Does your business require multiple staff, equipment or physical location to deliver your product or services? If the answer is yes to any of these then you should utilise a strategic approach.
When undertaking consideration of what is the purpose behind our asset procurement project or task, many organisations will be considering assets of significant value that they will require their employees to use to achieve value and a return on investment. No business survives if equipment purchases do not yield a return. More money out, then in, spells disaster! So, what is our capability requirement (our need) versus what is the latest high-tech piece of equipment we have found on the internet? In my own team, I have frequently referred to this as the ‘Kingswood Ute versus the Ferrari’. What capability do we need? What is the best way of purchasing the asset?
In relating back to our first vehicle purchase, you may recall friends (or perhaps even yourself), delving into hire purchase agreements for vehicles way beyond their (or your own) means, or not fully realising the costs involved in maintaining a vehicle and having to tearfully depart with your vehicle for a cheaper ride or one that is more practical for our intended purpose. The result? An impulse decision leading to a depreciated asset that is incompatible with your needs. It will need to be sold again at a reduced price, leaving you to carry the burden of not recouping your costs. When you restart the process, you will find yourself in a much less favourable position than when you started.
For our understanding of asset management we can wrap all of this up into a couple of simple points:
Capability Planning and Procurement are each specialist areas for organisations to consider. For good reason, they attract attention as the project can add excitement to an organisation. For this reason, capability planning and procurement often cast a long shadow over the poorer cousin, operations & maintenance. The O&M side (frequently referred to as sustainment) is repetitive in nature, business as usual (BAU), not as glamorous, and always faces the question of, ‘can we defer that for another year’ or ‘can’t we save some money there and take a cheaper approach?’ Quite simply, the new car smell has gone, your friends have newer models and yours just isn’t getting the attention it once received.
The three key elements covered are the asset management practices that your organisation will adopt and then subscribe to throughout the whole of life asset cost. The asset management practices, particularly capability planning will also drive the quality and capability of the equipment procured.
Getting back to our car purchase. If it’s your car, will you get it regularly serviced? Will you wash and clean it inside and out on a regular basis or will you drop the standards you once held? It’s not easy, it’s not glamorous, but it just makes sound economic and practical sense.
All organisations are challenged to deliver goods and services with lower overhead costs. How do you deliver a level of service for the lowest possible costs? All assets: a computer, a forklift, display cabinets and racking, merchandise are built to deliver a benefit and services. What price do you pay and what is your return on investment?
When considering asset management practices and planning, finding the balance between performance, risks and costs are foremost and when and where are the assets required? There will always be trade-offs and priorities that will influence which of these factors rises to the top. This is the ‘art’ of asset management. The art of asset management is to know when to invest to deliver performance, before significant unexpected costs are faced. For examples, unexpected costs can occur as result of the supply chain your equipment utilises. Are parts or services timely and accessible or will you have to wait days, weeks or months for a solution? All the while your asset sits idle and your services or products are impacted? As the assets get older, they generally need more maintenance, and performance can start to deteriorate. With this, costs will likely increase.
Need or uncertainty is always a great trigger that will motivate and inspire you to begin. A simple way that I have used many times is to ask yourself some simple yes/no questions:
If you answered ‘no’ to any of the above, you should consider the value of your organisation's operations and what steps you can take in the short, medium and long term to implement an asset management framework.
Without going into too much detail about how this should unfold, it really does begin with having the senior leadership of your organisation taking the first steps. Start with an idea of what you would like to achieve, allocate the resources to achieve it, set a budget and schedule that is realistic with everything else going on in your work and provide some direction around the goal to be achieved, milestones and deliverables. Have a plan!
The key is to start simple and develop it with the input of experience that exists in your workplace.
There is certainly a wealth of information and more formal education on asset management available. It really begins with asking the questions above and having the curiosity and determination to understand your business operations a little better and having the ability to make some informed decisions about the direction to take with your asset management approach.
Maybe you can apply some of these helpful tips when evaluating or procuring your next asset?
Good luck. But remember if you get stuck, you can contact the experts at AML Advisory. We can help you with every step of your procurement journey to ensure that you’re making the right decisions for your organisation.