Plugging the Asset

Management Leak
Reduce costs and boost working
capital by managing operating
assets like inventory
By Thomas Jones and Stephen Ambo

Imagine a mobile operator that stocked

handsets to sell in company owned retail
locations. But the operator didnt have
an understanding of how much inventory
was on hand, whether it was selling, and
whether it was generating any economic
benefit. Highly unlikely. Yet, when managing
operating assets, many communication
companies approach these expenditures
in precisely such a way. The result is
an unnecessary drain on resources at
a time when competition is fierce and
capital investment needs are soaring.

Companies in communication industries

are relentlessly pursuing cost reductions
and better management of capital assets.
They face daunting challenges. What
were once fast-growing markets are
now mature. At the same time, rapid
technological change and customer
demands to do more with their devices
are driving tremendous needs for capital
investments. Capex expenses for global
telecommunication companies are
expected to exceed US$ 400 billion by
2014 (See figure 1).

Although companies are becoming more

vigilant in their quest for efficiency,
these efforts are leaking cash through
tremendous waste in the way they manage
operating assets. In our experience,
plugging the leak can reap significant
rewards. A typical communications
company with $20B in assets, for example,
can add an additional $100 to $200 million
to its coffers each year. Companies that
successfully plug the leak are becoming
industry leaders. Those that havent face
the threat of becoming laggards.

$400

$400

$350

$350

$300

$300

$250

$250

Billions

Billions

Figure 1: Global telecom capex by continent

$200

$200

$150

$150

$100

$100

$50

$50

$0

$0

North America
North America
Middle East
Middle East
Central/South
America America
Central/South
Africa

Africa

Eastern Europe
Eastern Europe
Western Western
Europe Europe
Asia/Pacific
Asia/Pacific
2008

2008 2009

2009 2010

2010 2011

2011 2012

2012 2013

2013

Source: Light
Reading
Insider Insider
Source:
Light Reading

Hallmarks
of Effective
Operating Asset
Management
Market pressures are driving
significant scrutiny of capital
expenses. Nonetheless, at many
companies millions of dollars
are still falling through the
cracks. Companies that have
successfully stemmed the flow
have transformed how they view
and manage operating assets.
They have developed and mastered
three essential principles:

Understand Total Cost of

Ownership
Successful companies approach
operations assets with a view that
encompasses the total cost of ownership
which most companies still view within
silos. Lets look at an example from the
cable industry. The operations group
of a cable operator will often face the
question of repairing versus replacing set
top boxes. The cost to replace each box
could be several hundred dollars. The cost
to repair, including expected service calls,
might be half that. A new box, however,
can be treated as a capex expense and
the quarterly or annual bottom line might
benefit for a particular group because
it can amortize and depreciate. Costs to
repair the boxes would come from the
groups operating budgets which may
be strapped. So the decision is made to
replace the boxes even though it is more
costly to the company overall.

Manage Assets like

Inventory
An inventory-oriented approach to
managing operating assets complements
a total-cost-of-ownership view. All too
often significant resources are wasted
because a company cant efficiently order
or replace needed assets. A facility in
Indiana has spare equipment sitting idly
while a facility in Ohio is scrambling to
find the same unit and must order and
airship a new one. A facility with newer
infrastructure disposes of an obsolete
component that another location with a
legacy system desperately needs.
The ability to track assets and centrally
manage them enables another powerful
process: cradle-to-grave planning
of major asset purchase and use.
This capability is critical for todays
communications companies. As the
pace of change accelerates, equipment
can be recovered from one part of the
network and redeployed elsewhere.
The result is minimized capital spend
with maximized return on assets.

Plan Systematically
A systematic approach to managing
operating assets holds the effort
together. That approach marries
inventory management discipline
with the collaborative nature of
sales and marketing planning
seeking input while driving common
understanding, objectives and buy-in.

The Benefits
of Effective
Operating Asset
Management
The benefits of transforming how
operations approach asset management
are significant. Network downtime can
be reduced since parts and components
can be quickly deployed to where they
are needed. Asset utilization is fortified
since equipment can be redeployed and
obsolescence planned fordone well,
in fact, a company may never have
to purchase a spare part for an older
network. Fortified asset utilization
frees working capital because assets
arent idled or purchased unnecessarily.
New working capital reduces capital
demands and allows organizations to
devote resources to more pressing
concerns. The final benefit: customer
satisfaction grows since more resources
are available to meet their needs.

Network downtime can

be reduced since parts
and components can
be quickly deployed to
where they are needed.

What Stands in
the Way?
Big-picture, money-saving decisions
are usually hampered, even thwarted,
by these four challenges:

Information Gaps
Organizations rarely have clear visibility
into the operating assets they own or are
about to buy. Items are often purchased
for a specific project or implementation.
However, the purchase and use is rarely
captured at the corporate level.
Information quality is another obstacle.
Systems may exist, but are infrequently
updated. Multiple systems amplify
these obstacles. Even if an asset
has been tracked, its whereabouts
can be difficult to extract: different
functions within a company may use
different names for the same thing.

Technical Barriers
Groups within a company can easily
choose non-standard or non-compatible
hardware since there no guidelines
preventing such choices. Relationships
with existing suppliers, along with
the incentives they offer, magnify the
problem. Mobile phone operators, for
example, often use different suppliers
in different parts of the countryfor
radio access network equipment.
In addition, assets are often acquired
without regard to their interoperability or
even knowledge about what components
are being purchased in different locations.
Such disconnects proliferate the
number of items in the installed base.

