Question: How do we improve our asset utilization?

We are a mid-sized retail company planning for a comprehensive review of our "asset utilization" — both soft and hard assets. The ultimate aim is to reduce assets devoted to less profitable activities.

Is there a framework we can use for our review? We want to consider our internal operations, growth opportunities and competitive landscape in this discussion.

Your references and thoughts will be most appreciated.









7 Expert answers





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39 answers

This is something I have helped several clients with.  While it is probably worth a follow up discussion, the steps I would suggest are as follows:

1) Examine the return on assets at the SKU and product family level, using gross profit as the measure of return and average inventory as the investment

2) Array the products and product families by ROI

3) The low ROI products or product families would be candidates for removal or harvesting. Exceptions would be products that are needed to compete in a particular product family or product families that have great growth potential

4) The high ROI products or families should be nurtured, looking for ways to extend their profitability

5) Review the potential product / product family action plans with the retail staff, explaining the objective and the results of the analysis. Ask for their input, suggestions or concerns.

6) Rollout out action plans with the support of your staff

I hope this is helpful.

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2 answers

A deductive or top-down approach is best in your situation.

Start with ROE: if it's above 10-12% for 2015, you do not need to do a complete asset utilization analysis.

Next, assess your working capital ratios, including current liabilities. As a retailer you should be taking full advantage of supplier payment terms. Managing your working capital better is likely to be the source for improving asset utilization and returns on capital.

Next, evaluate your long term assets by line item inclusive of depreciation or amortization, and separate the assets into two groups: earning and non-earning assets, and assets required for your business operations versus those that are not essential to your business operations.

If you take the steps outline above, the opportunities to improve asset utilization will become clear.

While doing so addresses your balance sheet, I suggest you also do the same with your income and cash flow statements, and most importantly, analyze profitability at the product/service, customer segment, delivery channel and geographic market levels.

If you do all of the above, you'll know exactly where you are making money and where you are not, along with where you are achieving a reasonable return on your capital investment, and where you are not!

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16 answers

Okay, so my focus is on the people part, which then actually becomes the overall business strategy. There are a couple premises I'll put out there first. To start, there is nothing that is done in your organization that is not done by the activity of an individual or team. Second, I have found in my experience that the answers to your question - what are we doing well, and what could we either be doing better or not doing - is right there in your organization....with the people.

You can invoke a tool, and there are plenty out there, and get a plan. What you will miss is learning what your folks know that the leadership doesn't, and engaging them in finding the solution.

Large-scale organizational change processes are unique in that they uncover more quality information than an outside consultant can uncover, as outside consultants tend to zip up folks' mouths at the very time they need to contribute.  Armed then with quality information, leaders can synthesize, plan and then re-engage the folks to execute a plan that they developed.  

The expertise about your organization lies with its people and a formal change process can uncover ideas you're probably never considered.

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24 answers

In all the businesses I have worked with, the first asset I want to identify is the one that underpins the whole organization. I call this asset the "Key Component" because without it nothing else is possible. The Key Component is a legally recognized asset the business owns and/or controls and is used in the products customer seek to acquire. The Key Component is the cornerstone of the business because that legal attribution gives it a defensible position as compared to the competition. The second thing I try to identify is the struggle the company's product is alleviating for the customer.

These two points are connected through the company's processes. In other words, the processes make the Key Component available and useable to the customer who will consume it to reduce the struggle they are having with a certain outcome. When the value perceived by the customer is higher than the value needed to make this outcome happen there is some level of profit.

What I described above the ROKC ™ Method and the Uncertainty Model ™, both methodologies I developed to help business leaders improve their decision-making skills. ROKC = Return on Key Component.

From this perspective, your business will have two types of assets: (1) the Key Component , and (2) assets that a dedicated to the processes. The biggest mistake company's make is NOT making this distinction. Without differentiating your assets you risk looking at the return on a process driven asset in isolation instead of considering that the return must also provide a return on the Key Component. This under-valuing of the return on process-driven asset can be overcome by breaking down all the processes into their sequential path going from the Key Component to the customer and past them to after sales service and attributing a portion of sales to each one. These mini-P&Ls will then allow you to measure the contribution to the Key Component as well as benchmark against vendors allowing you to make excellent decisions.

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9 answers

1) Stop calling people "assets;" they are contributors to the value of your organization.
2) People are not "utilized;" they are enabled and coached in their co-creation of value for your organization.

These two changes will work wonders to turn your company around.

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2 answers

Assets are classified as TANGIBLE and INTANGIBLE rather than soft and hard assets. Tax authorities who dictate depreciation rates and allowable allowances according to their rules classify in the same way.

When once you identify and classify your assets in TANGIBLE and INTANGIBLE way, then I can assist you. If you are a mid-sized retail company, (I am not sure what type of retail company you are)  I would imagine you would have slow moving inventory which is not turning over and creating bottlenecks in your cash flow.  Every retail organization is different. This is one of many preliminary observations of mine. There could be more. Hence I suggest you elaborate your question in the above manner. Then I can assist you. Thank you

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15 answers

Your question is quite vague thus a general answer. Assets need to be clearly differentiated and defined for each to receive its specific priority and usage within the big picture called "My Business". Cash is handled differently than shelve space and floor space which are handled differently from goods. I do assume you do not refer to people as assets.

Don't rid yourself from people before maximizing profitability from your existing assets and resources. Some parameters include sales per sqf, operating cash requirements, number of times per year you turn around your inventory, identify fast turn around products, high profitability products, low moving and loss making products and others. What are the specific parameters for YOUR business - this requires work.

I am at your disposal for any specific queries.

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