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How much can poor asset optimization practices cost your business? To take an extreme example, during the first two months of the COVID pandemic, as the workforce shifted to remote work, US businesses lost $54 billion from expenses such as unused office space, mobile phones, and vehicles. While this was an exceptional case, it illustrates losses that are all too common. Businesses with over 20 employees lose track of 6% of assets annually, costing $2.92 billion (AU$4.3 billion), a study by Australian telecommunications provider Telstra found. With these losses, it's no wonder the global asset tracking market is expanding at a compound annual growth rate of 12.8%. Companies are investing in asset management software because they know they can't afford to pay the costs of unused assets.
In this article, we'll show you how asset optimization strategies can help you get the most out of your assets and avoid the waste of underutilization. We'll cover what asset optimization is, how it benefits your business, and how to do it effectively by following best practices.
Main Takeaways From This Article:
- Asset optimization consists of practices for maximizing asset utilization and value while minimizing costs.
- Asset optimization represents a specialized application of asset management, which also encompasses other phases of the asset lifecycle such as acquisition and disposal.
- Implementing asset optimization brings benefits ranging from increased availability and productivity to lower costs and compliance risks.
- Asset optimization best practices leverage asset management software to increase the efficiency of the asset lifecycle, improve planning, and monitor performance.
What Is Asset Optimization?
Asset optimization includes the practices to get the most value and performance from an organization’s assets while reducing costs.
Asset optimization seeks to maximize the value of a business’s assets, improve the value, and reduce costs (and risks). When it comes to organizational acquisitions, few are as expensive as fixed assets, also known as facility assets. These physical items play a significant role in a company’s operations and finances. They can include anything from vehicles to machinery to IT assets used to support cloud operations. While almost every business has its internal assets, they’re rarely being used or optimized in the best possible way to improve performance and profitability. Asset optimization seeks to improve your assets' use, value, and ROI by working on a few best practices.
Asset Optimization vs. Asset Management: What Is the Difference?
Asset optimization differs from asset management as a specialty that focuses on maximizing the utilization of existing assets. Asset management encompasses broader strategies for optimizing the entire asset lifecycle, from planning and acquisition of new assets to disposal and renewal of used assets. Asset optimization specializes in optimizing the usage of existing assets to maximize productivity, efficiency, and value. Essentially, asset optimization is a specialization of asset management focused on performance.
Advantages of Asset Optimization
When an asset is being used optimally, it’s providing all of the value possible to an organization. This may mean adjusting usage to reflect market conditions; for example, reducing output when the price for a product is lower may be more optimal than simply producing as much as possible at all times.
Here are a few of the advantages of asset optimization:
Improved Asset Availability
Assets only provide value if they’re put to use properly. Many organizations have vehicles and equipment sitting dormant for days, weeks, or months without getting any value from them. Meanwhile, they’re collecting dust and costing the company maintenance and repairs. Asset availability is about ensuring your asset’s production potential is being maximized. This means keeping your assets in good condition so they’re reliable and can be used rather than sitting broken and underutilized.
Reduced Maintenance and Replacement Costs
One crucial advantage of asset optimization is reduced costs. To get the most out of your assets, you need to set up regular maintenance and audits to keep machinery and equipment in good working order (and to increase their lifespan). You can reduce excess expenses like maintenance costs by closely monitoring your assets and scheduling maintenance consistently. And, since you’ll be able to increase the lifespan of your assets, you won’t need to replace them as often.
Reduced Downtimes
Another benefit of asset optimization is the reduced downtimes of your equipment and machinery. Since you’ll be better at managing your assets, the percentage of your assets in good working condition will be much higher. The result is reduced equipment downtimes to get the most value from the assets on hand.
Improved Productivity
Now that a high percentage of your assets are in good condition and your asset availability is improved, you can improve your organization’s productivity. Organizational productivity is greatly affected by a company’s available resources. If your team doesn’t have the tools, machinery, or vehicles they need to complete their work efficiently, operational performance will lag. Asset optimization can help organizations tighten up processes, get more done in less time, and operate consistently at a high level.
Improved ROI
For many finance and IT managers, the most enticing benefit of asset optimization is the improved return on investment (ROI) and profitability. A business will see reduced maintenance and replacement costs, reduced downtimes, and improved performance upon implementing asset optimization strategies. The result is that the overall output from your assets will be far greater than their associated expenses, giving you a greater bottom line.
Improved Foresight and Decision-Making
With asset optimization, business owners and management will have more clarity on what’s going on with their equipment and machinery so they can better understand:
- How many assets are in good operational condition?
- How many assets need to be repaired?
- How many assets need to be replaced?
- How much cash flow is available to repair or replace assets?
- How much additional cash flow is projected to be available?
- How long will an asset be usable?
- How much is needed to invest in maintenance technicians?
- How quickly can replacement parts arrive if needed?
- Will the company need to buy additional assets?
- Will the company need to sell excess assets?
It is nearly impossible to be able to foresee the entire life cycle of an asset. However, with asset optimization, management can better understand what’s going on with their assets to make better decisions.
Enhanced Customer Satisfaction
Since asset optimization can help improve productivity and company performance, organizations won’t spend as much time playing catch-up. Whether an organization is B2B or B2C, improved performance means customers won’t be as delayed in receiving goods or services, product quality will improve due to better machinery, and with the extra cash flow, more resources can be invested into customer support to ensure higher customer satisfaction.
