Companies around the world own an estimated total of about €550 trillion-worth of industrial assets, according to a study by Roland Berger. These assets are the basis for generating profits, yet few companies are managing to put their assets to efficient use. Managing corporate assets, such as buildings, machinery and manufacturing equipment, efficiently is a key factor for overall success, enabling companies to successfully adapt to a changing market and evolving business model, says the report: The asset efficiency game. It found that businesses with optimal asset management are able to generate three times as much as the average company for each euro invested. The study also found that only one-quarter of companies actually manage their assets optimally. And 38 per cent of companies over-invest in assets, jeopardising their company's profitability long term. On average, companies can expect to see revenues of €2.5 for every €1 invested in the asset base, although leading companies are able to generate €7.8 for each €1 – and many companies generate less.
According to the report, which analysed data from 150 internationally operating German companies from a range of industries, looking at their fixed asset turnover ratio between 2012 and 2016. They found are four areas where companies can take action on asset efficiency:
- Strategy: Sometimes companies need to rethink their asset strategy, especially companies in shrinking markets with long-term asset investment decisions in their asset base. The report says that these companies “need to put clear plans in place for utilizing, modernizing or replacing assets as necessary in order to match the company's current strategy”.
- Operations: Companies should also look at how their assets are used, working to improve the availability and quality of operations, minimising downtime, maintenance times, setup times and throughput times.
- Financing: Asset financing could also help companies to reduce their capital costs by optimising their financing concepts. The report says: “The key is to ensure that they are exploiting equity and loans as effectively as possible, at the same time as making use of public subsidies and refinancing where appropriate.”
- Intensity: Looking at 'asset intensity' means that companies can optimise their production processes and outsource their non-core processes. This report states that this can “lead to the closure, renting out or divestment of assets or production facilities, which reduces the amount of capital tied up in assets.”
Where do you fit on Roland Berger's asset-efficiency matrix?
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