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Оглавление“...Language differences frequently—if not usually—erect a barrier to understanding.” —Ed McMinn, Oklahoma State Daily Devotions for Die-Hard Fans (p. 17)
Imagine that you have woken from a coma in a familiar land, but communicating with those around you seems to be difficult. Difficult because, although the words are all familiar, the context, structure, and inflection of the inhabitant’s speech doesn’t conform to your known norms or your familiarity with the spoken language. You can clearly hear every single word, and you know what each word means, but as a structured sentence, your compatriots are not making any sense. How frustrating would that be?
When I was in the military I made an accidental discovery that I went on to prove many times. I had noticed that the higher grade a senior officer (major through general), the more ambiguous and unclear his or her communication seemed to be. I left many colonel and general’s offices asking, “What did they just say?” It was difficult sometimes to differentiate between a thought, a direct order, and just an idea. Fortunately, the good senior NCOs (non-commissioned officers) I worked with could help me decipher the intent.
I contend this is the level to which our business vernacular and communication has declined. We are in an organization with other professionals, presumably on the same mission, shooting for the same goals, but for some reason we can’t understand our cohorts and they don’t seem to understand us. We are not speaking the same language. “When it comes to the language of equipment performance and availability, there doesn’t seem to be a common language at all.” (Ross, p. xx) And further, “A common language is foundationally needed for a working relationship. In order for maintenance, engineering, production, purchasing, corporate leadership, and others to work and thrive together, understanding the most primary terms is required.” (Ross, p. xx)
In the introductory chapter, I mentioned that you would be actively participating as you read through this book. I went on to explain that I was writing a book that had the feel of you and me sitting across the dining room table, drinking coffee and just talking about stuff. Here is your first task, and one that I hope successfully demonstrates this need for us to get alignment on our words, and more specifically, the meaning of those words. Please fill in your definition or description of what the following words or phrases mean.
| Maintainability: |
| Reliability: |
| Asset: |
| Asset Management: |
| Asset Management Plan: |
| Strategic Asset Management Plan: |
| Maintenance Activities: |
Of course there are canned and widely accepted definitions for these words and phrases, but I feel it’s important that you and your organization accept an explanation that is organic to your location and your situation. If we all subscribe to Webster’s definition, then we might falsely saddle our constituents with a term that doesn’t actually resonate with them.
Here is an example of taking a higher authority’s definition and convincing others that it means something that just doesn’t settle with the population at large. In 2012, the United States government set the poverty line for a typical family of four at $23,050. Of course establishing a standard like this across such a vast and varied area as the United States is a bit of a non-starter. I would agree that a family of four might eke by in Slapout, OK on $23,051 (one dollar above the poverty line). But in New York City, at $23,051, that family is most likely still poor.
I encourage you, before you move on in this book, to completely define the words and phrases previously listed. It is important that you do this to gain initial experience with the interactive design of this book and to make sure that when you say ‘asset,’ you have clearly stated what you are talking about and there is no ambiguity.
Now that you have completed the assignment, ask two other people in your organization to document their interpretation of the words and phrases. This is important to gauge the degree to which our understanding of simple business-level words differ between members in the same organization. I would expect the answers to be similar, but not exact. No big deal right? I really don’t know. But, according to the government, you’re poor if you only make $23,050, and thus you qualify for all kinds of benefits. But if you make $23,051, then it’s “good luck out there.” So, do small differences matter?
Record your two colleagues’ responses here:
| Maintainability: |
| Reliability: |
| Asset: |
| Asset Management: |
| Asset Management Plan: |
| Strategic Asset Management Plan: |
| Maintenance Activities: |
| Maintainability: |
| Reliability: |
| Asset: |
| Asset Management: |
| Asset Management Plan: |
| Strategic Asset Management Plan: |
| Maintenance Activities: |
Is interpretation and understanding important in the workplace in a reliability setting? Put aside the definition of ‘poverty’ previously mentioned and in its place add the understanding of reliability, or better yet, a reliability strategy or approach. See Figure 1-1 to visualize how just three slightly different interpretations of ‘reliability’ and then three additional thoughts on connecting issues can lead to an unmanageable spare parts matrix.
Figure 1-1 A portion of the results for a slightly different interpretation of ‘reliability’
Figure 1-1 is highly unscientific but shows what I believe to be an all too real example of how we can end up off the mark by starting off with a loose definition. The figure shown is a portion of the larger results that stem from asking three people to define what reliability means. Then, three additional people were asked to take those three definitions and describe their ideas for the Bill of Materials, and so forth until the group ended up at eighty-one unique requests for a spare parts package to support the exact same machine.
Has it been your experience that you keep adding spare parts to the storeroom for equipment that has been in your plant for over ten years (or longer)? This phenomenon might be the result of different people with differing ideas of what is needed to support an operational asset. It is certainly a result of not having a clear process for determining how to put together a spare parts package. The skill of putting together such a package requires some decision-making criteria. This will be discussed later, in Chapter 4.
