How are you managing your Fixed Assets?

Information technology (IT) systems have gone a long way in improving the operations of firms. Enterprise Resource Planning (ERP), for instance, has helped companies reduce inventories and increase service reliabilities. Sophisticated payroll software has streamlined management of wages and benefits. Security programs have kept out hackers and minimized theft.

But despite the advances in IT, many firms still have room for improvement in other areas of their businesses. One of these is Fixed Asset Management.

In several firms I was fortunate to observe, I saw first-hand the big headaches of managers trying to manage their fixed assets or the property and equipment that make up a big chunk of their capital investments.

For example, a firm that had a number of earth-moving equipment was supported by a purchasing department that was in charge of the storeroom that in turn controlled the company’s fixed asset inventories. The storeroom had a computerized management system that provided reports for the firm’s purchasing and accounting departments. The problem, however, was the storeroom could only report what items they had; the storeroom did not know the condition of items and for what equipment the items were for. Only the earth-moving repairmen knew the nature of each item and they complained that critical items frequently ran out or were already obsolete.

Many of the items were considered fixed assets due to their high price or purpose. But because these items were recorded individually and not visibly linked to the earth-moving equipment they corresponded to, the storeroom did not have an effective policy of managing them. No one, in fact, knew how much to keep and how long the parts should be kept. Some parts were already obsolete or useless because some earth-moving equipment had been phased out or replaced by newer equipment.

Asset tracking and monitoring was imperative for the firm with the earth-moving equipment and more so for firms that possess a number of fixed or physical assets. The idea is not limited to industrial firms with plenty of machinery. Bus companies, shipping lines, shopping malls, hotel chains, and agricultural cooperatives are some enterprises that stand to benefit from an effective asset tracking system.

An asset tracking system is an information system that allows for the virtual tracking of fixed assets that would enable firms the visibility such as knowing the locations of assets, their operating conditions, and their lengths of service.

The benefits can be significant and these include:

  • Savings in Warranty Costs. An asset tracking system can monitor the warranty information of fixed assets and flag managers to avoid costly replacements before the warranties expire
  • New Purchases Avoidance. Firms would avoid duplicative purchases of same or similar assets already in stock
  • Unknown Loss Prevention. Asset tracking systems would provide audit trails for accountants to monitor movement of assets such as when they are relocated or used in other assets (e.g. installation of an engine on a truck)
  • Maintenance Cost Avoidance. Maintenance personnel will be able to help set inventory policies for parts to avoid obsolescence. At the same time they can justify better quality equipment or parts via the history of an asset’s operating condition. Costs can be reduced and reliability of assets can be improved.
  • Reduce Risk. Asset tracking may include properties such as buildings and offices, and all that come with them such as plumbing, electrical, fire-fighting equipment, and civil works. The greatest benefit would undoubtedly be in better risk management.

Asset management and tracking software isn’t hard to procure. Systems range from very simple to customized complexity. It would be wise, however, for firms to first assess the state of their fixed assets before determining how to set up an effective system.

The following are some questions firms can ask themselves:

  • How do we track our fixed assets today?
  • Do we have a complete list of our assets?
  • Do we know where our assets are located?
  • Do we know the operating conditions of our assets?
  • Do we know which of our assets are under warranty?
  • What are the chronic problems we encounter with our properties or equipment?

Implementing an asset tracking system will provide the firm a system to control costs of their properties and equipment and manage their utilization and service. This will help firms increase the return on investment of their assets which would in turn help weather their organizations against the ups and downs of business.

About the author 

Jovy Jader

Mr. Jovy Jader is a Management Consultant and Regional Speaker on Supply Chain Management. He has directed and implemented Supply Chain Management projects both local and international which have resulted to company-wide improvements in revenue, working capital, total cost, and service levels. Mr. Jader was formerly with Procter & Gamble Philippines and Coopers & Lybrand/PricewaterhouseCoopers.

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