What Is EAM: Optimizing Fixed Assets With Enterprise Asset Management

Gabriel Gheorghiu
Gabriel Gheorghiu  |  November 9, 2018

While smart devices and tools only recently became available for consumers, businesses have been using extremely sophisticated equipment for decades.

In some industries such as manufacturing, oil and gas, mining, or utilities, equipment is critical for daily operations and the profitability of the company. All these asset-intensive companies also require robust software — including enterprise asset management (EAM software) — to manage their fixed assets.

Business diversification is another reason why some companies need EAM solutions. To expand to new markets and increase their customer base, many manufacturing companies now offer maintenance services for the equipment they sell.

EAM software can solve many problems, but it will not thoroughly address the need for a strategy for asset management that is consistent across the business units of the company.

This article will, therefore, describe various types of fixed assets, their importance for different operations, and how EAM can support companies in implementing a strategy to maintain and optimize fixed assets


What is EAM?

Some say that people are a company’s most important asset, but EAM has nothing to do with HR or talent management. EAM is all about fixed assets, which are defined as a “long-term tangible piece of property that a firm owns and uses in its operations to generate income.”

Note the word “long-term.” These assets should not be used for less than a year. Other terms for fixed assets are property, plant, and equipment (PP&E) and capital assets. (Source)

There is also the accounting side of fixed assets. While EAM systems do not manage this side of fixed assets, they do store and manage much of the information needed for that purpose. A few examples include the price of acquisition and the maintenance costs of assets, as well as depreciation methods that track the value of an asset during its life cycle.

To better understand the importance of EAM software, let’s take a look at which companies are more likely to benefit from it and which kinds of fixed assets this type of software manages.


Where is EAM used?

Almost any company that relies on some physical infrastructure and pieces of equipment may benefit from EAM. As a rule, the more complex the equipment, the more a company  needs EAM.

For instance, a business will not require EAM if it only needs to manage a network of computers and a few printers. If a company has a fleet of trucks to maintain, it may not need EAM either, because there are specialized solutions for this type of maintenance. However, if a company uses heavy machinery for manufacturing, it is unlikely it will be able to optimize the use of its fixed assets without EAM.

As one may expect, there are exceptions to the rule mentioned above. Here are the most important:

  • Computerized maintenance management systems (CMMS software) products can be very similar to EAM. CMMS is usually a lighter version of EAM, but the two terms are often used interchangeably, and some vendors provide both types of software.
  • Facility management software is a type of software focusing exclusively on the management and maintenance of buildings. So if you need to manage equipment and buildings, it’s preferable to use EAM.
  • Industry-specific EAM, such as maintenance, repair, and overhaul (MRO) is preferable to generic EAM. MRO software focuses specifically on airplane maintenance, and most EAM solutions do not offer robust features for this industry.

All these solutions are used in various industries but also used to manage different types of assets. Here are the main fixed asset categories and how they’re different.

EAM and Fixed Assets

There are three major types of fixed assets: equipment, buildings, and infrastructure facilities.

Equipment can mean anything from computers, forklift trucks, or heavy machinery used in mining of oil and gas. To differentiate between various types of equipment, we need to look at how they are used and maintained but also consider their monetary value.

  • Vehicles are often considered to be just a type of equipment, but they have a few characteristics that differentiate them from other fixed assets. First of all, vehicles are used mostly outside of company property, and it is quite difficult to track them. Another differentiator is that vehicles can be used directly or indirectly by the public and can have an impact on public safety. Finally, there are many categories of vehicles such as cars, trains, ships, and so on, which can be used for various purposes such as transportation of people and goods.
  • Heavy machinery refers to complex equipment used in manufacturing, energy, construction, agriculture, or utilities. Some examples of heavy-duty assets are cranes, harvesters, excavators, and tunnel boring machines. Heavy equipment is usually costly to own and maintain, which means that companies need to track their costs and benefits carefully to optimize their use. Another characteristic of this type of equipment is their rarity, due to their high production costs. Some heavy equipment can also be customized for specific industries, such as construction or mining, and cannot be used in other sectors.

Buildings can be used for personal and commercial purposes or both. Typical buildings require mostly basic maintenance and repairs activities, but industrial buildings are much more complex. Companies using industrial buildings need to manage the infrastructure of the building, such as electrical networks, as well as the assets being used inside the facility, such as conveyor belts or assembly lines.

