at least 70% of the time, your asset utilization is too low to sustain profitability. However, if your assets are running 100% of the time, you may be running maintenance risks.
In this article, we'll walk you through what you need to know to optimize your asset utilization. We'll cover what asset utilization is, how to measure it, why it's important, what factors affect it, and how you can improve your utilization rate with best practices and asset management technology.
Main Takeaways From This Article:
- Asset utilization is a key performance indicator that compares an asset's actual output to its potential output.
- Managing asset utilization promotes efficiency, cost-effectiveness, and sustainability.
- Calculate asset utilization by subtracting downtime hours from total hours, dividing the result by total hours, and converting it to a percentage.
- Variations of asset utilization measure losses in annual downtime, operations time, production hours, unscheduled downtime, quality, and production rates.
- For deeper insight, supplement asset utilization with other KPIs such as overall equipment effectiveness (OEE), product yield, maintenance spend, and unplanned downtime.
- Improve asset utilization ratios by implementing inventory assessments, maintenance processes, equipment upgrades, employee training, and software to track your assets.
What Is Asset Utilization?
Asset utilization assesses the effectiveness and efficiency of machinery and equipment deployment. It serves as a critical metric for maintenance, evaluating an asset's operational intensity against its potential.
While high levels of asset utilization indicate that assets are being maximized to deliver value, aiming for a utilization rate close to 100% can be counterproductive, signaling potential overuse and neglected maintenance.
This metric is applicable across various assets within an organization, from machinery and vehicles to IT equipment, offering a broad view of how well resources are being leveraged to achieve business objectives. Essentially, actual asset utilization provides insight into finding the sweet spot between maximizing use and maintaining asset health.
Types of Assets
Asset utilization extends beyond fixed facility assets like traditional machinery and physical equipment to include intangible assets that various sectors deem crucial. Here's a list of these assets and how asset utilization can apply to each category:
- Human Capital in Service Industries: In industries like consulting, the workforce serves as a valuable asset. Factors such as employee productivity and billable hours become key metrics for considering asset utilization. Ensuring maximal productivity and effective time utilization can directly impact a company's financial performance.
- Intellectual Property: This involves intangible assets like patents, trademarks, or copyrights. For instance, in a pharmaceutical company, the production application of a patented drug formula can significantly impact revenues. Gauging and optimizing asset utilization in this context could lead to enhanced returns on intellectual investments.
- Software Applications in IT: Beyond the physical IT hardware, software systems serve as deployable assets. Utilization rates of high-value software are often scrutinized for maximum value derivation. Metrics such as "active users over total users" for a resource planning system can help understand application usage, refine deployment strategies, and realize better ROI.
Factors Influencing Asset Utilization Ratio
Both internal and external factors can influence your asset utilization scores:
- Internal factors include asset management strategies, asset quality, maintenance scheduling, and asset aging
- External factors include technological advances, changes in demand, and supply chain disruptions
You can mitigate negative internal factors more easily than external ones. For example, you can adopt strategies such as asset acquisition optimization, asset monitoring, preventive maintenance scheduling, and proactive replacement of obsolete machines and equipment. You can offset external factors to some degree through strategies such as technology upgrades, market research tracking, and supply chain management.
Importance of Asset Utilization
Managers and investors view asset utilization as a key indicator of a company's efficiency, cost-effectiveness, and long-term sustainability. Companies with low asset utilization often suffer from low productivity, excess production capacity, and high maintenance costs. Organizations with strong asset utilization enjoy cost savings, higher production, and greater profitability.
Effective asset utilization brings additional benefits. Utilizing assets efficiently can reduce a business's environmental impact and improve operational alignment with sustainable practices. Good asset utilization further improves market positioning against less efficient competitors, helping attract customers and investors.
The Asset Utilization Calculation
To effectively measure asset utilization, first determine the total operational hours in a year (8,760 hours) and then subtract the machine's total downtime hours. For example, if your asset is idle for 3,000 hours annually, its utilization would be calculated as 8,760 minus 3,000, equaling 5,760 hours of use or approximately 65% utilization. To further refine your analysis and identify improvement opportunities, break down the downtime into specific categories:
Begin with Annual Planned Downtime
Annual planned downtime refers to the hours during which equipment is scheduled to be offline throughout the year, often for maintenance. While minimizing this downtime is crucial, a proactive approach to maintenance can enhance overall asset utilization.
Imagine a manufacturing plant operating a crucial piece of machinery that, according to the maintenance schedule, requires 200 hours of maintenance annually. These maintenance periods are planned during the least productive times to minimize impact, such as holiday seasons or weekends.
