How Does Management of Assets (Equipment) Help Businesses Improve Their Financial Performance?

Asset performance refers to the business strategy to invest in operational resources, manage them, and generate profitable returns. According to Gartner, Asset performance management (APM) encompasses the capabilities of data capture, integration, visualization, and analytics tied together by technology - both hardware and software -to improve the reliability and availability of physical assets.?

What is Asset Performance Management (APM)?

The asset performance management activity has been in existence from when industries started using equipment (assets) in business operation, but the term APM has become more popular in the last few years thanks to technology adoption in the asset management process. The use of technology, particularly emerging Industry 4.0 technologies, helps APM development companies design software and service solutions to optimize the performance of their client companies’ operating assets.?

?Asset Performance Management is more of a unified strategy than mere technology. The strategy unifies the people, processes, assets, and systems to work together toward achieving sustained excellence in operational performance. While this is no easy task to achieve, we have seen businesses drive transformational value by investing in ideal APM solutions built around relevant technologies.?

How does APM help businesses improve financial performance?

The primary motive of every for-profit organization is to maximize profit and shareholder value. This implies that each investment or spending in a business has the primary motive of improving the financials of the company.? This is more true of investment in APM tools because the largest chunk of investment in an asset-intenstive business goes to assets (equipment).

Let us first examine the sources that contribute towards cost-saving and improvement in financial performance. Managing maintenance through the combination of preventive, predictive, and prescriptive (3Ps) maintenance systems helps companies primarily in the following areas:?

Save maintenance cost: The 3P maintenance strategy ensures that assets are always in good condition and health which consequently reduces the incidents of work downs. The total maintenance cost in a period, say a year, and the entire asset life cycle get reduced drastically leading to savings in maintenance costs. The capabilities of APM with the support of IoT, AI, ML, RPA, etc., provide visibility into the working of the equipment and do away with uncertainty and risks.?

Reduce inventory: In the absence of predictability, it becomes inevitable for businesses to maintain a huge inventory of spare parts. However, a new age APM supported by emerging technology tools allows the businesses to manage the operations with a very minimum level of inventory of critical items, thereby freeing cash blocked in inventory and the supply chain function from the pressure of buying parts at a high cost.

Reduce or eliminate downtime: Reduced downtime means your operations are not disrupted or are up and running, which means the production or operation activity is not affected. Two major benefits that accrue from this are: one is that fixed overheads are recovered at a lesser rate of per-unit production, which ultimately reduces the per-unit cost of product or output. The other benefit is that thanks to the equipment being always operational, there is no loss of business.?

The above factors help companies reap the financial benefits in the following forms:

OPEX - Operating Expenses

An innovative new-age APM allows the companies to reduce the incidents of maintenance and repairs. This results in substantial savings in the operating expenses like maintenance costs and customer support expenses, which ultimately contribute to improving the bottom line of the business. The savings come not only from lesser need for spare parts and maintenance and customer support manpower but also from the not losing the production and business because of minimum or no downtime.

CAPEX - Capital expenditure

Investment in assets that fetches benefits over a long period - typically more than one year - is considered capital expenditure. Critical assets in asset-intensive industries such as manufacturing, oil and gas, pharma, renewable energy, chemicals, etc., need huge investments to replace the assets after they reach the end of useful or operating life. A robust APM helps enhance the life of the asset and thereby facilitates the deferment of capital investment by a few years.?

Cash flow

Opex savings contribute to the improvement of short-term cash flow through savings in operating costs, reducing inventory, and avoiding loss of business. Capex, on the other hand, improves the long-term cash flow by enhancing the life of the assets. In addition, higher capacity utilization as a result of lower or no downtime helps companies scale their business which in turn drives further improvement in the cash flow.

Bottom line

New-age digital Asset Performance Management tools focus on connecting disparate data sources using a collection of analytic techniques, including advanced predictive analytics, and turning data into actionable insights while fostering collaboration and knowledge management across the organization. Investment in the best asset management solution to manage the assets that represent the large portion of the invested money in an organization is critical for its overall financial performance and health.