Process Limitations
Unlike inventory investments, asset
purchases are managed through capital
budgeting processes. Typically conducted
annually, these processes can be quite
inflexible. Since operating assets are
not viewed as inventory, their purchase
falls outside the rigor and dynamic
flexibility of inventory management.
ERP and other planning systems dont
help much either. They usually dont
support asset management from an
operational perspective and can impede
even the most basic planning efforts.
A lack of asset lifecycle management
processes is also a debilitating drain on
resources. Many organizations dont
even have one. Companies typically
plan for the initial deployment of an
asset, but there the process ends. As
a result, parts are replaced that need
not be, and existing infrastructures are
upgraded at unnecessarily high costs.
The absence of well-tuned logistical
processes also stands in the way. If a
company doesnt understand what assets
it has and where they are, it cant deploy
them effectively. Not infrequently, assets
are purchased in advance for a given
project, often to make use of available
budget before a fiscal close, only to
be idled if the project is cancelled. The
assets are rarely used elsewhere.

Organizational Misalignment
Like many corporate-wide challenges,
perceptions and incentives across
a company can differ widely and
significantly impede progress.
Responsibility for asset purchase and asset
operation and maintenance often fall to
different parts of the organization. Poorly
conceived incentives can dangerously sub
optimize the efforts. For example, local
market units often have excess assets that
could be used in another location. But the
unit with the extra assets may have to
bear the OPEX costs of transferring them
while the receiving unit enjoys the capital
savings. Moreover, managers may feel
forced to spend existing budget fearing
future budget constraintswhether or
not the purchase meets existing needs
in the most cost-efficient way. Such
expenditures are often justified through
the belief that the asset will be used
eventually. Thats rarely the case.
4

How to Plug the

Leak
Companies that successfully overcome the
impediments to effective operating asset
management transform how they view
and manage these assets. In particular,
the operations organization adopts new
approaches, tools and processes that
create an enterprise-wide capability.
Achieving organizational alignment is
the bedrock. The first step is to eliminate
the organizational silos of supply chain,
finance, engineering and operations.
Common metrics and objectives are
central. Our set-top-box example
illustrates. In deciding whether to replace
or repair the boxes, engineers may
strongly advocate for replacement: the
new boxes provide better performance
and are covered by warranties.
Customer technicians may also vote
for replacement. These professionals
need to be confident that the product
works, since they are usually tasked with
completing a set number of work orders
per day: experimenting with replacement
parts or other solutions can take time and
cause them to miss targets. The finance
group, on the other hand, may stress
minimizing costs and argue that it pays
for customer technicians to devote some
extra time to service existing boxes.
Each of these perspectives is valid. But
none are made with a holistic view
of the total costs and benefits to the
company. Consistently making asset
decisions within this broader context
is practically impossible without
strategic alignment and metrics that
eliminate conflicting objectives.
Some organizations go so far as to
establish a formal asset management
function to drive the process.

Strategic objectives and aligned

metrics anchor another the next step:
a collaborative planning approach. This
approach should mirror traditional sales
and operations planning techniques.
These techniques engage all stakeholders
and ensure internal customers are on the
same page and satisfied. Tight linkages
between functions such as engineering,
finance and operations, creates
transparency, common understanding
and the ability to act in concert.
Fine-tuned logistics is where the
rubber meets the road. Companies that
excel at operating asset management
are not only able to track and deploy
assets, they have created well-oiled
warehousing and delivery networks that
can respond quickly. A lean and efficient
distribution network minimizes the
number of locations where expensive
assets can accumulate. It also facilitates
redistribution in a seamless manner.
Finally, technology is the critical
enabler. Successful companies avail
themselves of systems that provide
complete, consistent information
on assets. They use technology to
eliminate any information gaps.
The economic environment is unsure.
Customer demands and usage of
communication devices are calling for
significant boosts in capital investments
at a time when markets are maturing.
By transforming asset management
from a narrowly defined function
to a core capability, companies can
achieve significant savings and direct
those resources to more valuable
uses. Asset management is becoming
the new frontier of high performance
in the communication industries.

About the Authors

About Accenture

Thomas Jones is a Senior Manager in

Accentures Communications, Media, and
Technology practice. He has worked at
multiple asset intensive clients focusing
in the communications industry. He
has significant experience in asset
management, planning, supply chain
transformation, inventory management,
sales and operations planning, and network
optimization. Based in Overland Park,
he can be reached at thomas.m.jones@
accenture.com

Accenture is a global management

consulting, technology services and
outsourcing company, with more than
246,000 people serving clients in more than
120 countries. Combining unparalleled
experience, comprehensive capabilities
across all industries and business functions,
and extensive research on the worlds
most successful companies, Accenture
collaborates with clients to help them
become high-performance businesses and
governments. The company generated net
revenues of US$25.5 billion for the fiscal
year ended Aug. 31, 2011. Its home page is
www.accenture.com.

Steve Ambo is a Senior Principal in

Accentures Communications, Media, and
Technology practice. Steve has developed
supply chain and business strategies for
some of the leading communications
companies in North America. He has
extensive experience in asset based supply
chains such as network infrastructure
and customer premise equipment.
Based in Atlanta, he can be reached at
stephen.d.ambo@accenture.com

Copyright 2012 Accenture

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