Calculate Lost Operations Time
This encompasses periods when equipment remains idle outside of planned downtime, such as during holidays, additional maintenance phases, or changeover intervals.
Now, beyond scheduled maintenance, the machinery also remains idle during national holidays, totaling 120 hours per year. Additionally, changeovers between product lines take up to 180 hours annually due to the complexity of switching manufacturing setups.
Address Production Hours Lost
This situation arises when equipment isn't utilized due to reduced demand, supply chain issues, or decreased sales, leading to lost production hours.
Suppose market demand for the products made by this machinery fluctuates throughout the year. During periods of low demand, the machinery is not operated for approximately 400 hours in total. Additionally, supply chain disruptions caused a halt in production for 150 hours as raw materials were delayed.
Incorporate Unscheduled Downtime
Unexpected stops, whether from equipment failure, breakdowns, or accidents necessitating production halts, contribute to unscheduled downtime.
Despite preventative maintenance, the machinery experienced two significant breakdowns during the year, resulting in 100 hours of unexpected downtime as repairs were conducted.
Determine Quality Losses
Time spent manufacturing unsellable products constitutes quality losses. To quantify, calculate your product yield and convert this percentage into the actual time lost. For instance, with an 80% yield on a machine operating for 5,000 hours, 1,000 hours would be lost to producing defective products.
Quality control measures reveal that the machinery has an 85% yield rate, meaning 15% of the products either need rework or are wasted. If the machine is operated for 5,000 hours (excluding other downtimes), then 750 hours (15% of 5,000) are essentially lost to producing substandard products.
Evaluate Production Rate Losses
Most equipment has a recommended production rate, but operational rates often fall short. Assess how your equipment's actual production rate compares to its potential.
The machine's optimal production rate is 100 units per hour, but due to varying factors such as operator skill levels and minor mechanical issues, it averages 90 units per hour. Over the course of 5,000 operating hours, this discrepancy indicates a loss in efficiency, requiring adjustment to understand the true operational capacity.
Finalize Actual Asset Utilization
Summing the hours calculated from all previous steps and subtracting this from the annual operational hours (8,760) will give you the actual asset utilization. Express this as a percentage for a clear view of utilization efficiency. To deepen insights into asset performance, integrate this metric with other KPIs such as product yield, overall equipment effectiveness (OEE), and maintenance efficiency. These additional metrics can pinpoint inefficiencies and guide toward targeted improvements.
Software Tools for Automated Calculation and Monitoring
Manually calculating asset utilization can be cumbersome and prone to errors. By leveraging software solutions like RedBeam, companies can automate data collection and perform calculations, reaping several benefits like:
- Improved Accuracy: Eliminates manual errors in data entry and calculations.
- Deeper Analysis: Integrates with other operational data for comprehensive performance evaluation.
- Trend Analysis: Identifies patterns and potential issues over time.
- Proactive Maintenance Planning: Plan maintenance based on actual usage, reducing downtime.
Asset Utilization Measures & KPIs to Expand Asset Utilization
Asset utilization is just a part of the larger performance puzzle. Let's explore other KPIs that work hand in hand with asset utilization to enhance your overall operational efficiency.
1. Overall Equipment Effectiveness (OEE)
Overall Equipment Effectiveness (OEE) multiplies availability, performance, and quality of equipment. This identifies areas in your production and maintenance processes that need improvements.
Monitoring OEE improves production by pinpointing recurring bottlenecks and other problem areas. Tracking OEE also helps uncover whether downtime issues reflect equipment faults or maintenance gaps.
2. Product Yield
Product yield is the percentage of products that meet all quality checks out of the total amount produced. This plays a big part in asset utilization. To boost product yield and consequently enhance asset utilization, organizations can use several strategies. These include refining production processes to reduce waste, implementing robust quality control measures to minimize defects, leveraging advanced technologies for precise manufacturing, thorough regular equipment maintenance to avoid unexpected downtime, and cultivating a culture of continuous improvement where stakeholders at all levels are committed to enhancing efficiency and quality.
3. Maintenance Costs
Maintenance costs encompass all expenses incurred to keep physical assets in optimal working condition. This includes:
- Corrective maintenance, carried out after faults are detected
- Preventive maintenance, designed to avert breakdowns
- Predictive maintenance, deployed to preempt potential equipment failures
Optimizing resource allocation by ensuring the right resources are available and used at the right time can further reduce maintenance costs.
