World Class Asset Management

Interviewee Number: #4
Role: Director, Logistics and Asset Management
Interview date: 14 June
Interviewer names: 2P

Background information:
Type of company Third Party Logistics
Geography North America
Expertise (years) 23 years in TPL
Experience in the relevant
Engineering, Operations, Asset Management, Trucking
field of expertise

QUESTIONS

Part 1 – Identifying World-Class Asset Management

1. Which industries and businesses are demonstrating world-class asset management?

Assets in Logistics are viewed as containers that move through the supply chain, in addition to the
owned trucks that move the products.

[Company X] is an asset pooler, providing Returnable Plastic Containers (RPC) as well as containers to
move perishable supply chain. The expert was previously responsible for asset management for a
trucking company. The main challenges in logistics are with asset management and control. These
are business critical capabilities.

Containers and RPC Assets

If a container (large truck container or RPC) is sitting at a facility, the company knows where it is.
When it is shipped out, you need to know where it is going. It initially travels to a retail distribution
company, and then onwards to a store. Once a container is empty then it moves back in reverse.
However, there are drop-out points at various stages in the chain, where assets are either
accumulated, damaged or stolen. The driver for initially embarking on an asset management
program was reduce the asset drop-out rate.

Asset Management is now a key functional capability across containerized logistics firms. Tosca is a
leader in this, having pioneered a bottom-up data-centric approach, which is rapidly becoming a
best-in-class approach.

The main focus is optimizing asset turnover and loss – assets only generate revenue on a per trip
 basis.

Trucks

From the trucking perspective, the same approach applies. It’s about maximizing utilization of the
truck pool. It is easier to track trucks as there is a driver sitting in the cab. However, there is a
significant investment in scheduling optimization to avoid unproductive legs.

The biggest challenge in trucking is in regard to maintenance. Preventative maintenance is a major

element of the asset management to ensure that the asset operates in a safe and efficient manner,
plus ensuring it is utilized at the maximum rate.

2. What attributes define “world class” asset management? And, how can these attributes
be measured? Do these attributes differ significantly by industry?
Containers & RPC Assets

Track asset turnover at a macro and a micro level. Every asset has a tracking tag (RFID). Can see at
any point of time where every asset is and how well is being utilized. This also helps with analyzing
what assets are better utilized than others (sizes, types of containers etc.)

At a micro-level, understand the value of tracking each asset to each customer and work with
customers to make sure that every container is retained in the system (i.e. reducing loss rate).
Develop trends by customer and allow the company to identify data outliers (bigger loss rates or poor
utilization). Sales people can then investigate the underlying reasons for loss rates associated with
each customer.

500 million transactions per year generates a huge amount of data. Use analytics to help optimize
the asset portfolio, development investment decision, reduce loss rates etc. Work with specific
customers to provide better service and value for money. Also helps with optimizing freight
scheduling and pricing.

Trucks

An integrated approach to maintenance, supply chain and operations. The priority is to ensure a zero
breakdown rate – that is catastrophic, particularly when dealing with perishable and or refrigerated
produce. That leads to a focus on preventative maintenance. This means working with the fleet
manufacturer to optimize maintenance intervals and personal training. World-class maintenance
systems reply on cutting edge data management, leading to predictive analytics i.e. using longitudinal
data across a manufacturers fleet to build up a statistical profile of failure, feeding into a continually
evolving maintenance scheduling program.

3. How have these attributes been achieved by these businesses? And, what lessons have
been learned that other asset intense businesses can adopt?
Asset management is a strategic priority across logistics firms. Only assets that are utilized are
generating revenue. The first step is to create an Asset Management team to manage this.

The second critical step is to acquire data. Install asset tags on every asset. When an asset is
washed each tag is read, and if it doesn’t scan then it is taken out of the system until the tag can be
replaced. An asset cycle is measured wash-to-wash. The WTW cycle time is a key measure.
 However, tagging cycles will be designed for every customer movement permutation, and
constantly monitored and evaluated.

Install tag reader technology at critical touch points along to the supply chain, with customers and
their supply chain partners (growers, warehouse and distributors etc. read RFID tags at the point of
receipt and dispatch). The industry is currently migrating from barcodes to RFID tags that can tie
specific RPCs to a pallet and to a bill of lading. An asset is read three times before it even leaves the
facility. This is also critical for food safety and traceability.

