Is your business using its equipment as effectively as possible? This question can be answered by assessing the efficiency of your asset utilization. Understanding asset utilization is a key way to see how well your equipment is helping generate profit.
This blog will explain everything you need to know about asset utilization, from what it is and how to calculate it to strategies for improving your output and getting the most out of your equipment. Let’s explore and see how you can unlock the potential of your business assets.
What is Asset Utilization?
In business, we talk about asset utilization to see how well a company uses what it has to make money. For example, in factories, it’s about how much they make with their machines. If a company has an asset utilization ratio of 52%, it means they makes 52 cents for every dollar they invested. When this ratio goes up, it shows the company is getting better at using its resources to make money. People often use this ratio to see if a company is getting more efficient over time.
Formula for Asset Utilization
To figure out asset utilization, you just divide how much money a company makes by all the assets it owns on average.
So, Asset Utilization = Revenue / Average Total Asset.
How to Calculate Asset Utilization?
One way to measure how well you’re using your assets is by figuring out the total hours they’re not being used and subtracting that from the total hours in a year (8,760). That gives you the maximum potential use for each asset in a year. For example, if an asset sits idle for 2,803 hours in a year, its utilization is 68%, meaning it’s in operation for 68% of the available time.
Usually, if asset utilization falls below 70%, it could mean you’re not getting enough value from the asset compared to what it costs.
Although asset utilization is helpful, it’s good to look at other metrics too to understand why you’re losing time and how you can fix it. These Key Performance Indicators (KPIs) include Product Yield, Overall Equipment Effectiveness (OEE), Unplanned Downtime, and Maintenance Spend.
Asset Utilization Key Metrics
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Product Yield
Product yield measures the proportion of quality products in a batch compared to the total planned units. This metric is vital for assessing asset utilization, as it highlights which machines are performing efficiently and which ones are producing items that need rework.
To calculate product yield, you need 3 variables:
- Planned Production Units (P)
- Good Units Percentage (G)
- Reworked Defective Units Percentage (R)
The formula is:
Product yield = (P × G) + (P × (1 – G) × R)
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Overall Equipment Effectiveness (OEE)
Overall Equipment Effectiveness (OEE) is a crucial metric for identifying and addressing production inefficiencies in manufacturing.
OEE integrates losses due to poor quality, equipment downtime, and reduced speed into one comprehensive metric.
The formula is:
OEE = Availability × Performance × Quality
Here’s how to calculate each component:
- Availability = Runtime / Planned production time
- Performance = (Ideal cycle time × Total units produced) / Run time
- Quality = Number of good units / Total units produced
OEE is most beneficial when applied to individual machines or specific production cells. When used for broader equipment groups, it becomes less effective at pinpointing the sources of inefficiencies.
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Maintenance Spend
Maintenance spending reflects the age and condition of manufacturing assets. It can be calculated with the following formula:
Maintenance spend = Total maintenance costs / Total cost of goods sold
An increase in maintenance spending suggests that your equipment requires more frequent repairs, which may also lead to more unplanned downtime. Adjusting maintenance strategies, such as increasing service frequency, can help, but ultimately, replacing outdated and inefficient equipment will be necessary to reduce maintenance costs.
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Unplanned Downtime
Planned downtime for maintenance or changeovers is a standard part of good asset management and should not impact overall production output. However, unplanned downtime occurs when unexpected issues stop a machine from operating. This could be due to a breakdown or a lack of necessary parts. Frequent unplanned downtime suggests a need to revisit planned maintenance procedures or investigate potential equipment malfunctions.
The formula is:
Unplanned downtime = (Planned downtime – Total downtime) / Total time available
Closing Thoughts
Understanding and optimizing asset utilization is a powerful tool for any business. By leveraging a CMMS platform like NEXGEN, you can gain real-time insights into equipment performance, identify areas for improvement, and implement data-driven strategies to maximize your return on assets. NEXGEN empowers you to streamline maintenance schedules, reduce downtime, and unlock the full potential of your equipment.
Visit the NEXGEN website today to learn more about how our CMMS solution can help your business achieve greater asset utilization and profitability.
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