To summarize this introduction to Chapter 1, we have to understand each other in order to work, live, play, and prosper amongst one another. In describing the day of Pentecost, St. Luke painted the scene of a large crowd, made up of religious people from every country in the world: “They were all excited, because each one of them heard the believers speaking in his or her own language.” (Acts 2, 6-7 GNB)
Imagine the transformational feel of having everyone throughout your organization speaking in a language everyone can understand. A clear, crisp message can only be attained if the intended audience is part of the process of communication. We can start by first understanding exactly what makes an asset an asset in our company.
Just a few paragraphs before, you were asked to record your definition of the word ‘asset.’ At the risk of seeming like busy work, please document a combined definition, using your previous thoughts with those of your two colleagues. Please record that definition here:
| Asset: |
For the remainder of this book, or until you find it necessary to change this melded thought, let’s assume that this is your organization’s working definition of what an asset is. This exercise is important because now we are going to discover what makes an asset an asset in your company.
The working definition I use to explain what an asset is can easily be understood to be “any tangible or intangible item, thought, process, concept, or substance of value that can be manipulated for financial gain.” Ok, that got wordy, but I wanted to incorporate a lot of ideas into that working definition. In the business world, anything that has value and can be used for fiscal gain is an asset. The opposite of an asset in business is a liability. The two (assets and liabilities) make up what is known as a Balance Sheet. When a board member or corporate executive asks, “On the balance, how are we looking?” they are asking what the value difference is between assets and liabilities. As you can imagine, having more liabilities than assets is one attribute of bankruptcy.
This is not an exhaustive list, but rather an example of what an asset might look like in your organization. Very quickly, here are some assets you might consider:
■ Capital assets
■ Human resource assets
■ Financial assets
■ Property assets
■ Trade secrets or proprietary assets
■ Processes
■ Inventory
■ Accounts receivable
■ Your company’s brand
A careful review of the specific definitions of each of these might help in understanding their intrinsic value and to grow an intuitive desire to properly manage these assets. I caution you, these interpretations are not dictionary definitions, but rather my definitions based on three decades of field research. I strongly suggest that as you read this, you give some thought to how these assets are interpreted in your organization.
Capital Assets
I refer to capital assets as the ‘stuff that makes the stuff.’ This may be one of the easiest concepts to grasp. Capital assets may be a piece of equipment or machinery (e.g., office machinery, conveyor, oven, vehicle, etc.) that your company has ‘capitalized,’ indicating that you bought it to enhance, grow, or sustain your business for which the federal government rewards you by allowing you to depreciate its value over time. Depreciation amounts and time frames are dependent upon what type of asset it is, its cost, and use. Capital assets are usually identified in a business by having an individual asset tag and asset number. It is not unusual for maintenance departments to get involved by performing an annual ‘asset audit’ to assure the accounting department that all the assets being ‘depreciated’ are in fact still on the premises.
Several years ago, some crafty accounting loopholes were discovered that allowed for what were traditionally expensed repair activities to be ‘capitalized.’ This seemed like fuzzy math, but it also appears to be legit. The unintended consequence is that maintenance and the storeroom have to track spare parts as capital assets. Very few companies or organizations do this very well. If you track these new capital additions and you’re good at it, then consider yourselves leaders of the pack.
There will be greater discussion on capital assets as this is actually the focus of this book. For now we’ll keep this as just an introductory session.
Earlier I shared my working definition for an asset as, “any tangible or intangible item, thought, process, concept, or substance of value that can be manipulated for financial gain." In Table 1-1, please list a single capital asset in your facility and at least two ways this asset can be (or is) manipulated for financial gain.
Table 1-1 Methods for Manipulating One Asset for Financial Gain
| List one capital asset: | |
| How is it manipulated for financial gain, means #1: | |
| How is it manipulated for financial gain, means #2: |
As an example of what I was looking for in Table 1-1, my fictitious company has a mechanical press. There are many ways my company manipulates this asset for financial gain.
One manner in which they do this is to run the unit 24/7. Secondly, to speed up changeovers, my company has modified the press for quick changeovers to increase its overall availability.
Look back at your entry on Table 1-1 and confirm that your company uses assets for financial gain. This is not a negative attribute. That’s what companies do. They manipulate assets to make money. If it helps, you might consider using the term ‘use’ instead of ‘manipulate.’
Now, the harder exercise: if the asset you listed is truly an asset and valuable, in Table 1-2 please indicate the manner in which your company manifests (or demonstrates) the belief that this particular asset is of great importance to the financial success of the organization. For example: my company has awesome preventive maintenance, clear and complete spare parts availability, and solid drawings and schematics for this mechanical press.
