Asset Utilization: How To Calculate It, Key Metrics, and More

In the manufacturing sector, assets like machinery and equipment are expensive. As a result, smart manufacturers that focus on profitability want to ensure that their businesses get the greatest return on assets — but what's the best way to do this? Underutilizing an asset may extend its life cycle, but results in lower output and doesn't free you of maintenance costs. However, over utilizing assets runs them into the ground and leads to costly repairs and early replacement. So, how can you optimize your assets without shortening their life cycles?

By measuring asset utilization.

Asset utilization can apply throughout a factory, and it’s one of the most important metrics for measuring and achieving efficiency. In this blog post, we’ll look at how it’s defined and measured, and how to improve it.

What Is Asset Utilization?

Asset utilization measures how hard equipment, machinery, or a process is working compared to what it could do. This matters because:

1. It highlights maximum production capacity (without bottlenecks).
2. It reveals how and why time is wasted, which is what focuses and drives improvement strategy.
3. Production assets (fixed assets) incur fixed costs, regardless of whether or not they are used (depreciation is often chief among these). These costs are divided across the number of pieces produced, meaning that the fewer you produce, the higher the per-unit pricing.

You can measure asset utilization at different levels: individual machines or pieces of equipment, product lines or cells, and the entire operation. At the factory level, it’s often useful to measure the utilization of total assets. This is done financially, as the total value of sales divided by the total value of assets employed — in other words, the return on assets.

High asset utilization is generally a good thing, as it shows that equipment is being used productively. However, high utilization may also mean that maintenance is being deferred.

Conversely, low utilization is generally bad. It may indicate excess capacity, insufficient demand, or inefficiencies that reduce uptime.

The 4 Key Metrics in Asset Utilization

Reporting asset utilization with a single number is of limited value, as it doesn’t provide much context. There are four other metrics to consider that can help paint a more well-rounded picture of your organization's asset utilization:

1) Product Yield

Product yield is the ratio of good products in a batch to the total number of planned units. This is relevant for asset utilization because it can give you insight into which machines are working optimally and which are producing parts that get sent to rework.

To calculate product yield, you'll need a few variables: P (planned production units), G (percentage of good units in the batch), and R (percentage of bad units that were fit for sale after going through rework). Then, you can plug those variables into the following formula:

Product yield = (P)(G) + (P)(1 - G)(R)

2) Overall Equipment Effectiveness (OEE)

OEE is a widely used asset management metric. Its purpose is to identify production inefficiencies to help manufacturers take corrective actions.

OEE combines losses due to poor quality, equipment non-availability, and slow running into a single number. The formula is as follows:

OEE = Availability x Performance x Quality

You may notice that the formula for OEE consists of three other metrics: availability, performance, and quality. Here's how to calculate each of these:

Availability = Run time / Planned production time

Performance = (Ideal cycle time × Total number of units produced) / Run time

Quality = Number of good products / Total number of products

OEE is most useful when applied to specific machines or cells. When used as a measure for larger groups of machinery, it becomes less valuable because it doesn’t give good visibility into what caused the losses.

3) Unplanned Downtime

It’s good asset management practice to take equipment offline periodically for maintenance or changeovers, but this planned downtime should not affect output.

Unplanned downtime is when something unexpected stops a machine from running. This could be either a breakdown or a shortage of parts to process. An upward trend in unplanned downtime suggests insufficient or inappropriate planned maintenance or other mechanical problems.

Unplanned downtime = (Total downtime - Planned downtime) / Total time available

4) Maintenance Spend

Maintenance spending is an indicator of the age and condition of the assets used for manufacturing:

Maintenance spend = Total maintenance costs / Total cost of goods sold

A rising spend indicates that your manufacturing equipment needs more maintenance — and may also correlate with rising unplanned downtime. Changes to maintenance strategy (like increasing service frequencies) may help, but ultimately, you'll have to replace the old, inefficient equipment to reduce maintenance spending.

How To Calculate Asset Utilization in 7 Steps

Now that you recognize the value of measuring manufacturing assets' effectiveness, you can start by collecting data for manufacturing KPIs. Once you have this information, you can calculate asset utilization in seven steps.

1) Calculate the Annual Planned Downtime

Determine the planned number of hours equipment will not be available during the year. Information about planned downtime should be available in your maintenance management system (MMS) if you utilize one; otherwise, historical records may suffice.

2) Add in Lost Operations Time

Next, account for additional periods of lost operation, such as changeover times and holidays. Note that the default operational time for most assets is 24/7/365, so you'll need to determine any additional inactive periods for assets that have a different operations schedule.

3) Include Production Hours Lost

Consider how many production hours your business has lost due to low asset utilization. This may be due to low sales, customers lost to competition, changes in demand, supply chain issues, etc.

4) Factor in Unscheduled Downtime

This relates to equipment failures, breakdowns, or accidents that stop production. This data should be available through the MMS.

5) Note the Quality Losses

Hours spent making a product that you can't sell is time wasted. Look back at your product yield and convert the number of defective units into an equivalent production time.

6) Include Production Rate Losses

Although every machine or piece of equipment has a design production rate, they may be set to run slower to avoid quality problems or prevent unplanned breakdowns. Compare the actual output with the theoretical maximum to determine the equivalent number of hours lost.

7) Calculate Your Actual Utilization

Add all the lost, wasted, or otherwise unused hours identified in steps one through six. From this number, subtract the number of hours available in your data period — for example, if it's a year, you will subtract 8,760 hours. The resulting number is the number of hours that assets were effectively utilized.

Many manufacturers prefer to express asset utilization as a percentage, which you can calculate with this formula:

Utilization = Actual utilization / Total number of hours available

Ways To Improve Asset Utilization

The asset utilization metric tells you how hard a machine, line, process, cell, or factory is working. It indicates where there's wasted time, which highlights inefficiencies and helps you focus on increasing total system output. This additional production dilutes overheads and raises the return on assets employed, so let's look at a few ways to improve asset utilization in your facility.

• Improve maintenance, repairs, and operations: Use data on equipment failures to drive better maintenance. Over time this will result in less unplanned downtime.
• Buy better, more reliable equipment: Failure rates rise as equipment ages. Replacing aging machinery will lower production costs and cut time lost to unplanned downtime, allowing higher run speeds.
• Provide better training to your team members: Training helps address many losses that negatively impact your asset utilization ratio. From better maintenance to lower-quality waste and faster changeovers, there isn’t an area where training won’t help.
• Incorporate preventative maintenance technology: When planning preventative maintenance, focus on work that will reduce breakdowns. This requires data, both in the form of historical records and also from sensors embedded in the manufacturing equipment. These can reveal trends that signal when maintenance is needed to avoid a breakdown.
• Adopt lean manufacturing practices: Lean is a proven manufacturing methodology for reducing waste and increasing inventory turnover. It focuses on helping businesses optimize their operations by simplifying processes and encouraging continuous improvement. Manufacturers like Harley-Davidson, Nike, and Ford have used lean manufacturing techniques to improve key metrics, including asset utilization and return on assets.

Monitor Your Asset Utilization More Accurately With Amper

To make lasting improvements within your asset utilization strategies, you must know where it currently stands. Compiling utilization data can be a challenge in many factories — it can sometimes be buried or inconsistently calculated, giving you inaccurate information that doesn't add much value to your operational strategies.

Machine monitoring tools like Amper's can combat these challenges by providing accurate, detailed insights into how your equipment performs over a day, week, or longer. Find out how Amper can help your facility get a handle on asset utilization.