4. Unplanned Downtime
Unplanned downtime refers to those unexpected moments when equipment or machinery ceases to function, disrupting the flow of operations. These unscheduled interruptions can significantly affect the asset utilization rate, as it denotes your asset is not operating at its full capacity.
Reducing the detrimental effects of unplanned downtime isn't an insurmountable task. Regular maintenance, for one, can help ensure your assets stay in optimal working condition, allowing them to perform their functions without sudden hitches.
Five Strategies to Improve Your Actual Asset Utilization Ratio
Enhancing asset utilization involves understanding the concept and effectively implementing strategies that ensure optimal results. Follow these five strategies to improve your asset utilization ratios for a streamlined, efficient operation.
1. Conduct an Asset Inventory Assessment
By conducting an asset inventory, you can collect data on your equipment's location, condition, and maintenance history and perform asset verification checks and audits against your asset ledger. With this data, you can identify patterns and trends that promote high asset utilization.
To perform asset inventory management, many companies still use spreadsheets, but with today's technology, you can achieve better results with dedicated asset-tracking software that automates asset identification, data entry, and updates. This provides you with data you can leverage for analytics insights, automated asset utilization calculation, and optimized maintenance and asset acquisition planning.
2. Improve Maintenance Processes
Incorporate preventive maintenance by creating a program whereby you regularly inspect, replace, and modify components. Use data from sources such as machine sensors, operations logs, and maintenance records to provide analytics insights into potential issues before they escalate.
Start by identifying key machinery for predictive maintenance in your workflow. After this, allocate funds for data-collecting technologies such as sensors and IoT devices. Invest in robust analytical software to interpret the data collected for predictive insights. Bring stakeholders on board with these investments through meetings that share findings and results and invite input on planning.
3. Buy More Reliable Equipment
Evaluate whether investing in the upfront cost of new equipment can improve your asset utilization rates enough to boost your ROI. To assess this, weigh ROI against the total cost of ownership (TCO). TCO includes:
- Initial buying price
- Ongoing maintenance costs
- Downtime expenditures due to unexpected equipment failure
- Disposal costs
Compare these costs against ROI factors such as increase in output, efficiency gains, and downtime savings. The results will indicate whether investing in new equipment acquisitions is justified.
4. Invest in Employee Training and Development
Lost operations time, unscheduled downtime, and quality losses can all be caused by employees who don’t understand how to use your machinery properly.
Ongoing education for your team members is key to maximizing benefits from your valuable fixed assets. When your staff understands the ins and outs of each machine, they can maintain optimal operational efficiency and prevent costly downtime.
5. Implement Asset Tracking Software
Asset tracking software should be the foundation of improving asset utilization. It can play a pivotal role in creating a fixed inventory assessment.
Real-time monitoring and analytics are two features of asset-tracking software that directly impact asset utilization rates. They provide an 'always-on' view of your assets, ensuring you always know where they are and how they're being utilized.
Regular reviews of your asset analytics reports should be part of your management activities. These insights will help you observe patterns over time, equipping you to make informed strategic decisions. For instance, if a particular asset is frequently underused, you might find it more cost-effective to lease it rather than own it. By embracing data analytics and real-time monitoring, you can proactively manage your asset utilization, thereby enhancing your business's overall performance.
Boost Efficiency Using RedBeam for Asset Utilization
Making the most out of your assets can drive your business toward growth and increased profits. Asset utilization affects everything from your costs to your return on investment. Optimizing these factors through strategies like fixed inventory checks and equipment investments can boost your business performance.
RedBeam's asset management software provides the tools you need to implement these strategies. The user-friendly cloud interface lets you automate asset data entry through scannable barcode technology. This makes it easy to analyze your asset data for utilization and other KPIs, delivering data-driven insights to help you make strategic asset management decisions.
Whether you're considering a review of your existing asset utilization practices or you're keen on adopting a more strategic approach, RedBeam can help you get the most out of your assets. Try RedBeam for free, or schedule a demo to find out more.
FAQs
What Is the Difference Between Asset Utilization and OEE?
Asset utilization compares an asset's actual output to its potential output as a ratio, yielding information about asset productivity and efficiency, while overall equipment effectiveness multiplies asset availability, performance, and quality, identifying production and maintenance bottlenecks.
What Is Optimal Asset Utilization?
Optimal asset utilization is when assets are producing output at least 70% of the time without causing overuse and maintenance issues, which can occur if utilization gets too high.
How Is Calculating Asset Utilization Done?
Calculate asset utilization by subtracting downtime hours from total hours, dividing the difference by total hours, and converting the result to a percentage.