Infrastructure usually refers to public facilities such as highways, airports, railways, bridges, or electrical and telecommunication grids and networks. These facilities can be used by individuals and by companies for activities like transportation or communication. Infrastructure is complicated to build and maintain and can have a significant impact on public safety or national security.

A subcategory of infrastructure assets, linear assets, refers to assets that are defined by length, such as roads, highways, power lines, pipelines, or railway tracks. The primary challenge with this type of asset is that it is tough to identify a problem when it occurs. When a piece of equipment stops functioning, it is easy to identify, but when managing 1,000 miles of railway tracks, the problem can be anywhere. To maintain linear assets, they need to be divided into segments that are easier to handle. 


Benefits of EAM

Unless a company only uses basic tools and equipment, such as computers or mobile devices, it will  need some kind of software to manage fixed asset inventory and costs. As described below, there are many software tools and solutions that a business can use for asset management, but most of them are not for the enterprise level. As the acronym implies, EAM focuses on large companies with complex operations that require the use of a large number of assets of various types.

Despite a relatively high initial investment, EAM software can bring substantial cost savings and benefits, such as:

  • Improving employee productivity by assisting them with operations that are too difficult or too dangerous for humans.
  • Enhancing quality levels through better precision and by reducing defects. Better quality also helps with compliance and to avoid recalls.
  • Increasing production volume for manufacturing companies, as well as the ability to adjust it based on demand.
  • Ensuring the safety of the employees, contractors, or suppliers, and in some cases even customers and consumers (in retail or infrastructure).

All this is great, but to achieve these benefits a company will have to be ready to invest not only in new assets and software but also in training employees to use these tools and changing business processes to improve collaboration.

A word of caution: Adopting EAM in business environments that aren’t complex enough to justify it can have the opposite effect of what one expects. In other words, it may slow down a company’s employees, thus negatively impacting their productivity. Also, if a business does not change management and invest in employee training, its fixed assets and the EAM software will not be used to their maximum potential.

EAM objectives

The primary purpose of any fixed asset is to help companies and their employees deliver products and services faster and better.

In some cases, fixed assets and tools are mostly used for safety or compliance purposes, which means that they are not adding value or directly contributing to the profitability of the company.

Regardless of how companies use fixed assets, some kind of software is needed to track them. EAM provides the most advanced functionality for fixed assets and can be used to manage all phases of the asset life cycle:

  • Acquisition (including leasing contracts and financing)
  • Installation and calibration before use
  • Maintenance and repairs during its use
  • Obsolescence and disposal at the end of life

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Engaging with customers and prospects is becoming more critical as new generations of consumers prefer direct communications to traditional content such as blogs and articles. An increasingly important form of engagement that can also help you promote your business is customer service.

Enterprise asset management strategy

A company’s EAM strategy depends a lot on how it intends to use fixed assets. A business will first need to determine a plan to buy or rent assets or both. Either way, it’s necessary to make the best use of fixed assets, because they are expensive and a business cannot afford to have them idle for too long.

Besides acquisition or rental costs, there are also costs related to maintenance and repairs. Not to mention the energy, gas, or oil that they consume. All these costs need to be monitored to make sure that using fixed assets does not become overly expensive, which may impact the profitability of your company.

Finally, even though we like not to think about the end of life in general, that needs to be planned in advance for fixed assets. Disposing of old assets is critical for several reasons:

  • They may be unsafe, which is the case for abandoned buildings or equipment used in highly toxic environments.
  • A business may still need to maintain them, just to keep them safe, even though they are not in use.
  • They may take up space, which can be a big problem if a business has a small warehouse or production facility.

Based on a company’s strategy, it may want to consider either buying or renting assets. Here are the pros and cons of both options.

Buy or rent?

Over time, people traditionally preferred to own land, homes, cars, etc.; the same applied to businesses until recently. All this is changing, now that technology allows companies to provide tools as a service. Another reason why companies may prefer renting instead of buying fixed assets is that the financial burden on the company is much lower. In the long term, though, a company buying its own assets may prove more cost-effective, but that will only happen if it uses them often enough to generate revenue that offsets the costs.

A third alternative is to buy fixed assets that needed on a regular basis and rent the ones that are only used occasionally. There is also the option to purchase used equipment—just make sure that you test it beforehand and try to get at least a limited warranty.