Table 1-2 Demonstration of an Asset’s Importance
| List one capital asset: | |
| Demonstration of asset’s importance #1: | |
| Demonstration of asset’s importance #2: |
Look back at Table 1-2. Can you honestly convince people that your company values its assets, and actively demonstrates the importance of the equipment’s role in accomplishing the mission of the business?
Human Resource Assets
Years ago, I was teaching a class in the middle of the United States and we were just in the ‘introduce yourselves’ phase. A student in the center of the back row was wearing a large, red sweatshirt with a giant letter “N” on it. I asked him if he was a Cornhusker’s fan. He proudly pointed to the letter on his shirt and proclaimed, “Yep, where the ‘N’ stands for knowledge!” I instantly figured him for an OU man (Author’s note: I graduated from Oklahoma State University).
Aside from being a funny story, the gentleman made a poignant observation. It is the knowledge that is important. When companies or individuals tell me that people are their greatest asset, I usually respond, “No they’re not. It’s the knowledge and skills that they possess that make them an asset.” Let’s face it, a new employee is not an asset on day one. Heck, they’re probably a liability. I jokingly tell my classes, “Jerry, stand over there and don’t touch anything.” A human resource asset isn’t truly an asset until they know something and can do something that leads to a fiscal gain for the company.
To truly reflect the value of people as assets, a human asset, there needs to be a comprehensive training and development program built around the person and the position. For example, Figure 1-2 might reflect the different roles of a maintenance planner/scheduler in your organization.
Figure 1-2 Roles of a Planner/Scheduler
If Figure 1-2 reflects the roles that a planner/scheduler might fill at your facility, there should be an objective-based training protocol for each. Take, as an example, what a training matrix might look like for the planner/scheduler for the role of PM/PdM (Preventive Maintenance/Predictive Maintenance) overseer. Figure 1-3 is an example of this matrix.
Figure 1-3 shows the start of a training matrix for the planner/scheduler. The first few columns of this particular matrix are meant to show some skills that are necessary for the planner/scheduler’s role as the overseer of the PM/PdM program. Note that the legend for how to read this matrix is in the upper left-hand corner.
Figure 1-3 A training matrix for the Planner/Scheduler role of PM/PdM overseer
Adapted with permission by Marshall Institute, Inc.
To demonstrate the lengths to which your organization will ensure that a human resource is actually an asset (contributing to the fiscal benefit), in Table 1-3 indicate a single individual’s first name (in your company), one role they fulfill, and two skills they are required to have as part of their transformation into a greater asset for the company.
Table 1-3 Increasing the Value of an Associate Adapted with permission by Marshall Institute, Inc.
Adapted with permission by Marshall Institute, Inc.
Just to recap, for human resource assets to truly be assets, they need to know how to do something that contributes to the fiscal prosperity of the company.
Financial Assets
Financial assets might be the easiest and most relatable concept for us as individuals to comprehend. Why? Because we have so much personal history with this type of asset. Financial assets are the answer to, “How much money do you have, and what are your investments and your level of liquidity?”
I personally have four bank accounts, two business checking accounts, one personal checking, and one personal savings account. Years ago, I was in the bank transferring some money between accounts and getting some cash and the teller asked me a strikingly personal question. “Mr. Ross,” she said, “why do you have four bank accounts?” I responded that I needed four accounts because the bank only insured each account up to $250,000. She looked amazed and asked quite sincerely, “You have one and a half million dollars in our bank?” I did not correct her math, but I did ask her to count back my cash, twice!
The financial assets are basically the portfolio that is the cumulative accounting (pun intended) of all your money and investments. I won’t ask you to list your financial portfolio. But, understand that businesses depend on cash flow. Companies don’t like to, nor do they want to sit on large sums of cash; however, they need to have some level of cash reserves. The financial assets are often tied up in capital assets, and investments into other businesses.
Property Assets
I’ve done a considerable amount of facilities consulting in which the client is not a manufacturing operation, but rather a service or information organization. Not unlike your own location, their property asset value is dependent on the ‘real’ property that they own. It would not be unusual for companies to lease space rather than own it outright, or buy on terms.
Sometimes, and very interestingly, a property asset can become a liability. This can occur when the property the organization owns becomes unusable, dangerous, or just not desirable. Think of a location that is a superfund cleanup site. This would clearly be a liability for a company.
For property to continue to be an asset, it has to be cared for in such a manner that it maintains its value for service. It would not be beyond the pale for the land to be more valuable than any buildings that sit on it.
This might be urban legend, but in an interview, Ray Kroc (McDonald’s) was asked how he felt about being the hamburger king of America. He corrected the interviewer to say that he wasn’t the hamburger king, but he was the real estate king of the United States. He owned all the land under all the McDonald’s restaurants.
Trade Secrets and Proprietary Assets
The intellectual property of your company has a real value. Imagine the trade secrets and secret recipes that have built the enterprise that now employs you. Patents and trademarks have a shelf life, and companies work quickly to capitalize on the market and make a buck.
