Enterprise Asset Management

Economic and market conditions have pushed enterprise asset management (EAM) to the forefront as the hot topic for the next several years. Keep ahead of the game with this information from META Group analyst Kip Martin.

According to a recent META Group META Delta report, purchased or outsourced e-procurement platforms will be augmented by specialized indirect and/or direct goods and services-oriented features through 2003 for more complete sourcing solutions.

As e-business solutions pervade Global 2000 (G2000) organizations  and by extension, their subsidiaries and smaller trading partners  information technology (IT) and line-of-business (LOB) managers are paying more attention to integrating formerly disparate systems and operational silos. Indeed, the current worldwide economic cycle (from contraction to growth during 2001 to 2003) creates the need for organizations to inventory all their resources as a way to plot current survival and future expansion strategies.

Most G2000 organizations wisely continue to pursue discrete efforts to support customer-facing, supplier-facing, financial, human resource management and enterprise asset management (EAM) processes, paralleling the broad capabilities of e-business solution providers and suppliers. By 2004 to 2005, however, interest in consolidating management of general enterprise assets, like facilities, financial capital, human resources and means of production, beyond shop-floor capital assets is expected to increase at the chief-executive level. Concomitantly, EAM solutions are expected to evolve beyond single-asset categories. By 2005, G2000 organizations will seek  and EAM suppliers will provide  capabilities to manage a broad range of enterprise assets, as well as link those asset-management solutions to solutions for procurement and financial management, like enterprise resource planning (ERP) financials.

Ultimately, effectively managing the complete portfolio of enterprise assets will reduce the operational costs associated with acquisition, life-cycle management and disposal, while optimizing the use of resources to economically minimize downtime.

What is EAM?

The current and generally accepted definition of an EAM solution extends only to the acquisition, tracking, maintenance and disposal of the capital assets of manufacturing processes. Indeed, leading EAM solutions are further focused on particular vertical industries or enterprise departments. For instance, Mincom is directed toward metals/mining and aerospace, Datastream is for facilities management, Indus focuses on process manufacturing and energy, and Peregrine/Remedy is for information technology. This specialization is justified, however there will be an increase in market (both enterprise software and financial) and management demand for a holistic view of the organization's entire portfolio of capital assets. It is not likely that a single solution from a single supplier will encompass management of an entire organization's assets and processes, but asset management solutions will increasingly interact with one another, like database access and application programming interfaces, and be tied to the corporate portal.

This evolution will increasingly encompass specific enterprise asset categories, with each having specific process and category capabilities:

Means of production  While different vertical industries will continue to have unique solutions tailored to their specific manufacturing processes, most will have similar macro-characteristics. For example, some of these characteristics could be: the acquisition of newly-produced or previously-owned machinery; scheduled and spot maintenance of that machinery; analytics as to replacement or refurbishment at the end of the asset's depreciable life; and disposition, like repurposing, selling or scrapping.

All these phases will need connections to one or more procurement solutions to get asset, replacement parts and/or consumables, like belts and lubricant, as well as to be able to convey asset specifications, usage and other information to the asset disposal channel, like DoveBid does, for example.

Labor (human resources)  Although it seems absurd to advocate that treatment of human employees and a plant or equipment be identical, human resource management solutions share similar attributes to capital asset management solutions. For example,  sourcing is like searching for candidates; procurement is like hiring; depreciation  is similar to promotions; refurbishment can be compared with training; and disposal is much like reductions in force, functional outsourcing and retirement.

Management of human assets will also be considered similarly to managing the means of production, particularly for service industry organizations, with respect to scaling back in response to market slow-downs. Although "disposal" of trained employees will result in relatively rapid benefits to the bottom line, it may take longer to reacquire old employees or retrain new employees to reach a fully functional state upon the strengthening of market demand or general economic upturn than if the same scenario were to take place with capital assets.

Capital (financial)  Financial assets, though just as important as land, labor and machinery, differ from physical assets in that they rarely exist in physical form, except for the odd stash of bullion or petty cash. While ERP financial and general ledger solutions have traditionally managed the internal assets, liabilities and cash flows of an organization, externalized e-business solutions will require management of those fiscal assets en route to and from trading partners or financial service providers. Management of payables and collection of receivables will still fall under the dominion of the chief financial officer (CFO), but progressive organizations will seek to make use of trade finance services to reduce risk, accelerate working capital flows and strengthen relationships among trading partners.

Facilities  It is important that an organization's real estate assets are managed like the locations upon and within which an organization conducts its business processes. Leading organizations will manage a facilities portfolio consisting of owned and leased properties. In addition, organizations will want to incorporate data from acquisition processes, asset life-cycle management and maintenance, like HVAC system operation; facility operations, like security systems and fire protection; and disposal.

For public-sector organizations, effective land and facilities management is critical, and it will drive the use of auctioning and procurement solutions. Yet, it is expected that widespread integration of these solutions with asset management will trail such efforts in the private sector. As with financial asset management, management of real estate typically falls under the CFO. Most organizations use spreadsheets, cost center reports, homegrown applications and other disparate tools. Progressive users, however, will look to specialized solutions, such as Bricsnet, Peregrine or Bay Logics; or a component of ERP solutions, such as JD Edwards, SAP or Oracle, through 2003.

Although many analysts recommend using specifically designed solutions to manage each asset category  and I believe disparate industry users should seek solutions from suppliers that have history and expertise within their industry  overall management of an organization's portfolio of physical, human, financial and real estate assets will become increasingly critical. In addition, senior management will demand the ability to monitor acquisition, use, depreciation and disposal of assets across the enterprise, as well as the ability to balance resources dedicated to each asset category, for example sourcing a more expensive hard drive to accelerate a mobile user returning to revenue-generating activities. Additional benefits accrue from applying traditional asset management approaches, such as asset turn velocity, return on assets and incremental asset investment versus incremental profitability, across real estate, human resources and capital-asset categories.