Asset Visibility: Seeing the Opportunity in Asset Management

Asset Visibility: Seeing the Opportunity in Asset Management
W H I T E P A P E R mo Sponsored by: SAP c.sthgi Bob Parker sni June 2008 - gniru tcaf T h e I m p o r t a n c e o f A s s e t M a n a g e m e n t unam. Based on the Manufacturing Insights Global Performance Index, no www corporate performance measure correlates more closely to increases in market capitalization than return on assets (ROA). This tried-and-true 188 measure evaluates executive management on making profitable use of 7.88 the capital employed by the firm and rewards high performers with 9.8 greater earnings multiples. 05.F Harnessing robust global growth and industry consolidation via both 009 public and private equity funding has set the strategy to drive higher 7.88 asset returns in recent years. As growth steadies and financial 9.8 resources become more scarce (and therefore more expensive), the 05.P emphasis for management will be to make the assets in its portfolio perform consistently and incrementally stronger. Maximizing asset ASU performance will become a key corporate strategy. 10710 Despite the shifting emphasis to wringing more performance out of AM existing assets, a recent benchmarking study conducted by the ,m Americas' SAP Users' Group (ASUG) reveals some disturbing data ahg (see Figure 1). Seventy-five percent (75%) of respondents said that nim none of the metrics that govern asset performance were available in arF real time, 77% said that the measures were of low or mixed reliability, tee and an astonishing 90% said that the metrics were only somewhat rtS effectively (or not at all) linked to overall business measures. neepS 5 :sretrauqdaeH labolG
June 2008, Manufacturing Insights #MI212770 F I G U R E 1
R e s p o n s e s o n t h e E f f e c t i v e n e s s o f A s s e t M a n a g e m e n t M e t r i c s
Reliability: % low or mixed reliability
Available on real-time basis: % none
Link between operational and businessmetrics: % somewhat or not linked
0 20 40 60 80 100(% of respondents) Source: ASUG Benchmarking Study and Manufacturing Insights Analysis, 2008
These data points indicate that companies are managing assets with late (non-real-time), inaccurate (unreliable), and incomplete (not linked) data, which is like trying to drive a boat by looking at the wake — if you get to your destination, it will be due only to sheer luck!
This white paper examines the importance of improving a company's capabilities in creating visibility into asset performance so that management can streamline processes and make better decisions that will ultimately deliver superior corporate results. T h e B u s i n e s s C a s e f o r A s s e t V i s i b i l i t y
Linking corporate objectives (intended to produce a return on capital employed that is greater than the cost of capital) to what goes on at an operational level is central to effective asset management. A brilliant corporate strategy is toothless without operational execution, and operational excellence is lost without an effective strategy to guide it. Bridging the strategy/operations chasm is the aggregate optimization of assets at the plant level, with further optimization of the network of assets across facilities. Visibility creates the opportunity to make better judgments about individual assets, a specific facility, or the whole network of locations.
Page 2 #MI212770 ©2008 Manufacturing Insights, an IDC Company Breaking Down Return on Assets
A review of the ROA performance of companies reveals a wide range of results (see Figure 2). The figure represents a 95% confidence level or two standard deviations. If a company with average performance (4.88%) can reach the 85th percentile, it can improve its return by 7.3%. Assuming a 5% increase in stock price for each percentage improvement in ROA, this represents more than 35% in additional market capitalization.

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