What is asset utilization
Asset utilization refers to the efficiency with which a company uses its assets to generate revenue or profits. Asset utilization should be considered holistically across the supply chain, including fixed assets such as plant and equipment, inventory including raw material, packaging material, finished goods and finally cash including receivables.
It starts with measurement
Measuring asset utilization effectively reveals opportunities to drive improvements holistically across the supply chain. At CCi, we find that every organization we engage with initially will not be maximizing their existing assets. In some cases, asset utilization is not effectively measured, but that’s where CCi comes in. A critical first step in maximizing the assets that you already have is measurement. By understanding asset utilization, measuring it, and exposing the opportunities across the supply chain, we can build effective strategies to improve performance across those areas.
Often areas in the supply chain are functionally aligned to improve efficiency in these areas, say in planning or in procurement or manufacturing or logistics, but this can easily throw the organization out of balance. Measures that pull different areas of the supply chain together, such as year-on-year growth, operating margin, inventory turns, and return on invested capital. Each of these metrics have an element of asset utilization and can help to surface the opportunities in that area.
So, for example, return on invested capital measures how efficiently the organization is using its fixed assets like plant and equipment to generate profit, while inventory turns measures how effective the inventory management and sales processes are. The right metrics identify and eliminate areas of waste and surface opportunities to maximize asset utilization.
Improved sustainability
Improvements in asset utilization have huge positive impacts on sustainability by improving products, services and operations. For example, higher inventory turns can be driven through lower average inventories, which means that less physical product is being moved and stored, resulting in lower greenhouse gas emissions.
Similarly, higher overall equipment effectiveness, or OEE, is often the result of reduced waste and improved quality, which means that you’re not putting energy into producing products that must either be thrown away, recycled or discarded. And these things all have a direct impact on improving the sustainability of your operations.
Speak to the experts
Understanding how to measure asset utilization is a critical first step to identifying opportunities to reduce waste and improve performance across the supply chain. If you’d like support with improving asset utilization within your organisation, get in touch with our CCi continuous improvement experts today.