How Much is Ineffective Asset Management Costing You?
Effective asset management ensures employees always have equipment, tools and other resources when and where they need them. This can be accomplished either by tightly controlling assets through meticulous record keeping and control procedures, or by purchasing and maintaining spare materials to provide sufficient safety stocks.
Of course, it is much more cost effective to ensure asset availability by managing information instead of physical goods, but this approach relies on consistent data collection and is vulnerable to human error or indifference. If information is inaccurate or out of date, assets will unexpectedly be out of service, leading to costly productivity and replacement losses.
Looking for tools, test equipment or supplies may seem like an insignificant part of the work day, but the aggregate effect should get attention.
Sixty-four percent of companies reported that their operations personnel perform at least one search for assets or inventory every day, and 27 percent perform more than 10 searches a day, according to a survey by WhereNet, a wireless asset management systems vendor. Nearly half (47 percent) of the companies in the survey reported their searches take up to one hour.Workers lose the equivalent of one full 40-hour work week per year if they spend only 10 minutes a day searching for and gathering needed items.
By using the conservative figure of ten minutes per day of search time, multiply the number of workers who look for items in the course of their work by their average weekly salary to see if ineffective asset management is a mere inconvenience or a drain on profitability.
Dollar Cost of Asset Searches
|Minutes/day spent on searches per employee multiplied by 5 days a week for 48 work-weeks per year.||10|
|2,400 minutes per year/60 minutes|
|= Search time spent per year||40 hours per year|
|Search time spent per year multiplied by average hourly pay rate||40 hours|
|= Search time expenses by employee||$1,000 per employee|
Multiply by the number of employees at that salary level engaged in the same activity to determine the overall expense impact.
Lost assets are an even larger drain on profitability, as the following scenario illustrates. A maintenance worker has a week of vacation coming up and plans to do several home improvement projects. Without asking or notifying anyone, he “borrows” a cordless drill valued at $60 at the end of his last day before vacation.
The following week another employee needs to use a drill and can’t find one. The employee, who earns $18 per hour, spends 10 minutes thoroughly searching the tool crib, then goes off to look for the drill in other areas around the facility. After a half hour of fruitless searching, the employee notifies a supervisor. The supervisor (who gets $30/hour) makes a cursory 10-minute search of the area, declares the drill lost, and authorizes its replacement. Here is what the “borrowed” tool, whose loss could have been prevented with an automated asset management system, has cost so far:
|Employee search time:||$9 (0.5 hour @ $18/hour)|
|Supervisor search time:||$5 (0.17 hour @ $30/hour)|
|Item replacement cost:||$60|
If the company earns the S&P 500 average after-tax profit margin of 10.72 percent, it needs to bring in $690.30 of new revenue to replace the $60 drill. If the supervisor sends the employee to the hardware store to buy a new
drill and the trip takes an hour, the required revenue climbs to $858.
In addition, the task the employee originally needed the drill for won’t be completed as scheduled. The company will have an extra drill when the first employee returns from vacation, which represents excess capital equipment and lower asset utilization.
Incidents like this go on undetected every day in business and rob companies of productivity and profitability. Shareholders and executive management don’t pay attention to cordless drills, but they pay close attention to the return on assets (ROA) the company earns.
With competition and the economy making it difficult to acquire new revenues, companies have renewed their focus on ROA and have aggressively sought to improve it through increased outsourcing, equipment leasing and supply chain management activity. A good asset management program improves return on assets and other metrics by helping to lower and control the enterprise cost structure.
The first step to any asset management program is to identify and record (inventory) all assets. This initial step may be very time consuming, but must be done thoroughly to provide an accurate foundation that enables future improvements. Identifying and recording all assets provides a snapshot that gives the organization an accurate view of its assets for a brief period of time.
For asset management to be effective, organizations also need to create and use consistent processes to record changes in asset location, condition and availability. Bar code and RFID simplify the recording process and help ensure that information is entered accurately.
Fixed asset management systems like the Strategic Asset Tracking System can help you take control of your mission critical assets.
The Strategic Asset Tracking System provides you a world-class platform that enables fast and accurate asset management. This powerful asset tracking system makes it easier than ever to know exactly what fixed assets you have, where they are, and how they impact your bottom line.
To learn more, contact us today for a free one-on-one demo and system consultation.