Here are a few companies that rent or sell equipment for various purposes:

Optimize use

Whether a business buys or rents fixed assets, its goal should be to use them optimally. Companies should find a delicate balance between trying to use fixed assets at their maximum capacity and avoiding having idle assets for long periods of time to maximize an investment. The problem with using assets at their full capacity is that they may break and a business will need to invest more to keep using them. When unused for long periods of time, fixed assets can deteriorate, and companies still need to invest in storage and maintenance.

One way to estimate the optimal use of a piece of equipment is to try to understand how its costs compare with the savings it generates. Here’s an example:

what-is-eam

In this example, the savings exceed the costs, but if a business wants to double its savings, it will need to double the output, and may need to make major repairs or even replace the equipment after a few years. This can dramatically increase the costs, and a company may not achieve the savings it expected.

This is a financial approach, but there are other things that companies can do to optimize equipment use. Here are some of them:

  • Find the best mix of fixed assets that can function together seamlessly. This is not only about technological compatibility but also about operations.
  • The physical location of the equipment matters. On the shop floor, for instance, a piece of equipment may create bottlenecks when not appropriately placed.
  • Updating fixed assets to use the latest technology can prolong their life, but it also requires extra investments.
  • Rent inactive assets to other companies that may need them and cannot afford to buy them.

Manage costs

Fixed assets can be expensive, and their maintenance can also be costly. It is therefore critical for companies to track all costs related to their fixed assets. For an asset to be efficient, the financial equivalent of its contribution to the company should be higher than the sum of the acquisition cost and any other expenses.

There are two main types of costs that companies need to track for fixed assets: ownership costs and operating costs. Here’s how they’re different:

  • Ownership costs include the purchase cost as well as charges for significant repairs, taxes, insurance, and storage. The initial acquisition cost is usually high, and the investment is allocated across multiple financial periods.
  • Operating costs include fuel and other consumables such as oil, electricity, or lubricants, maintenance, parts (such as tires), and service contracts. These costs are relatively low but can accumulate over time, especially when repairs are performed very often or the equipment consumes excessive amounts of oil or energy.

The primary challenge that companies face when managing fixed asset costs is that the information they need is scattered across multiple systems such as accounting, ERP, EAM, and even spreadsheets. Since fixed assets can be in use for years, even decades, cost information can get lost or captured inaccurately. It is not unusual for companies to have a hard time estimating total costs for a piece of equipment at the end of its life cycle.

End of life

It would be best if a company planned in advance for a successful asset disposal; otherwise, it may impact operations and cost money (even though it is no longer in use). Here are a few things that a business needs to take into account to plan for the end-of-life of an asset:

  • Does it need to be replaced? If the equipment a business intends to dispose of is an essential piece of business operations, then it will need to make sure that it will be replaced. It would help if the company acquired the new equipment before the old one is obsolete to limit the disruption to operations. Depending on the fixed asset, it may require installation, calibration, and testing before use.
  • How to remove it can be a huge pain, especially for equipment that was installed a long time ago. Sometimes, industrial equipment was included in the structure of the warehouse or production facility, which makes it very difficult to remove.
  • How will it impact operations? Many companies built their infrastructure by adding all kinds of new tools and equipment that are more or less compatible, so removing one of them may slow down or completely stop operations, such as production.

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Choosing a platform for asset management

Depending on the types of fixed assets a business needs to manage, users can choose between a multitude of software options, from calibration and asset tracking tools that can only be used for specific activities, to enterprise asset management software that encompasses all of the features required by large companies.

Other factors that may impact the software selection process for asset management are:

  • The cost of the various software options, which can vary a lot depending on the complexity of the system.
  • The number and type of geographical locations where multiple types of asset management software are needed.

Here are a few examples:

Industry

Services

Distribution

Manufacturing

Construction

Utilities

Number of Locations

High

Low

Low

Medium

Medium

Number of Assets

High

High

Medium

Low

Medium

Unit Value

High

Low

High

Low

High

Need EAM?

Yes

No

Yes

No

Yes

For instance, a services company with many locations, using a high number of assets of high value, will need EAM, while a construction company using few assets of low value will most likely not benefit from this type of software.

The fact that a business may not need EAM doesn’t mean that it should not use any software for asset management. Let’s take a look at different types of solutions for asset management, what they do, and how a company can benefit from using them.