Trade secrets transcend the discussion of assets and work their way into the maintenance and safety realm through OSHA’s 29 CFR 1910.119, Process Safety Management. Trade secrets are one of the fourteen elements listed and explained in this federal regulation.
Not necessarily a trade secret, but as an interesting aside, I was awarded a patent in 2018 after having submitted the paperwork eight years prior. Look it up, patent #9,636,832; apparatus and method for spirally slicing meat. I made exactly one dollar off of it. It might be time to open a fifth bank account!
Inventory
Now we’re talking! Inventory can be a tremendously valuable asset, but it can also be a heartbreaking liability.
There are five major inventory categories in most operations:
1. Principal supplies
2. Work in Progress (WIP)
3. Finished goods
4. MRO (Maintenance Repair Operations or spare parts)
5. Office supplies
Principal supplies are the raw materials that we use to make, package, and ship our product. Work in Progress is self-evident and is literally the work that is on the floor in the process of being ‘made.’ Finished goods are the products that are packaged, and ready to go to the customer. MRO are the spare machinery parts. It may be that your company includes consumables in this category as well. Office supplies are the actual administrative supplies needed to keep the office and staff functions running.
The most highly coveted and most secure inventory is without a doubt the office supplies. If you need a box of staples, you usually have to see “Marge” up front and she will ask what you need an entire box of staples for. She will most likely give you one sleeve of staples and snap that one in half in front of you.
That might have been said in jest, but keep this in mind. Of all these types of inventory, the right inventory is an asset, mismanaged inventory is an expense, and the wrong inventory is a liability.
Years ago I was the general foreman for a mini-steel mill in the Tulsa, Oklahoma area. My boss, the gentleman that ran the melt shop, told me that we (the plant) made three thousand grades of steel at that plant. Get your head around that number. Our mini-mill made three thousand different chemical compositions of steel. Three thousand, my boss said. And some of those on purpose! My boss went on to tell me that we only sold ten grades of steel at that location, but we had produced 2,990 off-spec grades of steel. Most of that was ‘out back’ being chopped up by a contractor for us to re-melt again. That is an example of an inventory that is a definite liability.
Accounts Receivable
When putting a valuation on a business, one of the elements you might consider is the business they have on the books. This would include con-tracted work, possibly proposals out for work (but not typically), but would definitely include the outstanding accounts receivable.
A small business owner once described a client to me like this, “They are our best client. They owe us two million dollars.” I suggested that he find a different definition for ‘best client.’ This is a tentative measure for sure, but it could be argued that money projected to come in is in fact a kind of asset.
Your Company Brand
Consider how much your company brand and branding have to do with the overall fiscal success of your company. What’s in a name? Turns out it is everything. A name, a signature, or easily recognized logo can set a company head and shoulders above its competition.
Early in my consulting work I had occasion to speak with a company executive who was new to the organization I was consulting with. He had recently been hired away from Nike. For years he had been an executive vice president. He asked if I could name any of the top three most recognized brands in the world. I thought this was a trick question, and answered, “Nike?” Nope. “McDonald’s?” Nope. “Starbucks?” Nope and nope. Not even close. Amazon, Facebook, and Twitter. Turns out, as he remarked, the top three most recognized brands in the world don’t make anything. That should be a sobering thought to everyone.
The following letter appeared in the January 2019 in-flight magazine, Southwest: The Magazine (Southwest Airlines’ [SWA] magazine). This heartwarming story is from the section devoted to highlighting SWA associates performing great customer service. I want you to notice how the story, sincere to be sure, helps to bolster the brand that Southwest Airlines wants to keep strong as they market to business and family travelers with a touch of humanity:
I always get a little nervous traveling with my 5-year-old daughter, Mi-kaela, who has autism. She’s been doing much better on airplanes, but I always ask to preboard because walking onto a full flight can be overwhelming. I did this for my recent flight out of Burbank, California, and was helped by Customer Service Agent Christopher Ulrich. As we were boarding, he quickly handed me a little booklet that I assumed was something for my daughter to draw on during the flight. After we settled in our seats, I realized it was not just a plain booklet, but the most amazing present I’ve ever received from a stranger. He had illustrated a story called "Mikaela’s Flight.” Needless to say, I cried tears of joy the entire flight. Part of my daily struggle is never knowing what may cause my child to break down. To know that someone cared and understood really put me at ease. Christopher’s actions perfectly illustrate why Southwest considers their People [s/c] their "single greatest strength.”
—Brenda Yeh, Southwest Customer
A company’s brand takes a long time to become iconic but can be lost in an instant by bad or corrupt activities. The brand is an asset that must truly be nurtured and protected.
