How to save money, create value and extend asset life in a tough economy
Case Studies/Success Stories:
Client: Global Life Sciences Research and Manufacturing Company
Objective: Improve uptime and regulatory compliance thereby positively impacting top line revenues.
Solution: Over the years, the organization experienced intermittent production shutdowns as a result of observed non compliance. Often, the cause for shut down was due to an absence of documentation of inspections and compliance to industry regulations and standard practices. The client formulated a program with two threads: The first was to install a single asset database for all divisions. Secondly, a Knowledge Management system was initiated to capture a single source of truth on maintenance procedures, inspection routines, calibration, safety and document management. This resulted in two years of an absence of inspection and compliance related interruptions. Previous years interruptions resulted in lost revenue in the $25m range.
Client: Global Corporate Technology Company Campus
Objective: Reduce O & M expenses by improving stock and inventory management.
Solution: The organization had allowed open stock parts locations across the campuses. This resulted in numerous enterprise wide “spot purchase’ activities translating into both unknown quantities and unknown overall investments. The company initiated enterprise wide controlled stock processes. Concurrently the organization gathered information regarding local stock levels, collected a vendor database and then normalized and optimized stock levels across the enterprise. All stock was captured in a single database and the companies introduced a standardized SKU program and spend management initiative. This process revealed $10m in excess inventory levels which was re-deployed across the enterprise.
Client: Metropolitan Healthcare Campus
Objective: With budgets being held at current state or lower, hold or improve services & reliability.
Solution: The organization possessed 5 campuses serving a 7 million metropolitan population. Each campus possessed its own O& M Budgets and Systems as well as separate Bio Medical systems with separate call centers. The organization consolidated call center activities at both the campus and enterprise levels. Concurrently, a single enterprise wide O & M system was installed. This system subsequently absorbed the management and dispatch of Bio Medical technicians. These activities revealed over $5m of excess parts inventory. Call center consolidation resulted in an additional annualized operational cost savings of $8m.
Client: Leading Research University
Objective: Control costs and better align Facilities and O & M activities with contemporary organization direction.
Solution: The University was managing O & M activities with an in-house developed system. This was inadequate in supporting high profile research activities: data input was not intuitive, reporting was limited and processes were intensively paper based. The organization chose to engage in a leap of faith and move to a web-based system. Concurrently, wireless dispatch was introduced for Demand Work. This resulted in a 25% improvement in response time and an equivalent improvement in Customer Satisfaction Surveys. Within two years, improved technician scheduling allowed for a 12 person staff reduction/reallocation. This translated into an annualized cost savings of $1.2m.
Client: Regional Utility Company
Objective: Introduce enterprise wide O & M standard processes to reduce costs, improve up time and recover under-utilized assets.
Solution: Energy generation organizations possess a wide range of assets. This includes production assets, transmission lines and administrative facilities. Each operating division and in some cases local facilities possessed their own set of processes and asset tracking systems. The organization realized the opportunity for asset sharing and transfer. In many cases diesel engines, cranes and transportation equipment were in storage and or placed in the local maintenance yard. A single enterprise database was created and transparency provided. Over three years, in excess of $200m in equipment was disposed of or transferred to other facilities.
Client: Public Sector City of 3m
Objective: Improve service and reduce costs.
Solution: The old systems were in place for over 12 years. One system was used to manage O & M activities and a second system was used to manage Parks & Recreation. The organization was aware that both customer expectations and systems capabilities had drastically changed. The city chose to install a single web-based application to manage both organizations. Workplace Analytics revealed opportunities to re-allocate O & M resources from Parks and Recreation. This action saved 5 FTE’s. A single consolidated call center was established saving an additional 5 FTE’s. This not only resulted in both improved customer service, and also generated annualized savings of $1m.
Client: National Freight Transportation Company
Objective: Extend Asset Utilization without sacrificing safety.
Solution: Fleet Maintenance systems allow transportation companies to manage both individual assets and components. The company implemented an enterprise-wide Preventive and Reactive Maintenance System. All asset information was made transparent to the organization and available at the local terminal level. For once, all staff had a single source of truth which allowed for extended use through warranty management, tires management, motor pool management and fuel management. Total annualized savings totaled $2.5m. The company also extended the use of the system be applying O & M activities to Terminal Maintenance.
