September 3, 2021MAINTENANCE
Asset Inventory Management: A Beginner’s Guide
Running a profitable business is an art form.
It requires the perpetual balancing of several moving parts, including the development of standard operating procedures, customer retention, and predictable profit margins.
Of course, the larger the company, the more assets it likely requires to meet its goals. And the more important asset inventory management becomes to scaling your efforts.
Reliable management programs are crucial to ensuring smooth operations, customer satisfaction, and cost conservation across company lines.
Unfortunately, it’s not uncommon for operational managers to procrastinate setting up efficient organizational systems when it comes to asset inventory management.
This article will take a closer look at the ins and outs of asset inventory management. After reading, you may even feel—dare we say—excited to begin cataloging assets!
Asset Inventory Management: A Beginner’s Guide
The prospect of inputting, tracking, and analyzing data for hundreds, if not thousands, of pieces of equipment can feel overwhelming!
Especially for hands-on managers who remain involved in day-to-day operations. With that said, taking the time to develop failproof asset inventory management systems can be invaluable.
When your team members can identify what you have, where it’s located, and how much it’s worth (within seconds), they’re poised to make better decisions autonomously. Let’s begin by dissecting the basic concepts involved by answering the following question.
What Is an Asset Inventory Management System?
Asset inventory management is a crossbreed between asset management and inventory management. This begs the questions: what are assets? And what is inventory?
According to the Corporate Finance Institute, assets are items that generate “positive economic benefits for organizations.”
Put simply, assets are resources that help organizations meet their production and service objectives. Without assets you wouldn’t have a business; you would have groups of people standing around with nothing to do!
Assets fall into several categories, including operating, non-operating, physical, intangible, current, and non-current assets. Examples of assets include vehicles, machinery, furniture, computer equipment, intellectual property, and even digital formats such as webinars.
Inventory, on the other hand, refers to both raw materials used during production processes and finished products available for sale. There are four different types of inventory, including:
- Raw Materials: Organizations use these items when producing goods. They are the building blocks that form final products.
- Work-In-Progress (WIP) Inventory: WIP inventory lists unfinished products still under production; it’s also sometimes referred to as intermediate goods.
- Finished Goods: Businesses also track inventory in the form of finished products ready for sale. These items do not require any further processing for use.
- Maintenance, Repair, and Operations (MRO) Inventory: An MRO inventory refers to a list of supplies that maintenance professionals need to perform their work.
Asset inventory management concerns itself with ensuring departments have access to up-to-date inventories of company assets.
Thus, an asset inventory management system helps streamline asset inventory management. It’s a combination of hardware and software technologies as well as processes that oversee the monitoring and maintenance of organizational assets and inventories.
Key functions of an asset inventory management system include centralizing asset repositories, monitoring asset events throughout their lifecycles, and evaluating performance.
Effective asset inventory management systems make it easy to track the movement of objects across organizational departments. Among other benefits, prioritizing asset inventory management helps streamline supply chains.
Why Does Asset Management Matter?
Asset management is a core aspect of risk reduction and value creation. Government institutions, non-profit organizations, large companies, and small and medium enterprises (SMEs) need to maintain consistent records of possessions. Doing so allows them to:
- Maintain Central Asset Repositories: Storing data in one place makes it easier to generate reports for maintenance scheduling decisions, claim warranties, and apply for asset insurance/financing services.
- Keep Tabs on Asset Whereabouts: Asset management is crucial to tracking the physical location of your assets. The right software allows you to see where assets are located, how they are being used, and if any changes have been made to them recently. You also can track equipment through its lifecycle to optimize its maintenance, upgrade, and disposal timelines.
- Monitor Idle Time: Tracking the utilization of key assets is essential to evaluating team productivity. Asset management systems make it easier to calculate and develop strategies to reduce idle time.
- Evaluate Asset Performance: Understanding the capabilities of your assets is crucial to gaining maximum value from them. Furthermore, you can identify the risks associated with the use of the assets to find ways to reduce them.
- Asset Maintenance: Lastly, asset management allows you to develop an effective proactive maintenance strategy to keep your assets in good working condition. You also can track asset maintenance history to make informed maintenance decisions. You will be able to avoid problems associated with under- or over-maintenance.
Asset Management vs. Inventory Management Systems
As previously mentioned, an asset management system is a centralized platform that allows an organization to track asset details in real-time. This includes both asset locations and asset conditions. Asset management systems also are referred to as asset tracking software.
The main purpose of using an asset management system is to have better visibility into asset usage, costs, and maintenance. It also helps to improve service delivery while minimizing administrative costs. An asset management software serves the following purposes:
- Track Fixed Assets: Asset management systems have an asset registry to track assets and their users. Assets are registered in the system using their serial numbers and users are assigned sign-in credentials to increase for increased accountability. This helps to prevent asset loss, damage, or theft.
