Using the Value Chain FrameworkThomas Smith, University of Wisconsin-Madison

Asset Management is The coordinated activity of an organization to realize value from assets

Agenda

• Asset Management in the Organization• Understanding the Value Chain Framework• Using the Value Chain Framework

– For Asset Management– For ISO 55000

Asset Management: These International Standards provide an overview of Asset Management, its principles and terminology and the expected benefits from adopting asset management. An‘asset’ is ‘something that has potential or actual value to your organization’; and ‘Asset Management’ is “the coordinated activity of an organization to realize value from assets”. The Standards provide common concepts, language and requirements for Asset Management and the supporting Asset Management System. In doing so, they address both the activities performed directly on the assets (Managing Assets) and the strategies and plans of the organization to derive value from those assets (Asset Management).For more resources, please visit: https://committee.iso.org/tc251

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Managing the Organisation

Asset Management

Asset management

system

Asset portfolio

Coordinated activity of an organization to realize value from assets

Set of interrelated or interacting elements to establish AM policy, AM

objectives and processes to achieve those

objectives

Assets that are within the scope of the asset management system

The Bottom LineFinally, the single most important thing to remember about any enterprise is that results exist only on the outside. The result of a business is a satisfied customer. The result of a hospital is a healed patient. The result of a school is a student who has learned something and puts it to work ten years later. Inside an enterprise, there are only costs.

Peter Drucker: Seven Principles

A Framework for Asset Value

Who Are Your Buyers• Transit Service

– Individual Riders– Group Buyers – Taxpayers represented by elected officials

• Non-Profit - Zoo– Visitors / Customers for goods and services– Donors– Taxpayers represented by elected officials

• Consumer Package Goods Distribution Company– Wholesale Customers

• Utility: Water, Electric, Gas– Individual Customers– Service Providers: District Heating– Wholesale Customers

What do Your Buyers Want• Transit Example

– Comfort – cleanliness – amenities– (applies to terminal and train)– Reliability – including on-time and resilience– Speed– Schedule– Intermodal efficiency– Price

• How much is the buyer willing to pay– Directly– Through taxes and fees– Incrementally for differentiated service

Working Backwards Provides Insight

In “Selling Holes,” Service Provides Buyer Value

but whole value chain must be aligned

Power By the Hour20 year service agreement Intelligence

Included

Which Professional Sports Team Leads in Fan Loyalty

Across all four major sports

Saint Louis CardinalsFirst in Brand Loyalty First in Profits:• 300m annual revenue• 75m annual profitWhat makes Brand Loyalty• Won-Loss Record• Fan Bonding• History and Tradition• Pure EntertainmentExpert Estimate is that the Stadium contributes 15%

These Assets Connect Directly to the Buyer

Cool Offices

Working Backwards Provides Insight

Distribution is a Key Asset

Tetra Pak Aids Outbound Logistics

• Weighing in at around 64% less than a can for 400g packages, taking up 30 - 40% less space than glass jars, and with the ability to brand 100% of its surface, Tetra Recart® stands out in many ways.

Brewery Makes Edible Six Pack Rings

Saltwater Brewery in Delray Beach, Florida, has created edible six-pack rings that feed, rather than kill, marine life if the rings end up in the ocean and an animal happens to eat it. The rings are created from beer by-products and are completely safe for humans

d fi h t t

Working Backwards Provides Insight

A Focus on Operations

Eighty Cents a Barrel

One minute reduction in commute time equals a 3k increase in apartment value

Working Backwards Provides Insight

Some value chains start at the end

Your trash is our cash

Logistics Can be Challenging

Yogurt Buyers Send Dannon Back to the Farm

Excellence in each activity is expected

Values drive Value• Organizational Values are a constraint on behavior. They

are not a goal• The goal is the satisfaction of the customer, whether an end

user or intermediate supplier• The organization’s values may play a large role in buyer

value• The organization’s values may add to the cost of production• Social values may be imposed as rules and regulations,

which also constrain behavior

Thomas W Smithtwsmith@wisc.edu

University of Wisconsin-MadisonEngineering Professional Development

Using the Value Chain FrameworkThomas Smith, University of Wisconsin-Madison

Why Porter’s Value Chain

• Common concept taught in nearly every business school• Describes the whole organization in terms of its goals*• Provides a clear definition of organizational value, which

useful to top management and to all stakeholders• Provides a framework for analyzing the “asset contribution”

to value • Provides a visual means of communicating this contribution

within the flow of the value chain – not outside• Provides a means for viewing the organization in context

Integration = Competitive Advantage

• The activities in the value chain must be tailored to support the value proposition

• This includes each individual activity and the fit among activities

• Continuity of activities is an important component of tailoring and fit. These are not developed overnight.

Buyer Value ≠ Stock Price• Maximizing buyer value requires a long term view of

the activities that make up the organization• It takes time to develop the Value Proposition and it

requires commitment to sustain it. Continuous improvement is necessary, but wholesale changes are likely to be disruptive.

• Apple’s Value Proposition is clear and has held through many changes in technology and in the market.

A Framework for ISO 55000

Simplify management of the complete fixed assets lifecycle, from construction and purchase through retirement. Save time and money with automated processes and calculations, including complex computations and transactions for cost segregations, tangible property regulations, and more.

Bloomberg

Working Backwards Provides Insight

Using the Framework• How do the activities align to the strategy• How do the assets support the activities• What is the interface across the activities• Transit Example

– Does comfort come from procurement, operations (including maintenance, custodial) How do they each contribute and who manages the interface and weighs (and funds) the contributions?

– Where does resilience come from and how is it managed?• These questions must be answered in a detailed and

quantitative manner.

Changing Definitions of Asset Management• The ”coordinated activity of an organization to realize value from

assets.”• The “coordinated activities of an organisation to realise life-cycle

value from its assets in delivery of its objectives.” • The “systematic and coordinated activities and practices through

which an organization optimally and sustainably manages its assets and asset systems, their associated performance, risks and expenditures over their life cycles for the purpose of achieving its organizational strategic plan.”

• Asset Management is “maintaining a desired level of service for what you want your assets to provide at the lowest life cycle cost. Lowest life cycle cost refers to the best appropriate cost for rehabilitating, repairing or replacing an asset”