Supply chain partners are set up with technology protocols to report the data into the central asset
management system, where it feeds into the analytics.

There is an analytics team of 3-4 people who do nothing but analyze the data gathered and
subsequently communicate the results and implications across the organization.

Functional processes have been changed (in some cases overhauled) in response to the data
generated – pricing, sales, purchasing, maintenance, supply chain etc.

In trucking, preventative maintenance systems maintain integrity, optimize uptime and extend the
asset life. This is based on pre-described maintenance intervals. Truck engines today have a lot of
monitoring on them. Can predict pretty accurately where failures may occur ahead of time and
factor those in to the maintenance schedule. Need to optimize the maintenance schedule to avoid
failure, but also maximize utilization. Again it comes down to data and analytics.

Lessons learned – heritage leadership did not value data. Took a long time to develop the
investment case and in the meantime lead to a huge loss of valuable data and lost value for the
company. The company was not prepared to have the number of tough conversations with
customers regarding lost assets – had little idea that the number of assets that were being
damaged, lost or stolen was far higher than previously thought.

4. How is the asset landscape or profile optimized to enhance utilization within world-class
asset management?
In the logistics field, asset management is all about maximizing asset utilization i.e. reducing losses
and maximizing utilization.

The asset management system has also fed into planning and portfolio management. Found that
the data has helped inform investment decisions based on margins associated with different types
of RPCs as well as different types of customer (e.g. eggs vs. protein – protein is more profitable) as
well as customer demand cycles. This helped inform and improve the capital planning process.

5. What attempts are being made to align asset utilization with improving profitability and
customer growth?
If there is no asset there is no revenue. There is almost a 1-to-1 correlation between asset
management performance and profit.

One of the biggest implications is when is the timing for when new RPCs need to be purchased. The
produce business can be very seasonal, which results in spikes in demand for specific containers.
Timing for purchase is key to ensure sufficient capacity to meet customer demand, but without
excess inventory. This data feeds directly into finance, which has since gotten into hedging in the
 plastics and resin business (linked to the oil price) to reduce the volatility in its purchasing program.

Asset Management essentially creates a data engine that informs decision-making across the
business – both tactical and strategic. It is critical to the efficient running of the business.

6. What has been the impact of adopting improved asset management from financial,
operational, environmental and people perspectives?
One of the first things that happened was asset management led to a lot of very healthy
conversations with the customer-base in terms of asset utilization, and in particularly the impact of
stockpiling, damage and losses on what they pay. It changed the behavior of customers that
benefited both parties – freeing up assets and keeping costs down.

This revolutionized the relationship with customers and led to a more effective engagement where
assets are more liquid than they were before (allowing to cut into ‘buffers’ when necessary), with
decisions being transparently data supported.

This also led to some price increases and allowed the company to explore different contracting
models commensurate with customer activity and incentization of good behaviors – i.e. working
together with customers to optimize the system.

The top and bottom line financial impact has been significant. Asset management data has allowed
the company to make better commercial decisions.

Operational effectiveness and utilization rates improved by more than 10%, which when you’re
talking about tens of thousands of asset movements per week is significant. It makes a huge
different to the purchasing strategy. Increased returns and reduces the number of new unit
purchases.

Part 2 – Role of ISO55000 Asset Management

7. Generally, how is ISO55000 used by leading asset managers (to drive activity or as a
compliance tool)?
The company had a long, hard look at ISO55000, but decided that it was not required in order to
further improve asset management. They felt that it is designed for big organizations with high
value assets.

It would work modestly well for trucking and rail freight companies, but for containerized logistics
it does not make sense. Customers and partners wouldn’t take about having ISO certification, so
the driver would be internal. However, the Executive decided that the additional value over and
above the existing asset management initiatives is not justifiable.

The expert subsequently checked with contacts in the trucking industry, and found that is also not
looking at ISO55000 either as companies do not see the direct benefits. However, if other trucking
companies were to start achieving certification and they see that this is impacting competitiveness,
then they would need to go down that route out of necessity.
8. What else are leading asset managers doing beyond ISO55000?
Not relevant for containerized logistics.