- Schedule Maintenance: The system is also crucial for recording and scheduling maintenance activities—this is key to maximizing equipment useful life. Asset management systems such as MaintainX CMMS have robust features for tracking and scheduling preventive maintenance for all assets regardless of size and location.
- Calculate Depreciation: Over time, assets depreciate. An asset management system can help organizations calculate asset depreciation. Four methods primarily used to calculate depreciation include straight-line depreciation, units of production depreciation, double-declining balance, and the sum of the year’s digits.
An inventory management system, on the other hand, is a platform for tracking company stock as it comes in and out. It helps optimize stock handling, forecast demand, and lower costs associated with holding inventory. An inventory management system serves the following purpose:
- Inventory Control: Inventory, as a current asset, is important for business continuity. It’s important to always maintain optimal inventory levels. Too much stock can tie up working capital and paralyze business operations. Alternatively, too little stock leads to stock-out situations, lost customers, and decreased revenue. Inventory management systems help monitor inventory movement in addition to forecasting sales by location.
- Workflow Efficiency: Inventory management systems also take repetitive administrative tasks off the hands of employees. These include calculating freight, customs, and insurance costs on purchase orders. The automation of such tasks improves workflow efficiency and productivity.
- Real-Time Stock Monitoring: Inventory management systems also enable organizations to have real-time information at their fingertips. Software can generate reports on available stock quantities at each warehouse, thus supporting improved inventory turnover and order fill rates.
Here’s an at-a-glance comparison of the two systems:
|Asset Management System||Inventory Management System|
|Tracks company assets (items) used in the production process||Tracks raw materials used in production and products and parts sold to consumers|
|Monitors asset condition and utilization||Monitors stock levels in a warehouse|
|Tracks the movement and use of assets within the company||Tracks the flow of stock in and out of the warehouse|
|Uses durable tags that include unique asset ID and company information||Uses removable labels that contain a manufacturer universal product code (UPC) or a stock-keeping unit number (SKU)|
|Useful in calculating asset depreciation||Useful in measuring the value of stock and value change over time|
An asset management system generally tracks the items that stay within your organization. Again, a platform such as MaintainX CMMS can help track and minimize asset downtime to maximize asset productivity.
The asset cataloging features enable you to know what assets are active and inactive in real-time. But an inventory management system deals with forecasting demand as well as ordering and managing stock on hand.
It’s important to understand the distinction between the functions of an asset management system and an inventory management system. While you can purchase both for your business, you should match them to their right purposes to get the best out of them. It will make your financial and tax reporting much easier.
What’s the Difference between PPE vs. Inventory?
Property, plant, and equipment (PPE) are non-current, physical assets that an organization cannot easily liquidate.
Also referred to as fixed assets, PPE is considered the company’s long-term investment. It’s worth mentioning that some organizations are also using PPE as an acronym for personal protective equipment post COVID-19.
Examples of PPE include computers, machinery, vehicles, buildings, furniture, and land. PPE plays an important role in a company’s financial planning and analysis as well as operations and future expenditures.
As previously mentioned, there are four main types of inventory: raw materials, finished goods, work-in-progress (WIP), and overhaul inventory. Inventory refers to raw materials, supplies, and/or products used to make products. Also known as stock, inventory directly impacts a company’s bottom lines because it’s easily converted into cash.
PPE and inventory differ in the following ways:
1. Time Periods
Fixed assets serve the company for a long period of time. Conversely, inventory is meant to have a brief shelf-life. Typically, companies try not to hold inventory for more than one year.
PPE is a long-term investment and offers a different type of value as it can be difficult to liquidate while inventory is sold to make money for the business. PPE helps the company to acquire and manage its inventory. Inventory is always ready for sale and can bring immediate, visible value to the company.
3. Risk Factor
PPE isn’t profitable when kept for a short period of time. Its value increases with time. Alternatively, inventory companies aim to sell (and use) inventory as soon as possible to achieve maximum profitability. The longer a company keeps its stock, the less profitable it becomes.
Besides land, all other PPEs—machinery, vehicles, and buildings—have a finite life span and depreciate over time due to wear and tear.
For this reason, asset management is critical to extending PPE asset lifecycles. Conversely, inventory doesn’t have any depreciation costs with the exception of expired food or personal care items.
In many cases, a company’s inventory is its primary source of revenue. Companies that overstock inventory risk sitting on damaged, expired, and obsolete products.
Alternatively, understocking can lead to lost sales and market share. Either way, large organizations require robust tracking systems for both asset and inventory management.
Benefits of Asset Inventory Management
Asset inventory management can be a time-consuming and labor-intensive activity. However, it’s also rewarding. The benefits of asset inventory management include:
- Informed Business Decision-Making: Asset inventory management improves asset inventory recording and tracking, thus minimizing entry errors. It supports an accurate view of your assets and stock levels so businesses can make informed business decisions.
