Organizations use various assets to run their daily operations. Sometimes items are totally consumed, whereas other times they undergo wear and tear. These factors determine how well an asset can function. Every time an asset is used for a business task, its current value depreciates, impacting its performance. This process is commonly referred to as asset utilization.
To run tasks efficiently, businesses need to ensure that assets are being utilized optimally. This blog will cover the basics of asset utilization, why businesses should calculate it, and the common methods involved in calculating it.
What is asset utilization ?
Asset utilization is a crucial component of asset management. It measures how effectively businesses use assets to achieve specific objectives. The formula used to calculate asset utilization gives the maximum productive time an asset yields. Generally, the higher the utilization rate, the more efficiently an asset is used to carry out its functions. A low utilization rate means that the asset is underutilized.
Every business has variable factors that can impact how assets are utilized. These seasonal or temporary changes may wear off after some time. However, when accounting for asset usage, it becomes important to incorporate these factors into the equation. Let’s discuss a few of these briefly:
Demand fluctuations: Sometimes equipment is deployed for seasonal projects, resulting in inconsistent peaks in utilization.
Mandatory maintenance: Assets have to undergo compulsory maintenance to continue working at an optimal level. Such activities can also delay asset productivity.
Operational roadblocks: Inefficient processes such as poor maintenance practices and delayed checkouts can hurt the overall asset performance.
Asset condition: Older, more worn-out assets have a higher chance of unexpected breakdown. Equipment that no longer fits the technician criteria may be sidelined for multiple projects.
Why should you calculate asset utilization?
Knowledge about the performance of business assets can help improve problem areas related to operational inefficiencies, delayed maintenance, and asset deterioration. With the right approach, organizations can sustain and even increase productive asset yields for greater returns. Here are some reasons why you should calculate asset utilization:
Optimal asset productivity
A good asset performance rate means that the asset is being used to its maximum possible capacity, maximizing returns to investment. A low utilization rate can be a cause for concern and needs to be investigated. Calculating critical asset usage numbers enables businesses to highlight obstacles that need to be addressed on time.
Improved capital investment
A business that keeps restocking underperforming assets will eventually incur financial losses. An accurate record of asset usage acts as an investment guide for organizations. Consistently high utilization rates indicate a valuable investment, while assets yielding low utilization rates should be disposed of or retired.
Increased operational efficiency
Businesses can calculate a baseline utilization rate for all their important assets to compare performance over time. To achieve a high utilization rate, businesses can implement better asset management practices such as barcode labeling and location tracking to improve operational efficiency.
Minimized idle time
When an organization optimizes the use of existing equipment, it leads to improved resource allocation, resulting in less idle time. In this way, all assets are being used efficiently, saving costs related to extra maintenance, tracking, and procurement of spare parts.
3 Key metrics for calculating asset utilizationÂ
A basic formula can be used to assess how your assets are being used. The formula involves some key metrics that you need to consider. Let’s discuss some of those briefly:
Asset yield
Assets commonly work around 80% of their capacity on average. However, it is not possible to deliver 100% productive performance all the time due to various factors such as age, availability of spare parts, and downtime. For instance, if a machine can produce 500 units per day but it delivers 350, then the ratio of these will be classified as asset yield.
Overall equipment effectiveness (OEE)
This is a comprehensive unit of asset usage that comprises metrics related to quality, performance, and availability. Businesses mainly use OEEs to reduce resource wastage. A low OEE score can be an indicator of poor planning, inefficient production, and lack of management practices.
Unexpected downtime
Unplanned downtime refers to the situation where equipment shuts down without warning. This mostly happens when there is an absence of preventive maintenance or regular inspections. Moreover, it can also occur due to a lack of spare parts or stockouts. A high incidence of unexpected downtime is a sign of inaccurate inventory management and insufficient maintenance.
8 Steps to calculate asset utilization
Now that you know about the critical metrics required for asset usage, the next step is implementing them to derive the utilization rate. Let’s go through the steps of the whole process:
Define the time period
A business can start by setting up a specific time for calculating asset usage. It can be monthly or annually, depending on the objective. An annual time period will be suitable if the business wants to prepare a yearly performance report.
Calculate planned downtime
Gather the number of hours during which the equipment will be out for planned maintenance. This data should be easily available in your maintenance log, along with all the necessary details regarding the time, repair activities, and costs incurred during downtime.
Determine total operational hours lost
The next step is determining the additional hours lost due to changeover times and holidays. For the majority of assets, the available time is throughout the year, so highlight any assets that have specified availability.
Include production time lost
It is important to take into account the production time lost due to underutilization of assets. This can be due to low sales, seasonal variations, downtime caused by trials, or any unexpected changes.
Assess unscheduled downtime
Calculate the number of unscheduled downtime hours that halt production.
Note any compromise on quality
Determine the total asset yield and then inspect any defective units produced. Any defective products can be converted into lost production time.
Incorporate production rate loss
To avoid unplanned downtime, some businesses set their equipment at lower production levels. This may result in a production rate loss. Compare the theoretical possible output with the one achieved. For instance, a printer is expected to print about 10,000 papers but it ended up printing just 5000. In this case, the production rate loss amounts to 50%.
Calculate asset utilization
Add up all the lost, wasted hours from the steps above. This number will give you the total hours lost. From this number, now subtract the total hours your equipment is available. The resulting number will be the asset utilization rate for your business. The percentage can be calculated using the formula below:
Utilization: Actual utilization/ total number of hours available
How to improve asset usage for your organization?
Asset performance is an important indicator of key areas that need immediate attention. A detailed analysis of production times, operational loss, and total available hours enables businesses to take corrective actions to improve productivity. Here are some ways firms can increase their rate of utilization for all types of assets:
Improve maintenance and repair sessions
Proper maintenance routines minimize the chances of unplanned downtime within organizations. According to a survey conducted in 2021, it was found that investment in repair and maintenance programs decreased downtime by an average of 44%. Businesses can use historical data to drive and implement frequency of preventive maintenance for better results.
Track asset depreciation
An important component for measuring asset usage is its current condition. Worn-out and obsolete assets are more likely to suffer from unplanned breakdowns, whereas new equipment has a higher chance of performing better. For this reason, it is critical to calculate asset depreciation to sort out equipment according to age. Older equipment can be scheduled for a specialized maintenance program, while new equipment can be utilized for rigorous projects.Â
Monitor key metrics
To implement a high rate of utilization, a business needs to track a few critical metrics through the asset’s lifecycle. This can be done by running quarterly or monthly reports. These reports can include metrics such as instances of breakdowns, mean time between failures, current asset value, and total repair costs. All these metrics can be observed over time and how they change following improvements in asset utilization.
Provide team training
Teams can be effectively trained to tackle unplanned equipment breakdowns. A well-designed training following the manufacturer’s instructions can be implemented to minimize mean time to react.
Asset Management Software for better utilization
Business assets are likely to perform better when they are managed in the right way. This means that they are tracked right from the beginning, to the moment of disposal. Every action is accounted for and documented. All this can be done very easily through asset management software that makes use of barcode tracking to create an inventory of all items owned by a business.
Once assets are tagged, admins can maintain user history every time the item is checked out. This data can be used to calculate utilization rates and drive inspections to rectify any performance gaps.