Improve Compliance
Malfunctioning assets that create safety hazards can put you at risk of compliance penalties. For example, OSHA safety regulations require that assets such as electrical equipment and personal protective equipment be maintained properly. Asset optimization supports regulatory compliance by promoting accurate records of asset conditions and maintenance logs and preventive maintenance scheduling.
Mitigate Risks Associated with Assets
Managing fixed assets presents a wide range of risks, from performance failure to security breaches of IT and IoT devices to loss from misplacement or theft. Asset optimization mitigates these risks by promoting the tracking and maintenance of assets. This includes maintenance of IT and IoT devices that need periodic security upgrades to keep up with the latest security risks and performance standards.
Optimize Resource Allocation
Finally, asset optimization helps resources get allocated where and when they're needed. Tracking assets in real time ensures the right assets get assigned to the right tasks at the right time. You also know when it's time to repair, replace, or restock resources so they're not running low or unavailable when they're needed.
Asset Optimization Strategies & Best Practices
Now that you’re well-versed in the advantages of asset optimization, you can determine how to integrate best practices into your company. Improving how you manage your assets can seem complex and daunting. However, you can work on a few key areas to ensure the process is as streamlined as possible.
1. Set up a Dedicated Asset Management Team
Establishing an asset management team with defined roles creates ownership and accountability, improving your ability to achieve your goals. If you don’t already have a team, look for key individuals in your organization who are familiar with asset management. If you’re in a smaller company, you could have two or three individuals or even a single dedicated asset management lead.
2. Leverage Asset Management Software
Asset management or asset tracking software promotes optimization by automating key tasks throughout the asset lifecycle and leveraging data to maximize efficiency. You can use asset management software to streamline:
- Asset check-in and check-out
- Quick scans (QR codes, barcodes, etc.)
- Compliance audits
- Depreciation tracking
- Accounting integrations
You can also harness asset management platforms for data-driven insights into your assets' performance and maintenance needs, helping you get more out of your resources.
3. Understand Asset Life Cycles
Your assets will come and go. But, how long they can remain working and usable in your organization depends on their life cycle. Asset life cycles will vary from industry to industry and business to business — there are no universals. To optimize your assets, you need to understand your assets' different life cycles clearly.
Assets typically go through five different stages within their life cycle:
- Planning
- Acquisition
- Utilization
- Maintenance
- Disposal
Regardless of how complex or simple your asset life cycles are, it’s crucial for you to collect accurate data at each stage to keep track of availability, maintenance, repairs, and replacements. Asset lifecycle optimization is a major part of asset optimization. By understanding and working toward improving life cycles, you’ll be able to maximize the life of every asset through careful planning.
4. Conduct Regular Asset Audits
Periodic asset audits will give you insight into how to optimize your asset lifecycles as well as help you achieve tax and regulatory compliance. Asset audits should cover:
- Whether or not assets still exist
- Locations of physical assets
- Current asset conditions
- Preventative maintenance records
- Other information like purchase receipts and values after asset depreciation
In best practice, you should conduct minor audits once a month and deep-dive audits once every quarter. This will ensure your data is accurate and you’re able to utilize your assets to the best of your ability.
5. Tighten Up Asset Maintenance Planning
Preventive maintenance improves asset performance and extends resource lifespans, maximizing productivity and value. It also sets the stage for improved financial reporting to measure the value of your assets. Your financial reporting should include key elements like:
- Maintenance expenses
- Asset depreciation rate
- Return on investment
- Budget tracking
- Revenue projections
- KPI performance
Combined with regular audits, tracking this information provides you with insight into how assets are used, underused, overused, or neglected. Plus, you’ll have a better understanding of where and when you need to purchase additional or replacement assets.
6. Remain Flexible
The final component of a solid asset optimization plan is to remain flexible. Now that you have efficient and accurate financial reports being prepared regularly on your assets, you can evaluate the success (or shortcomings) of your asset management policy. If needed, you can make adjustments to your optimization strategy to ensure you’re maintaining proper asset availability to keep your operations productive and cost-effective. With that in mind, it’s important to remember that asset optimization isn’t a one-and-done activity. You should always leave room to adapt your approach to asset management and optimization to work toward continual improvement so your business can continue growing.
7. Monitor Asset Performance Metrics
Monitoring key performance indicators lets you measure the success of your optimization strategies and make adjustments and improvements. Important asset performance KPIs include:
- Asset utilization
- Overall equipment effectiveness (OEE)
- Mean time between failures (MTBF)
- Mean time to repair (MTTR)
- Return on investment (ROI)
Tracking these metrics provides the information you need to leverage analytics for data-driven decisions.
Streamline Asset Management and Enhance Operational Efficiency with RedBeam
Combining asset optimization best practices with asset management software empowers you to maximize utilization while minimizing costs. RedBeam's asset management platform provides you with the tools you need to put your optimization strategy into effect.
RedBeam integrates a cloud-based centralized interface with scannable tags to automate the process of entering assets into your database for unique identification and updating information in real time. This gives you real-time insight into your asset locations and performance KPIs so you can apply analytics to make data-driven decisions about asset usage and allocation.
Schedule a demo with RedBeam today to see how we can help you get the most out of your asset performance with less labor at a lower cost.
FAQs
How Does Asset Usage Impact Asset Optimization?
High asset usage generally improves asset optimization because frequently used assets yield more productivity. However, usage also increases maintenance needs, which can negatively impact optimization unless you adopt a preventive maintenance strategy.
What Is Asset Deployment?
Asset deployment refers to strategically allocating assets to different areas within an organization, distributing them accordingly, and tracking their use and location.