- Enhanced Productivity: Asset management also makes it easier to track asset utilization and inventory movement in and out of warehouses. It becomes easier to know when to schedule asset maintenance for optimal efficiency and to restock the inventory. Employees also can monitor and generate detailed reports on assets and stock levels.
- Happy Customers: Businesses that maintain good stock levels are better able to meet consumer demands. This translates to more repeat customers and reduced customer acquisition costs. This also helps with brand image positioning in the marketplace.
- Improved Transparency: Another benefit of asset inventory management is the ability to track the movement and utilization of every asset and stock within the company. This reduces instances of theft and improper handling, hence improving accountability and transparency.
- Simplified Auditing: Lastly, asset inventory management creates a convenient audit trail. It becomes easier to prove regulatory compliance. It also becomes easier to identify ways to improve business operations. Operational managers can conduct audits to see what’s working, what’s not, and how often equipment should receive preventive maintenance.
Asset inventory management also saves time as employees don’t have to physically locate and document each asset or stock every time something has changed. They can easily do it from a centralized asset inventory management platform. Other benefits of asset inventory management include improved financial performance, enhanced sustainability, and better risk management.
Why Asset Tracking Is Crucial to Success
Asset and inventory tracking enables organizations to track an asset’s location, users, and condition.
There are many technologically convenient methods to do this, including scannable barcode labels, Radio Frequency Identification (RFID), Bluetooth Low Energy (BLE), and Global Positioning System (GPS).
Each asset gets a unique ID to avoid confusion and misinterpretation of asset data. Asset tracking contributes to business success in the following ways:
- Enhances Accountability: Some assets move around fairly often. In such instances, it’s important to maintain accurate records of asset movements, operators, and users. This helps ensure proper asset utilization and improves accountability.
- Streamlines Maintenance: Companies also can track the costs associated with maintaining facility assets. Data tracking outlines asset procurement, performance, and service events. Such information is key to making effective maintenance, purchase, and resell decisions.
- Minimizes Theft: Management can significantly reduce the chances of losing assets to theft or misplacement by tracking them. This ensures that maintenance and production can continue uninterrupted as the necessary assets are always available.
- Reduces Administrative Costs: Managing assets from a central repository saves time and costs. An asset tracking system automates repetitive administrative tasks, reducing human error and improving employee productivity. These help lower administrative costs.
How to Choose Asset Inventory Management Software
Now you know why you need to invest in an asset inventory management system for your business. But what factors should you consider when shopping for asset management solutions? Prioritize platforms that offer:
1. Integration with Existing Systems
You can use asset inventory management software as a stand-alone system. However, you’ll need to integrate it with other existing systems for streamlined data access and operations. Otherwise, you risk redundancy and time wasted during data transfers. Look for software with API functionality that allows data to flow seamlessly between internal programs.
2. Customization Options
Consider your unique business requirements before purchasing any new software product. What are you looking to achieve and how will the new system help you get there? You may have different needs than your competitors and, thus, require different features.
Explain your software requirements to vendors and find out if the platform is customizable enough to your team’s needs. This is especially important if you have complex software specifications.
3. Scalable Pricing
Pricing is another important factor to consider. The good news is many vendors offer free trial periods to determine if it’s a good fit before pulling the trigger.
Most software products are also cloud-based, thus making the cost of implementation affordable. For small and medium enterprises (SMEs) with minimal budgets, monthly/per-user price plans are significantly cheaper than on-premise software products.
4. Extreme Usability
Many businesses overlook software usability when shopping for an asset inventory management system. But usability impacts software adoption and implementation among employees.
Don’t waste money on a product that your employees will not be able to use effectively. You’re investing in a new system to streamline your asset inventory management. A system that’s difficult to use beats that purpose. Prioritize providers that offer iOs and Android mobile apps in addition to standard desktop versions.
5. Software Flexibility
Lastly, pay attention to system flexibility. Due to the coronavirus pandemic, many “non-essential” employees have been working from home.
According to Pew Research, 54 percent of employees want to continue working remotely once the pandemic ends. A software solution that can be adapted to mobile devices makes it possible for remote workers to access the system. It also caters to the needs of organizations with multiple locations.
Finally, consider the provider’s reputation for customer support. Do they have recent positive reviews on third-party sites like Capterra, Apple App Store, and Google Play?
Simplify Asset Inventory Management with MaintainX
The asset inventory management process can be tricky, demanding, and time-consuming. Fortunately, MaintainX CMMS offers robust features to streamline asset inventory management for both small businesses and large enterprises.
You can customize it to your specific stakeholder needs. You also can easily track where your assets are being used, by which employees, and how they are being used. Translation: MaintainX gives you complete control over your inventory!
Want to see how MaintainX CMMS can revolutionize your asset inventory management systems? Sign up for a free trial today!