Conceptual Enterprise Asset Management for Plant Construction Process
Applies to: Document is applicable to all SAP R/3 and ERP6.0 versions.
This document provides an introductory and conceptual overview of Enterprise Asset Management. It is illustrated using a case study, under the context of production plant construction.
Benedict Yong is a Certified SAP BI Consultant, and practitioner of Enterprise Asset Management (EAM) and Business Intelligence (BI). He holds a Bachelor of Management (Australia) and a Diploma in Business InfoTech (Singapore). He is familiar with the Consulting and Support environments, with his various Project Lead & Consultant roles during his stay in Accenture and IBM. He is situated in Singapore and is bilingual in English and Mandarin, conversational German.
I still prefer the good old SCN pdf upload format. Hence, I have created one => http://www.scribd.com/doc/123319290/Conceptual-Enterprise-Asset-Management-for-Plant-Construction-Process (comes with all the screens illustrations)
This is my second whitepaper. Hope it helps the community
Conceptual Enterprise Asset Management for Plant Construction Process
In today’s business environment, the bottom-line for high system availability, costs reduction, and maximize return on assets are becoming more obvious. Hence, an innovative need for an integrated approach to Enterprise Asset Management (EAM) is needed to “yield significant savings”, “improve the operational performance” and “proper cost controlling”. The approach should spans all phases of an ‘asset’ lifecycle, which includes cost planning / budgeting, asset-in-construction / final asset, specification and design, operations and maintenance, decommissioning and disposal, and, finally reporting and analytics.
In SAP words: “EAM helps companies manage physical assets – production plants, capital equipment, vehicle fleets, and facilities complexes – over the complete asset life cycle. In conjunction with powerful reporting and analysis, the SAP solutions’ EAM capabilities enable you to reduce operating costs, better manage capital expenditure, and improve asset utilization.“
What is Enterprise Asset Management (EAM)?
We shall adopt a neutral definition from WIKI, 2012: “Enterprise asset management (EAM) means the whole life optimal management of the physical assets of an organization to maximize value. It covers such things as the design, construction, commissioning, operations, maintenance and decommissioning/replacement of plant, equipment and facilities. “Enterprise” refers to the management of the assets across departments, locations, facilities and, in some cases, business units. By managing assets across the facility, organizations can improve utilization and performance, reduce capital costs, reduce asset-related operating costs, extend asset life and subsequently improve ROA (return on assets).”
The definition of EAM is constantly evolving depending on vendor offerings, industrial needs, etcs. For the purpose of this discussion paper, we will focus on applying EAM on plant construction and asset maintenance, referencing to the SAP flow diagram prior 2012.
What is SAP Offering to EAM?
The SAP solution for enterprise asset management allows you to manage key asset management activities, including:
- Investment planning and asset specification and design – Gain control over business planning and simulation, investment management, collaborative specification and design, and collaborative project management.
- Procurement and asset construction, installation, and implementation – Optimise supplier qualification and candidate selection, bidding and contract management, collaborative project management, collaborative change management, information handover for commissioning and startup, and project and investment controlling.
- Maintenance and operations management – Handle technical asset management, maintenance planning and execution, preventive and predictive maintenance, reliability-centred maintenance, mobile asset management, MRO parts and services procurement, MRO inventory management, employee and contractor management, asset accounting and maintenance budgeting, and asset performance analysis.
- Decommissioning and disposal – Perform asset transfer and disposal, collaborative engineering and project management, waste management, regulatory compliance management, and asset remarketing.
What does SAP EAM comprise of?
It fundamentally includes Project Systems (PS) and Plant Maintenance (PM) with integration with Purchase Orders from Material Management (MM-PO), Assets from Finance (FI-AA), and Cost Centers from Controlling (CO-CCA).
What is PM and what is its function?
Plant Maintenance (PM) is in-charge of maintenance of plant-related items (ie. repair, overhaul, inspection) but can be customized to go beyond that. A production plant is an asset; PM is used to maintain assets. PM by itself is an area of corporate function. It is typically can be coupled with CS if there is a revenue component. Although maintenance sounds dull, but to Aircraft/Vessels company it is not a laughing matter. You need to have maintenance planning. For instance, for every 25000 miles travelled basic inspection is required and every 3-monthly painting. If PM is not tracked well, disruptions and catastrophes happen.
What is PS and what is its function?
Project Systems (PS) provides broader functionality in support of project management requirements beyond cost management. Given the tighter integration with operational aspects of project management (e.g. procurement, detailed cost planning, project scheduling, etc.) that PS provides, it enables more timely and efficient cost capture.
Our Case Study: How do we do it?
In our case study, the core requirement can be simplified into:
(1) Budget Control
(2) Order Execution
(3) Asset Settlement
System Setup Strategy
There are many options to setup an EAM system:
(a) Purchase Order with Internal Order
(b) Purchase Order with WBS element
(c) PM Order with Internal Order
(d) PM Order with WBS element
The simplest way for budget controlling is using Purchase Order with account assignment to either a WBS element or Internal order. However, in the context of EAM, PM Order will be more apt to be the central transactional object, due to the greater maintenance flexibility it offers.