It would be reasonable to ask why so much time and work was devoted at the start of this book on asset management to lay out some groundwork on common forms of ‘assets.’ It is important for the purpose of developing an intuitive desire to properly manage assets. Take, for example, the last section on the Southwest Airlines agent, Christopher Ulrich. Did the personal touch that Mr. Ulrich displayed on that flight indicate that SWA is a company that values its brand and its associates? So much so that it’s almost as if their associates are their brand.
How Do Assets Contribute to the Success of the Company?
Taking into account the conversation we just had regarding the different kinds of assets, let’s create some specificity and begin to tailor our focus on the capital assets of business. There are a multitude of books and resources on financial success, property management, and human resource advancements. But the core idea behind the asset management movement is the attention given to the capital assets, or as defined earlier, “the stuff that makes the stuff.”
In his perennial best seller Rich Dad, Poor Dad, Robert Kiyosaki made his rule one very clear: “You must know the difference between an asset and a liability, and buy assets.” (p. 58)
Mr. Kiyosaki’s book is not a maintenance or reliability book, but it perfectly illustrates the relationship between assets versus liabilities; and income versus expenses. Consider the next series of figures shown to animate the flow of ‘money’ through an organization, your organization.
Figure 1-4 Assets make income
Figure 1-5 Income is used to pay the expenses
Figure 1-6 After expenses, liabilities are serviced
Figure 1-7 The result is profit
Using information gathered from Figures 1-4 through 1-7, complete the following sentences:
| Only make income |
| Companies take that income and pay their |
| After that is paid, they service their |
| The result is |
I’m extending an author’s prerogative and letting you know that the answer to the last fill-in-the-blank sentence is ‘profit.’ Companies take that profit and reinvest it back into the company. They buy more assets (to quote Kiyosaki, “buy assets”) to make more income. Remember this: only assets make income. Highlight, circle, and cast that last sentence in stone.
Aside from the clear circular reasoning that it is only the assets that can contribute to the fiscal health of the company, it bears mentioning that rolled into the definition of the ‘success of a company’ is the idea that it is through the assets that we also move in the direction of satisfying the corporate goals and objectives. The presumption is that some of these high ideas are fiscal in nature.
Keep that in mind and consider that in the ISO 55000 standards, an asset is any item that has potential or actual value to an organization. The value will vary based on the organization and, what you will come to appreciate later, the organization’s stakeholders. An asset doesn’t necessarily have to be tangible or financial in order to have value or potential value.
A colleague of mine once told me that in his opinion everyone in an organization owes their paycheck to the smooth and reliable operation of the capital equipment of the enterprise. This interpretation lends itself to all facets of industry. A significantly important asset in your company, in some small way, determines if you get paid or not, and oftentimes how much. Extend that idea out and you can see that the operation and continued operation of our plant and facility assets determine where we live (socio-economic), what kind of car we drive, and even where our kids go to college. That is or should be a powerful thought.
I borrowed this idea, and a central tenet of Total Productive Maintenance (TPM), to make this observation in my first book: “Everyone in the organization has, as a responsibility for their role, an understanding that their work should be profitable to the company. On the subject of equipment reliability, everyone has either a tacit or implicit responsibility to make sure the operation runs smoothly and reliably. When capital equipment is involved, everyone is responsible for equipment reliability.” (Ross, p. 49)
Let’s put that idea to the test. In Table 1-4, list the same plant or facility asset you listed in Table 1-2. Get personal now and list one way that you personally ensure that the listed equipment runs reliably. Finish out Table 1-4 by recording how the company benefits from the reliable service of this asset and two examples of the negative effects your fellow associates might suffer if the asset was not running reliably. An example of that last request might be that associates are temporarily laid off without pay while the plant is temporarily shut down.
Table 1-4 Our Role and the Benefit of Reliability
| List one capital asset: | |
| How do you ensure reliability? | |
| How does the company benefit from this asset? | |
| First way an associate suffers: | |
| Second way an associate suffers: |
This idea of being connected to the asset through a shared responsibility is the crux of the asset management concept. Maintenance can’t do it alone, and production and other agencies need to be other cogs in the wheel of accountability.
There was a party game that ran through the United States some time ago called “Six Degrees of Separation.” The idea was that everyone in the U.S. was connected to the actor Kevin Bacon through a series of networking by no more than six degrees, or nodes.
For example, I know Bill, who has a brother in Los Angeles who is a police officer. Bill’s brother Rick worked on a crowd control assignment in downtown L.A. on a film shoot. The actor on set that day was Robert Sedgwick, who is the brother of actress Kyra Sedgwick. Kyra Sedgwick is married to Kevin Bacon.
Bill-Rick-Robert-Kyra-Kevin. Five nodes or degrees.
I was at a major Fortune 50 company in the Northwest years ago teaching a strategic maintenance class and for lunch we all went to the cafeteria. We were at world headquarters, so the spread was quite impressive. I was in the hot entrée line and noticed that the young man serving the main entrée was named (you guessed it) Kevin Bacon. My response was of course, “no way” Way.!