EAM software

EAM provides complete features for asset management, such as:

  • Asset hierarchies and portfolios
  • Inventory management for assets and parts
  • Asset allocation to various locations and operations
  • Schedule maintenance and repairs for assets
  • Compliance with safety and environmental laws
  • Asset tracking across business units
  • Monitoring the costs to own and operate assets
  • Management of service requests and work orders
  • Asset tracking using barcodes and GIS technology
  • Asset performance reporting and analytics

While EAM is the most robust software type for asset management, there are a few solutions that specialize in the gaps left uncovered by EAM, such as:

  • Asset performance management software focuses on fixed asset optimization rather than on tracking the inventory and costs of the assets. Some EAM vendors provide features, modules, or separate products for asset performance management, but there are also providers that specialize in this type of software.
  • Asset lifecycle management software tracks fixed assets from acquisition to disposition. As mentioned above, not all EAM solutions can be used to manage fixed assets during all stages of their lifecycle. On the other hand, asset lifecycle management software does not always provide the robust features usually delivered by EAM.

Besides these types of software that are used by large asset-intensive companies, other options can be beneficial to small- and medium-sized businesses.

Other software for asset management

Some of these products provide similar features to EAM, just not as robust, while others focus on particular operations needs.

Computerized maintenance management software (CMMS software) is a light version of EAM, which has been designed for small and medium businesses. This type of software includes most of the modules delivered by EAM, but its features are not as advanced. CMMS is also more affordable and can be a good option for large companies with small maintenance teams.

Facility management software focuses on buildings for both commercial and business use. The primary purpose of facility management software is to keep buildings safe, clean, and compliant. Facility management provides features for maintenance and repairs across multiple locations but cannot be used for major projects that alter the infrastructure of a building.

Plant management software helps manufacturers manage their production facilities. This type of software is more advanced than facilities management solutions and offers features to maintain the infrastructure of complex chemical plants, oil and gas refineries, or aerospace and defense manufacturing facilities.

Asset management tools

Asset tracking allows companies to quickly locate their fixed assets. Some companies, such as manufacturers, need to track their fixed assets across multiple production locations, while companies specializing in field service activities monitor the use of their assets at the customer's site.

Predictive maintenance helps companies implement proactive maintenance operations to prevent problems. Typical maintenance activities are planned based on a predefined schedule, while predictive maintenance is based on monitoring assets and addressing any issues before they become critical.

Related software

The following types of software are often used together with EAM for purposes such as tracking costs, inventory, and fieldwork, or to comply with safety regulations.

ERP systems and accounting software are used mostly to track fixed asset depreciation and manage related costs. These features are usually not included in EAM or any other asset management software. On the other hand, ERP and accounting databases do not contain enough data to manage assets from an accounting perspective. It is therefore vital that EAM integrates with ERP and accounting to transfer information on the costs of repairs and maintenance.

Field service management software is critical for companies that need to service equipment for their customers. Equipment manufacturers often provide services such as installation, calibration, or repairs for the fixed assets they sell. There are also companies which do not sell assets but offer maintenance services. By using field service software, companies can dispatch technicians to customers and track the efficiency of their field activities.

Environmental health and safety (EHS software) helps companies avoid causing harm to their employees and damaging the environment. EAM needs to integrate with EHS, because fixed assets can be dangerous when not used properly or when malfunctioning. Also, equipment that uses oil and lubricants can create environmental problems.

Inventory management software can be used to track small pieces of equipment and to ensure that companies have the necessary spare parts to repair fixed assets when needed. Companies may need to monitor the inventory of the spare parts for their assets, their customers, or both.

PLM software and CAD software provide critical information required to install and maintain equipment. Since fixed assets are designed using CAD or PLM, these systems contain technical specifications, drawings, and even 3D models that are not usually managed by EAM software.

EAM vendors take different approaches to providing these features to their customers:

  • Functionality, like inventory management, is included in the EAM system, but it may not always be robust enough for large companies.
  • Some vendors have acquired solutions, such as field service management, and included them in their offering.
  • For sophisticated software like PLM, EAM vendors prefer to partner with providers that specialize in this type of software.
  • Most EAM providers offer connectors and APIs to allow their customers to integrate EAM with various kinds of software.

