Int. J.

Production Economics 146 (2013) 227–239

Contents lists available at ScienceDirect

Int. J. Production Economics

journal homepage: www.elsevier.com/locate/ijpe

The strategic role of Engineering Asset Management

Khaled El-Akruti n, Richard Dwight 1, Tieling Zhang 2
Faculty of Engineering and Information Sciences, University of Wollongong, Wollongong, NSW 2522, Australia

art ic l e i nf o a b s t r a c t

Article history: The current concept of an asset management (AM) system focuses on the lifecycle of engineered assets
Received 22 November 2012 and little has been done in the literature on its link to organizational strategy. In this paper, the AM
Accepted 1 July 2013 system′s position within an organizational structure and its role in competitive strategy has been
Available online 21 July 2013
explored. Two case studies involving AM have been analyzed using a proposed framework which is
Keywords: comprised of a set of planning and control activities maintaining a control mechanism and a relationship
Asset lifecycle with the strategy-making process. It is argued that the AM system structure and the mechanism play a
Asset management key role in the organizational strategy. The existence of the AM system is hypothesized by this
Asset management system framework which stipulates the asset performance required for strategic success. The use of this
Organizational strategy
framework allows for conclusions to be drawn on the requirements for building an effective connection
between AM activities and strategy development. This connection is achieved through planning and
control mechanisms acting on the asset-related activities. On one hand, the effect of inadequate or
missing elements of the framework has been shown to result in negative impacts on cost, productivity,
quality, business outcomes and ultimately strategy achievement. On the other hand, the existence of
elements of this framework has been shown to have positive impacts on strategy achievement.
& 2013 Elsevier B.V. All rights reserved.

1. Introduction It is suggested that the usefulness of a holistic system view of

AM has been identified but is not fully developed. The concept of
Engineering Asset Management (AM) as a discipline addresses AM which involves more business related engineering disciplines
the value contribution of AM to an organization′s success (Amadi- has only emerged and reported in literature relatively recently
Echendu et al., 2007). The AM system may be defined as: “the (see, for example, Dornan, 2002; LoPorto and Udo, 2003; Mohseni,
system that plans and controls the asset-related activities and 2003; Amadi-Echendu, 2004; Charles and Alan, 2005; Narman
their relationships to ensure the asset performance that meets the et al., 2006; Stapelberg, 2006; Haffejee and Brent, 2008; Asset
intended competitive strategy of the organization”. This system Management Council, 2009). It has become the focus of industry
has significant potential to influence all aspects of asset′s life cycle groups, professional societies and research organizations including
activities from concept design to disposal. The AM activities focus IPWEA (2011) and Asset Management Council (2009). Based on
on controlling the life cycle activities of assets but their nature is the practice of particular organizations, several frameworks
both interdisciplinary and collaborative. resulted from experience or specific personal understanding have
Most reported research on AM focuses on discrete activities e.g., been reported or published by individuals or their organizations.
maintenance, and rarely extends to AM as a holistic system. Frolov In general these are not grounded in existing theory nor analyzed
et al. (2009) state that historically AM was viewed as a technical and investigated to determine their usefulness. Verification of the
activity driven by engineering design and narrowly focused on fitness of frameworks for the academic research or particular AM
reliability and maintainability of assets. Charles and Alan (2005) purpose is essential. According to Frolov et al. (2009), the colla-
explain that the concept of the AM system has not been con- boration between organizations and academic researchers is
sidered from the whole life cycle approach and the whole related under way to extend the body of knowledge in this area.
activities. Ouertani et al. (2008) explain the importance of con- This relationship between the competitive strategy and asset-
sidering life cycle activities in AM. related activities such as maintenance has not been explicitly
developed and is usually anonymous in most organizations.
Literature reviews by Alsyouf (2006) and Pinjala et al. (2006)
n
Corresponding author. Tel.: +61 2 42215052, mobile: +61 403 717 686. indicate a lack of studies on the contribution of maintenance to
E-mail addresses: [email protected], [email protected] (K. El-Akruti),
[email protected] (R. Dwight), [email protected] (T. Zhang).
positive business performance. Ouertani et al. (2008) argue that
1
Tel.: +61 2 4221 3143. maintenance has an impact on the capability and performance of
2
Tel.: +61 2 4221 4821. assets and that this should be viewed in terms of value contribution.

