Asset Utilization

Production demands are up…

Competition is intense…

Pricing pressure is increasing…

And your plant operations are stretched to the limit. It’s time to add equipment, right? Knowing the “right answer” to this question may be worth millions of dollars to your bottom line.

Because the cost for expansion is so high in this age of computerized manufacturing control, asset utilization has become a huge economic driver. The more it costs, the more important it is that your shiftwork operation is designed to maximize your return on those investments. This almost always means that the shift schedule should allow you to maximize your asset utilization.

How Much Can You Get Out of Your Shift Schedule?

Since there are 168 available operating hours in a week, 100% asset utilization means operating 168 hours/week. While it is impossible to achieve 100% utilization (because of maintenance and other operational needs), this is your starting point, and should be the standard for evaluating your asset utilization.

Traditionally, many manufacturing operations plan around a schedule that provides five days of coverage, 24 hours each day. This is a 120-hour planning week that, at best, yields an equipment utilization of 71.4% (120 hours/168 hours). Since part of this time is usually used for maintenance and operational requirements like product changeovers, the actual utilization is usually lower than this 71%. Depending on your industry you may be able to keep your equipment operating anywhere from 98% of the scheduled hours down to 60% or less of the scheduled hours.

If we assume a “typical” plant is able to operate 85% of the scheduled hours, the actual utilization will be 85% x 71.4% = 60.7% overall. This means that a typical facility running five days/week can improve its actual equipment utilization by about 24% (85% – 60.7%) on a 168 hour basis, or 40% (85%/60.7%-1) based on the current utilization. Another way to look at this is that the plant could improve its capacity by 40% without adding any new equipment, and while still performing all required maintenance and operational changes.

What Is the Value of Avoiding Capital Investment?

In addition to the actual purchase cost, adding new equipment requires reconfiguring the current operations, installation, training and startup costs. Assuming that all of these costs can be capitalized (not always true), the cost to expand on an annual basis is equal to the cost of capital for the investment.

Example: You are growing at a rate of 10%/year. Your current 120 hour/week schedule is overloaded and you are running 10% weekend overtime. This means you are running 132 hours/week, and your utilization is 67% (132 hours/168-hours x .85 = .67). You can invest $25 million today and handle three more years of growth, or you can expand your shift schedule to cover the demand, up to 168 hours/week (85% utilization). Expanding the schedule avoids the $25 million investment for about 2.5 years. At a 10% cost of capital, this saves you about $6.25 million. At that point when the investment is made, you can still handle three more years of growth. If you had not expanded your schedule, you would have six months before it was time to invest again – increasing your overhead costs even more.

Maximizing asset utilization allows you to minimize your investment costs and often save millions of dollars every year. Does this mean that all departments in all plants should operate seven days per week? Not necessarily. Some companies need to have reserve capacity available to address seasonal demands. It probably does mean you want to operate your most expensive and most efficient equipment seven days per week. This maximizes employee and equipment productivity, while leaving reserve capacity in the form of older equipment that can be pressed into duty when demand warrants it.

There are probably other reasons why you may not want to maximize asset utilization. But the economics suggest that you should carefully evaluate the costs, if you choose to under-utilize your assets.

Shiftwork Solutions can help you implement shiftwork systems that maximize asset utilization and plant competitiveness.

Call us today for a free consultation.