New technology disrupting the EAM market

New technologies for the internet and mobile devices are changing the way companies use and manage fixed assets, which means that EAM is also impacted. Here are a few trends that have the potential to disrupt the EAM market:

The internet of things (IoT) promises to connect millions (if not billions) of devices on a global scale. The term devices doesn’t only refer to smartphones or tablets but to any equipment or tool that can be connected to the internet. In industries such as manufacturing or construction, this concept isn’t new. Companies have been using a mix of software and hardware, called supervisory control and data acquisition (SCADA), to transfer information between equipment, software, and sensors. The difference is that SCADA systems were mostly implemented locally using the physical IT network of the company, while IoT uses the internet.

Here’s an example of how IoT helped a maintenance company improve its SLAs by using IoT: https://learn.g2crowd.com/transforming-business-iot-erp

Artificial intelligence (AI) is already making fixed assets smarter and more efficient. Old equipment will probably be replaced with robots sooner than later—in 2017 alone, almost 400,000 industrial robots were sold worldwide, up from 97,000 in 2004. As described in the graph, the growth in this market had been relatively slow until 2011, but it more than doubled from 2011 to 2017.

EAM-technology
Find more statistics at Statista

3D printing may impact asset management in two ways: replacing equipment used to manufacture components that can be printed and allowing companies to print parts for fixed assets instead of buying them. For instance, instead of using machines and personnel to manufacture automotive parts, manufacturers or car dealers can just 3D print them. Similarly, when a company needs a spare part to repair a piece of equipment, they can print it instead of ordering it and waiting at least one day to receive it. For now, this can only be done for simple parts, so the utility of 3D printing is still quite limited.

Virtual reality software and augmented reality software can be used to design fixed assets and to train employees on using sophisticated equipment.

For design, AR and VR can be used to simulate the use of a fixed asset in different environments and identify how it will perform. Designers can also create scenarios to test how the equipment will function in various conditions such as cold or high humidity.

Another application of VR technology for asset management is virtual training, which allows employees to learn how to use equipment without the need to use physical tools. This is beneficial because it can avoid the potential accidents, but it also gives employees more time to practice.

Robotic processing automation software has the potential to disrupt all business software market segments, and EAM will not be spared. Robotic process automation (RPA) helps companies create bots to automate routine tasks. Since most asset management tasks are repetitive, they will likely be performed by bots in the near future.

As opposed to humans, bots don’t need to use traditional software to do their job. This means that EAM software will have to adapt and focus more on advanced features that will still be used by humans.

What the future holds for EAM

As automation takes over repetitive and dangerous tasks, EAM may lose its importance in some industries or business activities. For instance, a fully automated factory (this already exists BTW) will not require forklift trucks or conveyor belts. It will use mostly robots, which also need maintenance that will probably be too complicated for the company to manage. Even some of the most sophisticated assets used nowadays require maintenance by the manufacturer.

This may not happen very soon, but if we combine robots with artificial intelligence, they may not even need much maintenance. Intelligent robots will be able to calibrate or recharge themselves without human intervention.

On the bright side, EAM won’t disappear, but it will evolve to adapt to large networks of assets. With the advent of IoT, companies will be able to connect hundreds, maybe thousands of assets all over the world. Not to mention that home equipment, such as fridges and TVs, will be directly connected to the manufacturer, who will be able to maintain them remotely. (John Deere is already doing this for its tractors.)


Conclusion

While it can be very beneficial for asset-intensive companies, EAM is complicated and expensive. It is therefore crucial for buyers to understand whether they need EAM or if they can use alternatives like CMMS or specialized software, such as facility management.

It is also vital for EAM buyers to have a strategy for asset management, because the software itself supports decision making but does not replace it.

Finally, buyers need to estimate and compare the costs of implementing and maintaining EAM software and the potential benefits of using this type of solution.

To be successful, companies choosing EAM software should clearly define why they need this type of software, how it will help them, and how it aligns with their overall business strategy.

Ready to learn more about enterprise asset management? Find the best EAM software in 2018 from real users.

Gabriel Gheorghiu
Author

Gabriel Gheorghiu

Gabriel’s background includes more than 15 years of experience in all aspects of business software selection and implementation. His research work has involved detailed functional analyses of software vendors from various areas such as ERP, CRM and HCM. Gheorghiu holds a bachelor's degree in business administration from the Academy of Economic Studies in Bucharest (Romania), and a master's degree in territorial project management from Université Paris XII Val de Marne (France).