0925-5273/$ - see front matter & 2013 Elsevier B.V. All rights reserved.
http://dx.doi.org/10.1016/j.ijpe.2013.07.002
228 K. El-Akruti et al. / Int. J. Production Economics 146 (2013) 227–239

AM-Strategic Planning & Control Activities 1

Analysis and Evaluation Direction Decision Making
for
Decision
Analysis of Strategy Triggers/Event Identify Strategy Triggers/Events &
& Asset Related Performance Define Asset Related Solution

Analysis & Evaluation of Gaps in Definition of Required Outcome &

Performance Levels Performance to Achieve Strategy

Analysis & Evaluation of Provision Definition & Provision of Assets

of asset solutions/Resources Solution & Alignment with
AM Related Re uired Performance & Resources
Analysis and Evaluation of AM- Activities
, Development of Policies, Strategies
Policies & Plans & Plans for AM-related activities
Analysis and Evaluation of Means Asset Life Cycle Development of Plans & Means to
to Control or Direct Action Activities: Control

Research, Design Control Direction for Plannin

KPIs & Compliance Feedback or Engineering
Development,,
AM-Aggregate Planning &Control Activities
installation
2
Control & Reporting Operation Coordination and Planning
Maintenance
Information Flow & Integration Facilitating Information Flow to
Control Replacement or Reinforce Integration
Disposal
KPIs Assessment & Reporting Setting values for KPIs as targets
or millstones
Action Compliance Control of Planning Asset Solution Action of
AM-Related activities Supporting Life Cycle and Support activities
Ensuring interaction between Life Activities: Setting Plans for interaction
cycle & Supporting Activities between Life cycle & Supporting
Activities
Support Compliance Control Procurement Logistic Planning support /supply
through Supporting Activities Technical support through Supporting Activities
and Development
HR Management Planning Direction for Task Control
Technical Performance
Feedback Indicators IT / IS
AM-Operational Task Control Activities 3
Finance
Accounting
Measurement & Monitoring Work Task Control
Inventory

Reporting on Asset Solution Handling Scheduling & Executing Tasks of

Technical erformance Parameters Life Cycle & Support Activities
Industrial Safety
Functionality & Operability Demonstrating work Procedures
testing, Validation & verification & follow up work Orders
Performance Parameters Ensuring Compliance to Standards
Measurement & recordin & Measures in Executing Tasks
Condition Inspection, Monitoring Ensuring Work Efficiency and
& Parameters Recording Effectiveness

Data retrieval and Reporting Data Data collection, Processing and

Accumulation storage

Fig. 1. Framework of AM system activities, relationships and mechanism (El-Akruti, 2012).

Maintenance is typically considered by organizations to be a ‘cost It has long been recognized that organizations experience
center; for example, Alsyouf (2006) and Muchiri and Pintelon (2008) significant shortfalls in their strategy realization because of asset
show that maintenance is often treated within organizations as performance. Miles and Snow (1978) have shown that new
‘subordinate to operations’ or a ‘necessary evil’. The link between strategies have failed due to inadequacy in the activities required
the inputs to the maintenance process and the outcomes for to manage the new assets, systems or technology. Some studies
manufacturing has not been explicitly established (Dwight, 1999). have focused on the interface between project management and
Bamber et al. (2004) indicate that both lean and agile manufacturing strategy (Morris, 2004; Srivannaboon and Milosevic, 2005). Other
consider the role of maintenance as a key of competitive advantage. studies, e.g., Donovan (2002) showed that inadequate feasibility
 K. El-Akruti et al. / Int. J. Production Economics 146 (2013) 227–239 229