Client: Mulit-Plant Building/Construction Materials Manufacturer
Objective: Institute “Flat or Less” Budgeting program.
Solution: Equipment uptime is critical in the process manufacturing industry. High equipment availability means manufacturers can produce the greatest volume at the lowest unit cost. However, most manufacturers are saddled with out dated systems that no longer support an enterprise manufacturing environment. This company had to replace its paper based and manual processes in order to maintain competitive advantage in the market. However, introducing a production based system remains challenging at best due to the requirement to run in parallel to ensure system transition. Importantly, it was recognized that a process re-reengineering effort would precede all change management. In doing so, opportunities for cost reduction were identified and tested in the current state. Over two years, introduction of technology enabled best practices resulted in a reduction in 15 FTE administrative overhead reductions which translated into a $2.0m annualized cost reduction.
Client: Nationwide Retail Grocery
Objective: Improve failure management for refrigeration systems.
Solution: The organization was experiencing an unacceptable level for refrigeration systems failure resulting in over $50m in annual spoilage. The company moved to a centralized asset data base system. Three Regional Control centers were established to remotely monitor Temperature and Energy Consumption data in the individual stores. Cooler efficiencies were tracked at the store level. Items tracked are: Preventive Maintenance compliance, refrigeration alarms, refrigeration leaks. This allows the organization to assess the financial impact to the enterprise. Most importantly it has reduced the spoilage rate by 20% for the last two years, or a savings of $10 m annually.
Client: Global Aviation, Geo-Space and Electronics Manufacturer
Objective: Identify under-utilized capital assets for re-deployment.
Solution: The organization was structured around a Business Unit/Division model with individual profit and loss reporting and responsibilities. It was observed that common or similar assets were utilized in each division. The company decided to introduce a cross division Capital Asset Tracking and Management System. All production, back-up and stored assets were entered into a common database. Access to this information was provided to senior management in each division. A cross-division Capital Asset Deployment Team was formed to rationalize and normalize asset allocation. Over the next 3 years over $200m of assets were re-deployed across the enterprise and an additional $150m in assets were disposed of allowing for capital re-deployment.
Business Case Modeling: Justifying the Investment
The challenge at this point is to document the operational requirements and convert them into a coherent financial justification. In order to either protect or improve shareholder value, we must ensure that the expected cash flows from investments provide a return greater than the organizations cost of capital.
The preceding case studies can be instructional and point to substantial opportunities for both cost savings and improved capital allocation. Each of the companies employed a Business Case Modeling Template that included the following:
It is incumbent upon the preferred vendor to assist in the preparation of the work outlined above. This includes the provision of Business Case models combined with Case Studies where this work has resulted in program successes. While internal financial targets may vary depending upon organizational size and industry, the above should be considered as a template for the components needed for the preparation of a coherent Business Case.
As stated in the introduction, a key enabler for these initiatives is the establishment of a comprehensive decision support system. Aggregated, current and accurate data is essential to success. This would include the following
Data Creation/Quality
Experience has shown that many organizations lack complete, accurate or current data regarding their Facilities and Capital Asset portfolio. This is further complicated by the fact that what data is available, is typically found in a variety of discreet and disparate databases. This can be due to lack of an enterprise level perspective and attention, absence of assigned responsibilities or a simple lack of awareness of opportunities. Recommendations for correction would include:
Performance Dashboard
In an attempt to partially address the issue of an absence of data access, the creation of a performance dashboard would be critical to the alignment of Facilities and Capital Assets organizational strategy. In doing so, organization financial and business objectives would be linked to the Facilities and Capital Asset strategies. Key components of the dashboard would be:
Key Performance Indicators (KPI) & Metrics:
Following upon the old adage “you can’t manage what you don’t measure” we suggest that the establishment of relevant, personalized and agreed to metrics. These serve to anchor the imitative and provide focus for the organization. These do not need to be overwhelming in number, but speak directly to organizational performance and should share the following characteristics:
Experience shows that hidden value on the balance sheet and operational cost savings can be found through the adoption of a Capital Asset Performance Management system. Unlike the previous management models, this approach expands the view of asset management to provide the following benefits: