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BY Nick Xenakis
Manufacturing executives admit there are costly challenges when long-term planning and capital allocation decisions are not optimized. Studies reveal widespread dissatisfaction with current processes, with over half of manufacturing executives citing a need for strategic rethinking and nearly 80% identifying room for improvement. Key barriers include limited data access (52%), insufficient data analysis capabilities (42%), and a lack of confidence in effective capital allocation (60%). Outdated methods, internal politics, knowledge gaps and market pressures complicate decision-making, leading to inflated costs and missed opportunities. The need for improved data-driven decision-making is underscored by KPMG's 2024 CPG report, highlighting investments in data and analytics as a top strategic priority.
AssetLens is a data-driven and operationalization-ready asset investment planning (AIP) platform built and deployed by 1898 & Co., part of Burns & McDonnell. AssetLens was created for manufacturing leaders to modernize and improve how infrastructure and capital asset expenditures are developed and assessed.
Within AssetLens, operational and financial information, which can often be sequestered or subjectively interpreted, is standardized, centralized and combined with the experience of 1898 & Co. consultants. One source of the truth is obtained for:
Manufacturers using AssetLens consistently report a strong return on their investment (ROI) through enhanced investment prioritization methods, reduction in excess and overlooked costs, and streamlined processes.
In the food and consumer products manufacturing industry, the percentage of sustaining capital expenditures set aside for base business can range from 25% to 70%. Much of this percentage goes toward ongoing asset replacement or refurbishment projects balanced with regulatory, safety and quality improvement needs. Companies with a higher number of assets, older infrastructure, shorter on staff or have an aggressive acquisition strategy may find it necessary to allocate at the higher end of the percentage range to keep operations stable.
1898 & Co. has found that at least 5%-15% of base business spending is either overspent (inflated budget), underspent (significant backlog) or incorrectly allocated (project A instead of project B). Reprioritizing these dollars to higher-value investments supported by data can yield a number of benefits, while the planning process itself can be 30%+ more efficient.
Reprioritized, more accurate investments may lead to:
Many organizations struggle sifting through fragmented information and subjective project justifications, complicated further by large spreadsheets to manage. There is often a consensus toward room for improvement trying to extend forecasts beyond one to two years. Manufacturers also tend to play it safe and keep certain category spending constant from year to year, with a use-it-or-lose-it mentality.
Benefits of improved accuracy are highlighted by Verdantix’s Global Corporate Survey showing the importance of a single source of truth (91% of respondents). A 2016 report highlights that forecasts within 5% of actual results grew shareholder value more than 30% faster across a three-year period. Accurate forecasting is a business imperative and it boosts investor confidence.
Asset-specific templates are used in AssetLens to create a single standardized source of health and risk insights while also allowing the user to evaluate remaining life, book value and initiative impacts. No longer is “old/need to replace” a valid and acceptable project justification if it’s presented without data.
Project request and planning functions within AssetLens tie investment decisions back to data, giving the user a way to evaluate cost and benefits. Capital forecasting is often extended beyond five years in this environment and analysis across operating sites is standard and agile.
Two sources of inflated and overlooked costs are downtime and maintenance spending. Manufacturing downtime averages $36,000/hour for fast-moving consumer goods and can reach $150,000 for small and mid-size companies. Delayed investments are often the culprit for higher maintenance costs, with 62% of companies reporting above-inflation increases, as well as safety risks and reduced efficiency.
Organizations that are ineffective in managing asset life cycles and health of infrastructure tend to spend more on spare parts, maintenance activities and outsourcing contractor help. Profitability quickly erodes during emergency/unexpected capital events and when production lines are not operational.
AssetLens is used by organizations to manage operations within a tolerable level of risk, proactively identifying intervention needs when data deems necessary; this could be allocating to asset replacements or a need for ongoing maintenance. The goal is minimizing downtime and avoiding unnecessary spending, which can equate to several percentage points in excess cost avoidance.
Annual planning and master planning is time-consuming, often delaying project execution and costing manufacturers commercial opportunities. It is common to hear that 1%-5% of projects planned and allocated are not delivered in the same year due to inefficiencies and shifting priorities. Agility can be a challenge if insights aren’t available to identify when dollars can and should be shifted from one spend category to another.
Centralizing assessment and planning processes in AssetLens creates enterprise transparency, reduces manual effort and equips leadership to distinguish needs vs. wants more efficiently. Planning often happens faster in AssetLens vs. traditional planning methods. When planning happens faster, teams have more time to focus on detailed engineering or commercial negotiation, such as volume purchasing from OEMs on future projects to advantage pricing 10%-20%.
AssetLens helps manufacturers unlock cost savings, optimize budgets, keep teams focused on execution and align investments with business strategy. When building an ROI case for an asset investment planning solution like AssetLens, the following gains (or cost avoidance areas) are evaluated:
See a hypothetical case example for a midsized fictional company, Goshawk Manufacturing Co., to illustrate how gains affected their business.
Goshawk Manufacturing Co., a mid-sized manufacturer with $4 billion in revenue, $240 million in net income and $145 million in annual capital expenditure faced challenges in asset management spanning from accuracy, inefficiency and an inability to pivot as business environments changed.
Of Goshawk’s capital budget, 35% (~$50 million) was allocated to asset replacement and sustaining business need, with an additional $40 million (1% of revenue) annually on maintenance and repair (M&R). Past unexpected outages had negatively impacted profitability.
Goshawk implemented AssetLens to address these challenges and strengthen cash flow in a highly competitive market segment. AssetLens helped centralize the company’s data and information repository (single source of truth).
Critical blind spots in the capital plan development were revealed:
Cost savings and efficiency gains can be found through AssetLens:
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