Asset Management – Key Part of Business Management
Most manufacturing companies have recently discovered that fixed asset management should be a key part of the success of the business enterprise. It is now known that fixed asset management leads to economy of production and operation. This, in turn, can increase profits by 10 to 15 percent, which cannot be ignored as it makes a significant contribution to the bottom line of the business.
There is no doubt that inventory and production management deserve the primary management focus for effective operation in a manufacturing company. If asset management was neglected, then fixed assets were not managed effectively and efficiently. But in recent years it has been realized that efficient management of fixed assets, such as plant and machinery, and other mobile and immovable fixed assets, can lead to economies of scale. Therefore, proper supervision and regular maintenance of productive fixed assets will give a longer productive life. The net effect of this is more profit for the business.
Naturally, in fixed asset management, the assets responsible for production, research and development, etc., which have a direct relationship with the productivity of the company, need to be managed more closely. There must be constant monitoring of the maintenance aspect to prolong the useful life of the asset. Even a piece of personal property like a vehicle needs proper maintenance. Otherwise, without regular operation and maintenance, the vehicle may soon corrode and become unusable.
Each asset category needs a different management approach. Fixed assets need regular maintenance to ensure the normal life of the assets based on the wear and tear of the asset. Proper planning is also necessary to build up financial reserves over the life of the asset to replace the fixed asset at the end of its useful life. Therefore, the new plant and machinery can be ordered in time to replace the old one.
Management must also weigh the advantage of replacing plant and machinery and other production assets or continuing to maintain current production assets. They should also consider from time to time whether the asset has become obsolete due to new technological advances. In recent times, technology has advanced at a dizzying pace and management has to be attentive to this issue to avoid being left behind by the competition. Asset management also includes adequate insurance to cover any extraordinary loss due to fire and natural disasters.
Something of an awakening has taken place in major industries over the last decade about the role of asset management. It has become attractive due to declining margins and competition that is growing day by day. To avoid large capital expenditures, companies are now developing strategies to get optimal performance from available fixed assets and thus earn higher returns. This implies an adequate maintenance program to minimize breakdowns and the consequent loss of production.
To have scheduling reliability, regular planning in conjunction with various departments, at least monthly, is absolutely necessary. Standards should be set and benchmarking within industry standards should be evaluated to determine if the company is achieving optimal production in line with the industry. Otherwise, appropriate goals and best practices should be set within a reasonable time frame to achieve those goals.
Logistics performance should also be evaluated to consider whether transportation costs are economical and whether location advantages are met. Management tools for evaluation can be in the form of comparison studies, which can be set up in the form of graphs and bar charts to facilitate visual comparison. If fixed asset performance is judged to be below average, then priorities can be set to focus on improvement.
Asset management tracking is critical in large manufacturing plants and utilities. The integration of asset management with raw material procurement and maintenance systems as well as financial systems and their cost versus savings benefits need to be monitored on a day-to-day basis. Therefore, senior financial officers must be involved in asset management.
Depending on the nature of the assets in different businesses. For example, utilities, mining, oil and natural gas companies have large properties as part of their assets. These must be managed effectively and timely decisions must be made on whether to buy or sell properties for the health of the business. Depending on your values and need for the operation of the company, assets can be categorized for better management.
To help the management of the company, there are a number of established consulting firms that have skilled manpower whose help will be beneficial for asset management. They can be very effective in auditing current practices and suggesting best practices, problem resolution and action plans. It may be worth the expense of hiring established consultants to improve performance.
Asset management data can be computerized to allow management to strategize broadly. The integration of asset management systems with other financial systems would give a better picture of the complete operation of the company. This will allow various key officials to provide timely input to senior management in designing appropriate plans. For example, the government may introduce special tax incentives for certain industries to invest in fixed assets. In a scenario where management is monitoring and managing fixed assets, the Finance Manager can quickly recommend the purchase of new fixed assets to take advantage of the government tax incentive for that business.
Finally, it is the assets of a company that allow the production and delivery of its goods and services. So when fixed assets are purchased or replaced, some important questions arise. What is the cost and cost benefit for the business? What funds are available? Should the asset be purchased new or second hand or leased and how will it benefit the business? Questions related to the use of the asset could be. What are the operating costs? How much skilled and unskilled labor would be required for the operation? What are the training costs involved? What are the installation costs? What is the useful life of the asset? Is it the latest technology? These and many more questions need to be asked and answered. Ultimately, this will factor into the long-term strategy of the business.