Managing Assets has been one of the key challenges across organization that requires to manage high volume of Asset procurement, Asset management, Asset Transfer and Asset retirement. The dynamics of daily operation, continuous improvement performed to extend the life of asset and need to transfer global asset across entity and organization mandates financial requirement to capture and report accurate value of the assets. Procure, track, trace the cost of Asset value throughout the lifecycle of the asset within the ERP system has always been a challenge for small, medium and larger corporations. It can be manual, time consuming for financial reporting and challenging for Asset managers.
Objective of this article is to provide capability within ERP system, especially within leading ERP systems available in the market and widely used across multiple organizations viz Oracle, Microsoft and SAP (S4). The journey starts from asset acquisition predefined with unique serial number linked to an equipment in the background. As the asset is deployed it gets constantly monitored under equipment for their performance, life expectancy till it reaches the residual life and plan for retirement. Most of the organization to increase the life span of the Asset or to repurpose the Asset to fit different requirement or when there is a requirement to move the asset within the organization will spend significant cost and time using refurbishment of equipment process. This effort of value add requires revaluation of asset and system capability to capture all the current value of asset without spending much time for transparency across organization and to reduce financial burden in procuring new asset. Asset tied to serial number and equipment provides such capability and reduces manual tracking and time-consuming revaluation exercise.
This Article explains how the same can be achieved with minimal effort using standard functionalities within ERP system.
- In most of the ERP application especially in the earlier versions of the ERP system, tracking the life and value of asset including the cost spent vs depreciation has been done manually with multiple excel files and formulae. While transferring of asset across legal entities and for reporting on the financial value, finance and asset management team spend considerable amount of nonproductive time to determine the transfer value of asset and is prone for error.
Autonomous capabilities in Modern ERP
Enterprise Asset management in modern ERP co-exist with Asset management and can be integrated to provide advance capability of procurement, track and trace – from asset acquisition, performance, value add towards servicing. By linking the Asset to equipment, it provides added capability to track refurbishment orders that can be used to calculate the planned cost of repair and actual cost of repair including labor, material, time. History of asset performance and service hours can be captured to derive the life expectancy. Periodic maintenance of asset can be planned using inspection plans as recommended by the OEM to increase the life expectancy of the asset and reduce the depreciation rate.
Assigning serial number to the Asset under equipment management supports tracking of multiple similar asset within the network – organization owned location, customer location, subcontractor location, vendor location etc.
Such robust integration automatically provides the capability in Asset management to track the life of asset, cost of procurement, depreciated value, value add part of maintenance operation that significantly simplifies the financial reporting eliminating use of excel and other manual error prone process and supporting financial reporting.
The above benefit can be achieved in most of the ERP system and is applicable for all Manufacturing, Oil and field service, Manufacturing, CPG, F&B industries. Leading organization in F&B and CPG industry have implemented this approach and have benefited in managing large volume of Assets.
- Accounting for marketing, capital, project related equipment and tools will require to be linked to equipment master records in Enterprise Asset Management. While creating these assets in Asset Management, the corresponding equipment master record should be created automatically. The asset and equipment records must be linked one to one thru serial number for tracking and financial reporting.
- Cost of purchasing, overhauling and other service expenses are to be captured against the Asset value to redetermine the Asset value over period of time including depreciation value as defined.
- Use of Serial number and equipment provides standard capability to associate the landed cost, overhauling cost and other cost with the asset automatically providing autonomous capability for determining the current asset value.
Process flow chart
- Project System – to capture and monitor budget
- Cost object – to capture the cost of the work break down structure of the project
- Asset under construction – Initiation of new asset requirement, and all cost of asset is posted to the corresponding AUC in reference to the WBS. AUC is settled to completed asset.
- Asset Material – Non valuated material setup with serial number and automatic equipment in the background.
- Asset Procurement – Initiated against AUC and the cost object and will capture the cost of procurement.
- Equipment cost – Is capture based on the Purchase order negotiated price with supplier and payment
- Asset depreciation – Is a period process and is based Asset depreciation rule
- Equipment overhaul – Is the process of performing repair or value addition as required using Maintenance order process
- Asset value addition – Settlement of maintenance order will capture the repair cost against the equipment and post to the Asset value.
- Intercompany transfer – Transfer of Asset across entities. Equipment with serial number can be transferred to the receiving entity for complete life cycle tracking of the asset.
- Entire end to end process is tracked through the serial number and the link between the asset and the equipment master
- One to one relation between equipment and asset.
- Track and Trace
- Ability to assign serial number to the asset at the time of creating the asset and linking it to the Equipment master record.
- Ability to settle AUC to the asset which is linked to an equipment.
- During Asset creation – Basic equipment characteristics can be defined for the equipment master record
- Additional characteristics are added to the equipment master
- Financial reporting
- Any additional cost incurred in upgrading the asset are captured through maintenance order, tracked through the serial number and added to the asset value based on the financial reporting requirement
- Once the asset is transferred over to the other legal entity, depreciation can be started with the revised asset value
This end to end process with the track and trace capability through the link of equipment, asset and serial number enables the perfect method to capture cost, settle the relevant expenses to the asset. Whenever the business decides to transfer the asset to another entity the system has the correct value for the inter company transfer. This also enables the receiving entity to assess the correct asset value and start depreciation and financial reporting.