I asked if I could take a picture with him and send it to my family. Now, thanks to this chance encounter, my entire family is one or two degrees away from (a) Kevin Bacon. Ok, not the KB.
If in some crazy, arbitrary way, we are all connected to someone as random as Kevin Bacon by no more than six degrees, can’t we somehow also be purposefully connected to the reliability of the very ‘thing’ that generates our paycheck?
We are connected to our equipment and we have real reason to have great expectations from the continued service of our machinery.
Assets are expected to perform at a predictable level to ensure a predictable return. In the development of our capital assets, there is an expectation for a return on investment, or ROI. It is very likely that through some acceptable financial and production calculations a company can estimate with a degree of precision exactly how long it will take to make its money back on new equipment purchases. These calculations include assumed levels of productivity and also should account for operating and maintenance costs. These calculations result in an ideal value and may include some contingency planning.
The projected value of an asset to the company, for its ability to produce the product or service, is primarily how an asset contributes to the success of a company. The proper operation of an asset, not only now but in the future, is what quite frankly pays all the paychecks in your organization. Does it seem to you that people know that?
Keep in mind that it’s through the successful manipulation and utilization of the assets that a company makes money. Undoubtedly, your company has many lofty and laudable objectives and mission goals, but making money for its stakeholders and shareholders has got to be at the top of the list. This theme has to be central to our understanding of the true value that assets have to the success of an organization’s objectives and mission. This not only applies to capital assets, but all forms of assets. It is the capital assets that require our focus in this book.
So, where do assets come from? In the space below, please record all the different means of acquiring a capital asset that you have experienced.
Here is my short list that might match yours:
■ Another plant within the company
■ Another plant from another company
■ From surplus sales, rebuilt or as-is
■ New from an OEM (Original Equipment Manufacturer)
■ Modified version of another existing machine
■ Made in our own shop
Assets, it seems, can come from many sources, but there are some qualifications that need to be met before they are truly assets. Give this some consideration. What details or information do you feel you should have or have determined before you commit to purchasing an asset or modifying an existing asset? If assets make income, and they are the only things in business and life that do make income, what are some qualifiers? List your thoughts here:
The objective of this simple exercise is to try and connect an asset purchase to an asset purpose.
For instance, if I were in the trucking business, I might consider such details as:
■ Hauling capacity
■ Distance per tank of fuel
■ Fuel mileage
■ Turning radius
■ Height of the vehicle
■ Ease of operation and maintenance
■ Standardization with the rest of the fleet
■ Annual operating costs
■ Insurance and taxes
Here is a scenario to consider: I’m in the market for a new truck to add to my trucking fleet for my trucking business. The list just provided are the attributes that are most important to my purchase decision. In order for my new truck to contribute financially to the plan that I have for it, these are the characteristics that I need to look for, ensure, and guard. I do this to generate the most income from my asset.
This section is titled “Where Do Assets Come From?” We started off with a listing of possible places that an asset can physically come from. How often do our aspirations for a new asset (new or used) fail to pan out because of the compromises we make along the way when landing the new asset?
If we buy a used or surplus piece of equipment, what are the odds that the new (new to us) asset will live up to the reason we are buying it in the first place? In the truck purchase example I gave earlier, for the categories I listed, it would seem reasonable that I have real interest in specific performance deliverables. It is unlikely that a used truck would hit all the gates, exactly as I’ve listed them in my concerns. Yet I still believe this ‘new’ vehicle is going to deliver as I hoped; essentially, becoming the asset that will make the projected income that was anticipated.
Where assets come from is as critical to establishing a reasonable performance and income curve as it is practical to understand that any compromises and alterations on the ‘needs’ list of an asset will absolutely also alter the ‘deliverables’ list.
Has it ever been your experience that your company bought a used asset and expected the maintenance department to fix it up to use for allout production? How did that work out? There is nothing wrong with used equipment, but just keep in mind that a rush for the fiscal sensibility of buying used equipment doesn’t always lend itself to dovetailing perfectly into our production model. Neither does buying an off-the-shelf new item either. This is a very important dance that is done to make sure we get the right asset for the purpose.
If we are going to manage assets to make income it would make sense that we go into the proposal with the greatest level of confidence in pulling that off, if for no other reason than for the longevity of the production effort. Asset availability is equally important to asset capability.
Darrin Wikoff mentions in his work, Leader’s Guide to ISO 55001: Asset Management System Requirements, that “Availability is the result of the asset base being both Reliable—the probability of conforming to the desired function without failure—and Maintainable—the ability of your management system to restore functionality after a non-conformance has occurred.” (p. 9)
Regardless of the origin of the assets in your facility, they need to start their history at your location fulfilling the purpose they were purchased to fulfill. We manage assets to make income. If they weren’t designed to perform the work in the first place, it is likely that we will have a history of frustration and disappointment.
