Gold from Iron
Professional Asset Managers Turn Fleets into Powerful Profit Centers
By Stan Orr
Treasure hunters, truth seekers and even scientists have searched for the secret to changing base metals into gold and silver since antiquity. Over the centuries, these alchemists never quite discovered the combination of elements and processes that lead to the philosopher’s stone.
But today, there is a profession that has figured out how to squeeze gold from iron. Every day its practitioners help their companies gain efficiency, save money and make more money, all from their equipment. They are professional asset managers, and sorcery has nothing to do with how they help companies succeed and thrive.
The profession itself has come a long way since equipment management fell to the shop technician. The people who do the job today have come by their experience, expertise, knowledge and skills honestly, both from on the job experience and through advanced coursework. Along the way, they’ve become experts in a range of interrelated areas that impact the bottom lines of all kinds of businesses, especially those that use machines to get the job done.
From Shop to Front Office
In the early ages of asset management, it was the shop technician or the shop foreman who tried to get more value out of his company’s equipment. They knew how to keep it in tip-top shape and did a great job of it, but as the business changed, they needed to know and manage more.
As fleet managers, they drew from their on-the-job experience to make equipment recommendations to companies’ leadership teams. They were responsible for every piece of equipment the company owned, for making sure each was properly maintained to avoid breakdowns or unnecessary downtime and for ensuring equipment was used to its full potential on every job. They also were responsible for replacing specific machines at the best possible time to maximize value for their companies. And, like the early alchemists who created a framework of theory, terminology and techniques of the scientific method used today, these fleet managers developed the foundation for professional asset management.
Asset-based businesses progressed even further, and the fleet managers became professional asset managers. This part of the evolution has been stratospheric. Where once they needed to keep multiple pieces of equipment up to par and deploy them to multiple jobsites, as asset managers they now need to combine all the elements that impact efficiency into decisions that affect a company’s profitability. In short, they need to turn what has often been viewed as overhead in a company’s debit column into a profit center.
To do it well, professional asset managers have likely completed advanced study in a variety of disciplines, from finance to information systems to customer service. Often they have obtained that additional training through the Association of Equipment Management Professionals (AEMP), which offers multiple educational opportunities for asset managers, both online and in face-to-face seminar situations. And, in many cases, they have taken it a step further by taking the Certified Equipment Manager (CEM) exam.
The position continues to evolve in positive, profitable ways as companies grasp the value of the profession. Asset managers are now becoming what more accurately can be called fleet executives. These leaders are involved at a high level in their companies because they contribute a breadth and depth of knowledge and expertise in interrelated areas to the company’s decision-making processes.
Today’s fleet executives see the big picture. When one element of equipment usage and profitability changes, they can adjust the others accordingly. More importantly, they can anticipate when one element will impact another and make adjustments within the optimal timeframe. In the process, they save their companies thousands, and sometimes hundreds of thousands of dollars, every year.
Unfortunately, many companies have not yet grasped the value — and the high return on investment — of hiring an asset manager, let alone a fleet executive.
An Art and a Science
Even in increasingly complex operating and economic environments, leaders of many “traditional” companies still see a fleet only as a necessary evil. On the other hand, modern, evolving companies see that same fleet as a profit center, a means for both saving money and making more. Those companies rely on their professional asset managers not only to direct, deploy and maintain their fleets, but also to maximize their usage to make the businesses more profitable.
Professional asset managers have the expertise, experience and knowledge to fully comprehend how equipment can be optimized to add more value to the balance sheet. They are analytical, financially astute and mechanically inclined. They can solve problems, assess risk and speak truth to company leaders like the CFO, COO and CEO. And they are driven by an uncompromising dedication to efficiency.
Asset managers are involved in everything from procurement to benchmarking, evaluating life-cycle costs to purchasing technological tools, parts management to safety assurance. They ensure equipment is maintained and safe, that the right equipment is on the right job at the right time, and monitor equipment from hour to hour or even minute to minute so each piece is operating at peak capacity and in perfect harmony with all other equipment on a particular job.
They determine the ideal time for buying or selling a piece of equipment or determine whether it would be better for the company to rent or lease, instead. They can help a company land more work in its core areas of expertise and make new projects possible. They do it by evaluating the equipment needed for a project, determining whether the company already has it and if it will be available during a project’s timeline.
