C-Levels Missing EAM's Strategic Benefits

Dec. 21, 2004
They are focusing on spending, not real costs.

Enterprise asset management's emergence brings new elements to C-level thinking. For example, are the producing assets any less strategic than the resulting products or services? Analysts suggest that few managements consider the producing assets as really strategic. But "the pure magnitude of asset management expenditures make MRO strategic" maintain consultants Richard L. MacInnes and Stephen L. Pearce in Strategic MRO (2002, Net Results Inc., Prospect, Ky.). Their argument: The last U.S. Economic Census estimated the value of manufacturing shipments at $3.8 trillion. The book value of assets to produce these shipments was estimated at $1.6 trillion, equivalent to $2.47 in shipments for every dollar in asset value. They note that $151 billion was spent on capital expenditures, $6 billion was spent on outside services to repair and maintain equipment, and nearly $47 billion in assets were retired. (The figures do not include internal maintenance costs.) Seemingly, assets and their associated costs are taken for granted. What's at fault? "Ignorance and the absence of the right key performance indicators (KPIs) are often the two main reasons maintenance is still seen as the "greasy spanner" part of manufacturing, says Chris Cooper, the Elland, UK-based global director of enterprise asset management solutions for Intentia International AB, Stockholm, Sweden. The company is an ERP vendor that also offers asset management solutions. Cooper says that senior board managers frequently see maintenance as an overhead and almost a "distress" purchase, not a benefit. "They know how much they're spending on the maintenance budget -- labor, materials and subcontractors -- but they've no concept of the real costs to the business such as lost production and late deliveries. And often there's no transparency through to the finance system and no tangible returns." It's in that area that Cooper says maintenance, or as he prefers, enterprise asset management, should start to play a more strategic and collaborative role and become a force for change rather than an excuse for preserving the status quo. To begin with, Cooper says the KPIs need to change. "There's no reason whatsoever why maintenance should not be set the task of contributing to CRM objectives such as production output and quality, and play a collaborative role with manufacturing in making sure customers get what they want, when they want it. Maintenance work is a user of manufacturing resources and therefore it should be planned alongside other production runs." Cooper sees it in even broader terms. "Supply chains are beginning to compete with each other and companies are forming collaborative relationships. Maintenance people across the whole supply chain should be getting together to plan their maintenance routines using e-business solutions, alongside manufacturing, manufacturers, suppliers, partners and subcontractors and possibly customers." Noting that assets extend beyond the factory, Cooper suggests the term enterprise asset management be renamed collaborative asset management. "If manufacturing people can get to this stage, they'll cease to operate in isolation and start to earn credibility in the boardroom."

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