studies and other system engineering activities have resulted in activities and the supporting activities. The AM system framework as
inconsistency between the strategic goals and the delivered shown in Fig. 1 (El-Akruti, 2012), incorporates coordination activities
system. It is shown that life cycle cost analysis rather than the to control and maintain relationships between asset-related activities.
accounting measure is required to allow for optimal replacement The AM activities may be classified relatively to organizational
interval and supplier selection decisions (El-Akruti, 1999). Kaplan hierarchical management levels. Organizational management levels
(1990) and Kaplan and Norton (1992) stated that financial mea- can be defined according to the planning horizon as strategic,
sures are misleading and the constraints based on short-term aggregate or operational (Anthony et al., 1989; Anthony and
financial performance measures alone destroy the true value. Govindarajan, 1995). They proposed that in an organization, manage-
It is proposed that capital intensive organizations have inadequate ment control is facilitated by planning and control activities that can
awareness of the potential role of the AM system in organizational be considered to take place at these three levels: strategy formulation
strategy setting and implementation. Further, it is argued that the activities, management aggregate control activities and task control
nature of activities, relationships and mechanisms in the AM system activities.
have not been adequately defined in literature. The activities of the These categories of activities are consistent with the concept of
AM system that are related to the development of an effective AM as presented by PAS 55-1&2 (2008) with the ‘typical priorities
competitive strategy are not yet defined. The proposition is that the and concerns’: management of asset portfolio, management of
required AM system activities and relationships between these asset systems and management of asset life cycle. (Kostic, 2003)
activities are not sufficiently in control in organizations. It is therefore indicates that AM activities are considered to be envisaged under
to recommend that the AM system activities are inseparable from three categories. In support of this view, Sinha et al. (2007), state
various other activities and relationships within an organization that the enterprise AM system forms integrated activities in
system as a whole. These general concepts raise questions such as management processes in a utility business.
to what extent is this recognized by organizations and if not, then The Asset Management Council (2007) in Australia derived an
why not and how can an organization set up the missing elements? AM model based on Plan-Do-Check-Act process (Tague, 1995;
It is believed that the AM system can play a key role in strategy Gupta, 2006; Moen and Norman, 2011) and the control manage-
making. In order for this role to be effective, certain AM system ment cycle for continuous improvement (ISO 9001, 2008;
activities, relationships and mechanism need to be managed Anderson, 2011). The framework in Fig. 1 has been derived based
adequately within an organization. This paper establishes an AM on the nature of the asset-related activities. The idea of the AM
framework that provides a holistic approach exploring the AM role control cycle is similar in these models. This framework sets out
in organization strategy development and implementation. The the organizational levels, activities, relationships and mechanisms
novelty of the developed framework is related to its holistic of the AM system. It implies that the management of the asset-
approach and systematic tactic in mapping AM activities and related activities is maintained by a control process constituted by
relationships. Two study cases are given in extensive detail to a cycle of these activities of the AM system through the manage-
illustrate the approach utilizing the developed framework and ment levels. Each asset-related activity will have an iterative
demonstrating its potential in analyzing relationships of AM related planning and control process acting on it. Through these activities
activities to establish proper links for strategy success. The case at the three levels and with feed-forward and feedback mechan-
studies present a valuable contribution evidencing of the role of AM isms, the framework proposes that AM plays a role in strategy
system activities in the success of an organization′s strategy. development and implementation.
This notion of having an AM system as a collaborative control
system that exists over the organizational levels leads to an
2. A framework for Asset Management system integration within the enterprise system. El-Akruti (2012), p. 72,
Figure 3.8 developed an AM system functional model that offers
Utilizing the idea and format of Porter’s value chain (1985), a this perspective in terms of relationships between asset-related
typical representation of the main asset-related activities in an activities, control activities and the boundary between the system
organization has been developed by El-Akruti (2012). The relation- and its external environment. This system functional model is
ships of the asset-related activities exist between the asset life cycle developed based on the widely used production model given by

Fig. 2. Five elements of the hypothesized model.

230 K. El-Akruti et al. / Int. J. Production Economics 146 (2013) 227–239

Hunger (1995). However, this model includes categories of life improvements in quality management and therefore evidence of
cycle activities and supporting activities as found in the value events or changes is expected.
chain framework, and the life cycle framework presented by In order to identify suitable cases, 25 company employees were
Blanchard (2009). interviewed and various documents reviewed. The strength of the
findings rely on multiple sources of evidence: in-depth investiga-
tion by interviewing is done together with study on the archived
3. Research approach records, website, newsletter, asset life history, manuals, financial
activities, performance and contracts.
The approach adopted is based on the ideas of the contextualist The asset managers stated clearly that many projects had been
methodology in case study given by El-Akruti and Dwight (2010). done and actions were taken in response to strategy changes. Two
It uses a retroductive research strategy to explore the complicated specific ‘strategy events’ were selected as a result of the actions
processes in the case study to facilitate theory building (Ragin and taken to end up with a summary of two cases.
Becker, 1992). The research design uses the hypothesized system
model as shown in Fig. 2. In this approach, cases are defined by
identifying strategy events to which the asset-related solutions 5. Analysis and interpretation of two cases
respond. Each AM-related solution has to be defined and must be
examined according to the sequence of the phenomenon repre- 5.1. Case 1 – Establishment of a new production module
sented by elements 1–4. This involves identifying the strategy
event, defining the asset solution and its provision, determining 5.1.1. Stage 1 – Establishing the phenomenon
the asset performance and outcomes related to the strategy. 5.1.1.1. Establish the asset solution in response to a strategy
Element 5 in Fig. 2, presents the control over the process of event. Case-1 is summarized in Table 1. Interviews indicated that
events. In this process, the required asset solution or solutions is the two projects were undertaken in response to the mission of
established for any triggered strategy related event or change. The growth to gain a better position in the international market by
management behavior related to the asset-related activities and increasing and diversifying products. It is also indicated in the
the resulting asset performance can be assessed. This involves quality manual that the policy of the ministry was to make the
mapping the elements of the AM framework against the actions industrial sector become a major contributor to the economy.
undertaken in actual practice and linking the adopted AM actions
to existence or adequacy and/or absence or inadequacy of activ- 5.1.1.2. Establishing indication of provision actions. With reference
ities and relationship as proposed by the framework. to interviews held with managers in charge of flat mills, there were
many problems encountered in the commissioning stage of the G&C
Line. Managers explained that when starting operations it was not
4. Identification of cases anticipated that the coils had to be unwound and then re-wound
before use in these lines, which necessitated introducing a process
An un-named company was selected with a large number for preparing the coils for use, resulting in extra capital cost and
of manufacturing plants and a working capital of about 1.3 billion caused major delays in starting the operation. The decision was
US dollars. Over the preceding years, the company instigated taken individually by the chief executive and integration of this new