They’re techies, too. Asset managers use advanced technologies to collect, interpret and apply data to both equipment usage and high-level planning. They are able to evaluate the complexities of fleet optimization in ways that bring clarity to decision-making. More than that, they provide the information and insights that leadership teams need to make decisions that increase profitability.
No other employee group brings the same breadth of understanding across disciplines. And because of that, good asset managers pay for themselves again and again.
Case in Point
The experience of John Rothweiler of CH2M HILL Equipment illustrates the complexity equipment managers face every day. His company is a subsidiary of Denver-based CH2M HILL, an AEMP member that provides full-service engineering, environmental, construction and operations services for municipal, state, federal and private-sector clients across the United States and internationally.
Rothweiler, a certified equipment manager, helps oversee the company’s largest fleet of assets throughout Alaska, with the majority of the fleet on the North Slope where CH2M HILL provides support services to oil and gas companies for drilling and well work, moving rigs down the road, handling liquids, removing waste and so on. To do it all, CH2M HILL coordinates interrelated equipment utilization and deployment considerations on a daily, even hourly, basis.
He says multiple factors impact the company’s operations and the decisions the staff members need to make for CH2M HILL’s equipment. Those factors include the price of oil, permitting, development regulations that govern what equipment that can be used on a project, and how much budget is available for repairing, rebuilding or replacing equipment.
“All of these issues can delay the development of the resource and the utilization of the equipment needed to support it,” Rothweiler said. “In the past, we have seen big swings in an oilfield due to the price of oil, with expensive, hard-to-replace equipment sitting idle for long periods of time. The other issue is that, when this happens, the bottom falls out of the surplus market for this type of equipment. That complicates the management of the fleet even further.”
To gain a better understanding of the interrelated challenges that greet the CH2M HILL staff on the North Slope every morning when they go to work, consider the following example.
A new client needs four 325-barrel vacuum trailers and four tractors for a period of two drilling seasons. The current fleet cannot support the additional work, so Rothweiler must decide the best way to acquire the additional trailers and tractors.
The tractor-trailer units cost around $800,000 each new, which would be a capital outlay of more than $3.2 million. Trying to make these units stand alone would not be competitive, so he has to consider what is in the current fleet. The company already has 40 of these units, so he can use the new units to help with the company’s life-cycle replacement plan for existing vacuum trailers.
If the life-cycle replacement plan is to replace or rebuild two units each year based on a 20-year life on new units and a 10- to 15-year life on complete rebuilds, Rothweiler might take a look at the units that are currently costing the most to maintain. He may decide to perform some major repairs and place those vacuum trailers on less demanding jobs so they can still operate profitably for the two-year period during which there is additional demand.
Alternatively, he could decide to look at which units could go through a complete rebuild and extend their life for a lesser cost (normally 60 percent of new) and reintroduce them into the fleet as like-new units. Doing that, combined with buying new units and putting them into high-usage areas, would extend the life-cycle replacement plan at least two additional years and justify the new equipment purchase. In addition, at the end of the two-year period, the company could surplus six units that have reached their useful life and get back on track with its original life-cycle replacement plan.
“Purchasing should be based on total machine cost over the life of the equipment,” said Rothweiler. “It includes capital cost, operating cost, maintenance cost, major repair cost and what you can expect to recover when you sell the unit. Only by factoring in all of those can you make the right decision.”
The Future of Equipment Management
As CH2M HILL and thousands of other companies across the globe will attest, much is at stake when it comes to a company’s fleet. Proper care and use can add thousands or even millions to a P&L, depending on the company’s size. But improper management can take those same dollars away in a hurry.
The tighter the ship is run, with data-driven decision-making and best practices applied consistently across the board, the more likely the company will be to thrive. Asset managers have the experience, knowledge and understanding of how all elements of profitability are interrelated and impact one another, and because of that they are able to provide valuable advice and guidance.
For a company to move beyond age-old and misguided philosophies for equipment, to turn the “necessary evil” into a profit center and get tangible profit out of your iron, it needs a professional asset manager. If you don’t have one, hire one.
Stan Orr, CAE, is president and CSO for the Association of Equipment Management Professionals (AEMP).
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