ASSET UTILIZATION: THE KEY TO A MORE EFFICIENT OPERATION By Jeffrey Morrow, International Fluid Power Society
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oday’s competitive business climate requires leaner companies. Gone are the days of unlimited budgets and surplus staffing. Rather, every aspect of operation is scrutinized for ways to heighten efficiency and eliminate waste. Moreover, this scrutiny is relentless: its goal is continuous improvement, not only in production speeds and the bottom line, but also in product quality and customer service. For Transportation and Logistics, this kind of efficiency analysis is especially crucial. Operations, maintenance, and fleet managers need a thorough understanding of how their assets are being utilized to find new ways to improve productivity and lower costs.
WHAT, EXACTLY, IS ASSET UTILIZATION? Asset Utilization (AU) is a metric—a number—that helps managers figure out how to improve their bottom lines by making better use of their company’s assets. Depending on the type of company, assets might be any num-
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ber of things—such as equipment, real estate, finances, and/or paid personnel. An AU calculation is simple. For an entire company, the AU ratio is the total company annual revenue (for example, $500,000) divided by the total value of its assets (for example, $1,000,000). This percentage reflects how much “bang for the buck” a company receives from its resources. In this case, the company’s AU ratio is 0.50, or 50%. A metric like this can be used to follow a company’s progress over time—the obvious goal being to raise this percentage. Frequently, managers will look at the AU of separate business units or other functions within the company to better understand which parts are working efficiently and where changes need to be made.
ASSET UTILIZATION AS APPLIED TO FLEET MANAGEMENT If AU is Revenue
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Asset Value
www.FluidPowerJournal.com • September/October 2016 • www.IFPS.org
there are two ways to increase it: either increase the revenue or decrease the value of the assets.
How can a fleet manager increase a company’s revenue? There are several ways. The most obvious method is by cutting operating costs, such as by improving preventive maintenance practices, spending less time and money on repairs, or by decreasing inventory. The fleet might also generate revenue over time by improving customer satisfaction. Employee satisfaction affects revenue, too. Happy employees will deliver better customer service, perform better overall, waste less time, and be more likely to stay with the company. Employee retention means more experienced, efficient personnel who deliver better customer service. Better retention also decreases the amount of time wasted on hiring and training new employees. As for the bottom half of the equation, a fleet’s asset value may be lowered in a number of ways, such as by maintaining fewer vehicles and by housing a smaller inventory of spare parts. Fewer vehicles will also require less real estate in which to house and repair them, as well as less insurance. AU-improving modifications like these create tangible results, new efficiencies, and a positive ripple effect across many departments.