Table 1
Case 1 as a strategy event.

Strategy event Asset solution Intended contribution

Diversifying products for entering competition in international Development projects New products Quantity (Tons)
markets and covering local demand Hot-Briquetted Iron HBI Module HBI 650,000
Galvanizing and Coating Production Galvanized and coated coils Galvanized (80,000) and
Line (G&C Line) and sheets coated (40,000)

Table 2
Resulting Asset Solution Provision and its indications for Case 1.

Asset solution Provision of asset solution and its indicators

Development of new Galvanizing and Coating Line (G&C Line)  Intended to add new products: galvanized and coated coils and sheets.
 The provision involved deciding on the required increase in capacity, selecting supplier, making
contract and following up on implementation.
 The provision was done through outsourcing the design.
 Implementation was supervised by ad hoc a project team.
 Supplier had problems with compliance to requirement.
 Project was not delivered on time, unsuccessful commissioning.
 There were design integration problems resulting in unfit input coils.
 Problem in construction caused stoppage of operation and reconstruction.

Development of a Hot-Briquetted  Intended to add HBI as a new product.

Iron (HBI) Module  The provision involved deciding on the required increase in capacity, selecting supplier, making
contract, and following up on implementation.
 The provision was done through outsourcing design.
 Implementation was supervised by ad hoc a project team.
 Supplier complied to requirement because of familiarity with existing company assets and plants.
 Project was delivered on time and successfully commissioned.
 K. El-Akruti et al. / Int. J. Production Economics 146 (2013) 227–239 231

project with existing plants was overlooked. The supplier was for the G&C Line reflect poor performance and negative impact on the
selected based on low initial capital cost. It was not clear from the business objectives as shown in Fig. 4.
contracting documents whether the supplier or the company did not Many interviewees considered the G&C Line unfit for the
provide information to avoid this problem. The marketing manager strategy and a complete disaster. A summary of these resulting
indicated that the feasibility study done by the foreign consultant asset performance indicators is presented in Table 3.
showed that this G&C Line was an opportunity to supply part of the The G&C Line experienced provision problems that resulted in
demand in Europe. However, the company failed to provide the low performance during utilization that impacted on the business
proper asset solution as a response to this market trigger. In contrast outcome as low quantities of exports. Hot-Briquetted Iron (HBI)
to the G&C Line, managers indicated that a contract was signed for reflected a positive impact on the business objectives. The busi-
the HBI module with the same supplier that previously implemented ness performance and value contribution relative to Case 1 can be
similar modules at the establishment of the company. As a result, summarized as shown in Table 4.
this supplier knew exactly what was required for the integration.
Indications of this Asset Solution Provision are in Table 2.
5.1.2. Stage 2 – Drawing implications from the phenomena
5.1.2.1. Mapping and interpretation of status of activities. Evidence
5.1.1.3. Establishing indications of resulting performance, outcome and of the status of activities has been established by investigating
contribution. In most of the interview transcripts, there are indications records and data extracted from interviews with relevant
that the HBI module performed well with positive contribution but managers. Actions were mapped relative to activities at the three
the G&C Line performed badly with negative contribution to organizational levels. The mapped strategic activities in Table 5
organization strategy. This is confirmed by performance indicators in imply that the inadequacy of the AM system strategic planning
the company records over the years. Relevant indicators have been and control activities resulted in inadequate specification of
extracted from records: for HBI module these reflect high performance requirement for new assets, lack of determination of priorities,
and positive impact on business outcomes as shown in Fig. 3 but those technical capabilities and design, and lack of integration of new

Achievement/Design Achievement/Plan Export/Production Achieved % Usage in SMS

120%
100%
80%
60%
40%
20%
0%
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Years

Fig. 3. Percentage of HBI Module achievement indicators over the years.