Internal Orders is a more direct way to manage cost. But it does not provide hierarchical cost structure for analysis. PS hierarchical cost listing has synergistic advantage when applied to PM functional location.
We will walkthrough scenario (d) – the most complete design!
PM Order with WBS element Option
PM Order will be the primary transaction in any EAM systems, coupled with the budgeting functionality of PS Project. A PM Order (PMWO) should only be raised with a WBS element assigned to it – this will ensure the budget mechanism to be applied more consistently.
When a PMWO is released, a PR will be generated (by customization). The components required by PMWO will be translated into the PR lines automatically. At the same time, a PR commitment will be created against the WBS element budget check. When the PR is approved, a PO can be created. When a PO is created, the PR commitment is closed, but a PO commitment is raised against the budget.
When the PO is fully delivered and/or invoiced, the PO commitment materialized into actual cost. With actual cost on PMWO, cost settlement can start.
Functional Location is primary master data to the Plant Maintenance module. It is basically an object that SAP uses to structure areas for plant maintenance. Together with equipments, they are termed as “technical objects”. Technical objects, in the context of PM, are items that can be subjected to maintenance (i.e. an equipment can breakdown, so can a room in a plant). A functional location is not a storage location as in SAP MM – there is no linkage at all, it is just a different context!
It is very crucial to define functional location in the PM function. This even more critical when we are using PM in the context of EAM. When we use PM for EAM, we define the whole plant (from the engineering conceptual draft) as a functional location. We will want the correct cost for each production plant section match the correct functional location. We will want the correct equipments to be installed to the correct functional location. We will want to know the exact location of all assets and all the cost associated to the locations and the assets.
The SAP dictionary definition of a functional location is “an organizational unit within Logistics that structures the maintenance objects of a company according to functional, process-related or spatial criteria. A functional location represents the place at which a maintenance task is to be performed.”
WBS Project is primary master data to the Project System module, and the second most important master data for EAM. It is basically an object that SAP uses to manage and structure cost for ‘projects’.
Based on experience, it is important to structure a Project into at least 3 sections based on capitalization types:
1) Tangible Capitalization
2) Intangible Capitalization
3) Expense (no capitalization)
One of the core purpose of using EAM is ensuring proper capitalization of cost into the proper assets.
In the realms of finance, assets are broadly characterized either as tangible or intangible.
As the project object holds the budget, it has to create a section for expense – apart from having tangible and intangible class. SAP allow early classification of WBS element under different asset class.
As the project object is also used for operational purposes, the tangible section can be further detailed – allows building of more budget control options.
In our case study, each account-assigned WBS element will auto-generate an AuC upon release. AuC will be a placeholder for all cost as per WBS element. When the AuC has come to a completion, we can settle it to one-or-multiple FXA. In the assignment rule screen, we can allocate the cost as per PM Order to FXA.
The flow for cost starts at PM Order. When the Order incurs actual cost, and settlement run is done; cost is moved from the Order to its assigned WBS element. And the auto-assigned rule in the WBS element moves the cost to its AuC. During the second settlement run, cost is finally moved from AuC to FXA – provided allocation rule is made.
PMWO -> (1) WBS Element -> (2) AuC -> (3) FXA
Our Case Study: How do we use it?
Based on our system design and requirement areas (Budget Control, Order Execution, Asset Settlement), we will display the SAP screens in the following sequences:
- Budgeting Screen
- Tracking Screen
- Settlement Screen
- Reporting Screen
The first step to EAM is budget management. The function is accessed via transaction CJ30. The setup will trigger the budget availability check in the PM Order. In the “additional data” tab of PM Order maintenance, we can activate mandatory WBS element.
The lists of PMWO that are linked to WBS elements can be accessed via transaction IW38. The listing allows filtering (apart from WBS elements/project) by status, dates, author, plant, functional location, equipment, etcs.
Before we can settle the cost from the AuC to FXA, we have to maintain the allocation rule for settlement via transaction CJIC. CJIC allows us to allocate cost base on PM Order level. However, we may choose to break the figure down either by percentage or dollar value. AuC can be allocated to one or many FXA.
The transaction CJ88 (or CJ8G) is the actual execution transaction for cost settlement.
The report S_ALR_87013558 enables us to have a close loop analysis, as the transaction flow from budget cost to actual cost, and from hierarchical Project level to transactional PM Order level. Of course there are plenty of other reports that the SAP PS Information System can offers. If not, we can still using screen painter / writer.
The case for better asset management should flow from the corporate level to the ground. Safer, more productive assets at an operational level are essential to optimized revenue, profit, and capital use across the network of assets, which, in turn, translates to better ROA performance enterprise wide.
Enterprise Asset Management Strategy cannot be created without the combined efforts of both the operational and controlling teams. Because it encompasses crucial decisions that impact PM Orders, Purchase Orders, Final Assets and AuC, and Costs and Budgets.
SAP Plant Maintenance is not just a system for maintenance of production plant; it can be scaled up to be a complete a system to collect, analyze and allocate cost for plant construction; and eventually an enormous system to manage the complete lifecycle of asset systems.
Credits and Content Sources
http://scn.sap.com/docs/DOC-4252 (my other paper in 2010) – someday EAM will find its way to Business Intelligence, vice versa