But who is responsible for ensuring asset capability in the first place?
Who determines what asset to purchase and when to actually get it? In your organization, who is chiefly responsible for making asset decisions? (It could be a group of people.) Write that source here:
In business, asset purchase considerations are often, if not always, determined based on a projected benefit to the company. These purchases will certainly include facility assets such as boilers, air compressors, and even plant roofs. In manufacturing and facilities industries we want to focus on capital assets that actually make our product or allow us to provide a service. Note: if you are in the facilities maintenance position, of course the facility assets themselves are the target of our study.
Regardless, these purchases are often made as part of a projected business case that was conceived well in advance. Couple that with the lead time required to design, build, and install assets and it’s apparent that any project must have the timing of a moon landing to fully capitalize on the gains that were projected much earlier. Figure 1-8 is meant to show this intercept between planning for a capital asset and actually gaining value from the asset decision.
Figure 1-8 From project planning to asset operation to disposal
The ‘who makes the decision of what assets to purchase’ is pertinent to an asset management discussion because it begs the question, “Are you more engaged with an asset’s care and use if you are intimately responsible for it?” ISO 55000 directs those adhering to this standard that an organization’s top management, employees, and stakeholders are the groups responsible for conceiving and executing what is referred to as “control activities.” These activities might include: policies, procedures, and performance measuring and monitoring techniques. This is done to identify and capitalize on opportunities and to reduce risks. Interestingly, ISO 55000, in its direction to reduce risk, indicates that risk should be lowered to an “acceptable level.” It would not be uncommon in our factories and facilities around the world to be very light on an exact understanding of an acceptable level of risk.
Ron Moore, in Making Common Sense Common Practice, put it this way when describing a scenario of payback analysis on capital equipment: “If we could reduce those production rate losses and minimize the maintenance costs by taking the advice of the people who are in a reasonable position to know what the problems are, then perhaps we could reduce future costs or increase future benefits.” (p. 127)
The ‘who makes capital asset decisions’ should be a team that is fully engaged from concept to operation. This team should be cross-functional and made up of the usual suspects:
■ Engineer
■ Maintenance leadership
■ Production leadership
■ Maintenance hourly
■ Production hourly
■ Safety
■ Purchasing
■ Storeroom
The charter for this team is simple. Take into consideration the last section on where do assets come from, and factor in that a small but effective team as previously described can have a huge impact on covering all the bases in designing equipment for the purpose intended. It is likely more possible that a team with this makeup might have a better chance of achieving a design and fielding an asset that is successful. Conversely, give thought to an asset that is completely conceived and scoped by headquarters or an engineering corps that is closed off in the corner office. Which scenario would net a better result in the long run?
Try your hand at putting some names behind the titles. In a reprint of the bullets listed previously, jot down the names of people at your facility that might be of real value to fill a position on the next capital asset design team.
| Engineer: |
| Maintenance leadership: |
| Production leadership: |
| Maintenance hourly: |
| Production hourly: |
| Safety: |
| Purchasing: |
| Storeroom: |
On the subject of when assets should be purchased the answer would naturally have an element of company business plan exposure. Capital equipment is usually capital intensive, meaning that it is costly to purchase assets. A cost-benefit analysis is typically needed at a bare minimum to assess if a capital asset and its operation will gain the fiscal benefits being projected. Time is usually a critical component when calculating the lead times needed to secure the necessary project funding and get the equipment built and installed. This coordination requires a solid grasp of market trends and financial projections way out into the future.
We won’t even touch on securing principal supplies, packaging, and other requirements that might come from a new product being run, or an increase in production of current SKUs (Stock Keeping Units). There is so much to factor into an asset purchase that it would not be uncommon for organizations to feel that they don’t have time to spin up a team for every asset purchase being considered. Yet we always have time to overcome the reliability and maintainability issues that are inherent in whatever the folks upstairs come up with. There was an old Fram oil filter commercial in the 1970s that had the famous tagline, “Pay me now or pay me later.”
If we’ve heeded such advice as given over the last few sections, we would now have an asset that is truly performing to the levels we intended. This is an asset that we can and should manage for the continued success of our company. But, how long should we keep this asset?
When the conversation turns to asset life, or even calculating life cycle costs (LCC), the ISO 55000 standard introduces an interesting twist. We learn that an asset’s life does not necessarily end when the machine is no longer of use for our purposes. Instead, the asset can provide value to more than one organization over its (the asset’s) lifetime.
We’ve actually seen this before. Anyone who has ever cared for an automobile at a very high level to protect the trade-in value has an absolute appreciation for the sentiment the ISO standard just referenced. Here is a story demonstrating this point that fits perfectly into the discussion on when to dispose of an asset.
My first assignment in the Air Force after the Aircraft Maintenance Officer Course was to Wurtsmith AFB, MI. I was a flight line maintenance officer (2nd Lieutenant) and I had good friends in the Company Grade Officers Council (Lieutenants to Captains). One of my friends, Terry, was a lieutenant at the base motor pool. The Air Force motor pool was made up mostly of staff cars. This was a time in the military of tight budgets, and as a result, the Air Force had purchased almost exclusively the Dodge K-car platform, and it seemed that the majority of cars were the Reliant K-car.
It’s widely known that cars are individually identified by their VIN (Vehicle Identification Number). These cars were no different. Terry told me that each car cost about $8,600 landed at our base, all decked out with the Air Force required package: AM radio, roll-up windows, manual locks, etc. He told me that each vehicle had in essence a ‘bank account’ that had roughly $10,000 in it, and each time the car was serviced (other than fuel), the labor and material charge was subtracted from that account. Once the car’s balance hits $0 (zero), the car was sold.
I’m not confirming the numbers or Terry’s accounting of these details, but I remember feeling that this was a very good idea. At what point do we decide to stop spending money on an asset and just buy a new asset? Imagine that we are caring for the assets to ensure the highest trade-in value.
I often tell clients that if we don’t have some trigger set in our process to evaluate where we are on spending money towards the upkeep on an asset, we are likely to find ourselves having spent $2.3 million on an asset that costs $300K brand new.
When my son graduated from college he still had the car I bought him while he was in high school. He asked me, “Dad, how do you know when it’s time to stop spending money on an old car, and just buy a new car?” I told him, “When you can afford it.”
I wonder how many companies actually build an asset disposal plan into their life cycle projections, including the funding for such actions. Ramesh Gulati re-prints a value in Maintenance and Reliability Best Practices, of <5%. (p. 177). Disposal costs for an asset with an LCC of $1,000,000 should be less than $50,000, as an example.
A good business plan has an exit strategy. What is your capital asset exit strategy?
It makes sense to start a book on asset management with a short discussion on what makes an asset an asset. I contend that although we call many things ‘assets,’ in practice we don’t treat them like assets. Give some thought to the care and upkeep of your capital equipment and the knowledge and skills of your people. Are you currently providing the necessary attention and direction needed for each, as if the business literally depended upon it? In most cases we are doing what we can, but not executing the care at the highest levels possible.
NOTE TO THE READER: What follows is the start of a compelling business case to adopt a formal asset management plan for your company. I’ve had success with this format in the past and I know it will work in this case as well. Fill in the spaces below using the responses to this chapter’s work. Much of this same material will appear in the back of the book in the closing chapter. It is my hope that the material in the back of the book, once completed, will net a comprehensive and compelling case to encourage your leadership and associates to move forward on this critical journey and provide a blueprint for asset management.
Our Business Case
We often begin our journey in asset management by setting off on the wrong foot. The manifestation of that misstep is not having an acceptable definition for key words and phrases. For the purposes of our discussion on asset management, here are some key words and phrases and the working definitions at this location:
| Maintainability: |
| Reliability: |
| Asset: |
| Asset Management: |
It must be the focus of this organization to recognize that there are many types of assets, including but not limited to:
■ Capital assets
■ Human resource assets
■ Financial assets
■ Property assets
■ Trade secrets or proprietary assets
■ Processes
■ Inventory
■ Accounts receivable
■ The company’s brand
For the extended purpose of asset management, we are going to focus on capital assets, recognizing that the effective deployment and utilization of capital assets make income for the company. Assets, it turns out, are what we manipulate to make income and ultimately a profit. Robert Kiyosaki animated this for us in the following figure.
In each case, in order to extract the most income, these assets must be honored and cared for as if the balance of the organization were hanging from their success. Because it is.
Our focus is on capital assets. In a way, each of the members of our company has to see the connection between their work and the proper maintenance and reliability of the company assets (capital equipment). It is with this connection that we all become engaged in asset management.
Through this connection to the asset and its purpose of creating income for the enterprise, we have to articulate exactly how this happens. The following is an example of how a single plant asset is manipulated to make income for the company.
| List one capital asset: | |
| How is it manipulated for financial gain, means #1: | |
| How is it manipulated for financial gain, means #2: |
Further, to demonstrate the importance of the company’s assets to the business aim of this organization, here at this location, our care manifests itself as shown in this example:
| List one capital asset: | |
| Demonstration of asset’s importance #1: | |
| Demonstration of asset’s importance #2: |
It is strongly believed and virtually dictated in ISO 55000 that the employees be given a voice in equipment design and construction. As a result, we suggest that all design teams have a standard makeup to include the following representation:
■ Engineer
■ Maintenance leadership
■ Production leadership
■ Maintenance hourly
■ Production hourly
■ Safety
■ Purchasing
■ Storeroom
Turn to the last section of the book and record this same information in the comprehensive strategy section.