Achievement/Design Export/Production Achieved Design (100%)

120%
100%
80%
60%
40%
20%
0%
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Years

Fig. 4. Percentage of G&C Line achievement indicators.

Table 3
Asset performance and its resulting indicators for Case 1.

Asset solution Indications of resulting asset performance

Development of Galvanizing and Coating Line (G&C Line)  Intended for introducing new products.
 Resulting in long stoppage of operation due to reconstruction.
 Resulting in low utilization rate.
 Achieving less than 50% of its production capacity.
 Experiencing shortage in input coils.
 Resulting in high production stoppages.
 Resulting in high production cost and high product unit cost.
 Economically became short of covering its fixed cost.

Development of a Hot-Briquetted Iron (HBI) Module  Intended for introducing a new product.
 Resulting in high availability and utilization rate.
 Resulting in low stoppages and delays.
 Resulting in high productivity, reliability and production rate.
 Resulting in high product quality and export quantities.
232 K. El-Akruti et al. / Int. J. Production Economics 146 (2013) 227–239

Table 4
Resulting business outcome and value contribution to strategy for Case 1.

Asset solution Business outcome indicators Value contribution indicators

Development of a Hot-Briquetted  High achievement rate.  Intended contribution was to enter new markets with new products that have
Iron (HBI) Module  Low product unit cost. competitive quality.
 High export quantities.  Positive resulting contribution: became a major export (over 50% of company export).
 High revenues.  Financial gains: increased exports, revenues and profitability, increased market share
 High profitability. and enhanced the good reputation.
 High quality products.
 Customer satisfaction.

Development of a new  Low production rate: only less than  Intended contribution was to enter new markets with new products that have
Galvanizing and Coating Line 50% of design capacity is achieved. competitive quality and price.
(G&C Line)  High product unit cost.  Negative resulting contribution: have not contributed to increasing export, financial
 Unable to cover fixed cost. losses, could not payback its capital cost, and became a burden on the company.
 Cancelation of orders.  Caused loss of opportunity to gain more share in international market.
 Low export quantities
 Customer dissatisfaction.

Table 5
Mapping the AM system planning and control activities related to Case 1.

Elements of framework Status Indication of action and/or resulting outcome

(Fig. 1)

Analysis and evaluation Absent  No real analysis to define needs of new assets.
 No real evaluation to determine priorities, capabilities, design and integration of new assets with existing facilities.
 Inadequate analysis and evaluation of requirement in the case of the G&C Line resulted in poor performance that led
to losses and lack of meeting the intended strategy.
 The selection of a supplier familiar with existing context in the case of HBI module served as a substitution for analysis
and evaluation activities on the organization side.

Decision making Inadequate  Decisions were business driven and lack of technical consideration.
 Decisions were based on CEO′s expertise and did not involve asset managers.
 Decisions to adopt G&C Line or HBI projects did not consider priorities, technical designs and capabilities for new asset
or project selection and integration with existing assets and facilities.

Coordination and Exist/  Existed at the aggregate level for implementation of projects.
planning inadequate  Handled manually by project teams that lacked expertise and experience.
 Inadequate planning and coordination with suppliers played a part in resulting problems during project implementation.
 Adequate coordination and planning for sales, operation and maintenance existed in terms of well managed departments.

Work task control Exist/  Operational work tasks control adequately existed, e.g., operation and maintenance departments were well managed
inadequate in terms of control and execution of tasks in general.
 The construction defects associated with G&C Line project indicate lack of task control and supervision.
 Inadequate task control and supervision of projects is due to lack of expertise of team members.
 That data accumulation was mostly manual or semimanual led to poor linking mechanism.

Measurement and Exist  Data gathered in shift reports presented indicators for weekly reports.
monitoring  Many measured parameters but mostly lagging indicators reported.

Control and reporting Exist  The submitted reports through different stages of the projects indicated the existence of adequate reporting on indicators
and compliance to plans.
 Reporting was done manually or semimanually.

assets with existing facilities. This is evident from the analysis and taken without considering AM or consulting the managers of
evaluation relative to requirement in the case of the G&C Line. existing assets on the overall development priorities in the organi-
The decisions to adopt G&C Line or HBI projects were business zation, integration with existing assets, or their requirements.
driven and lacked technical consideration. The chief executive con- Missing the analysis and evaluation for these actions in this case
tracted a foreign consultant to do a research study to decide on a confirms the inadequacy of a critical part of the strategic planning
possible expansion to produce new products and enter the interna- and control activities proposed in the hypothesized framework. That
tional market. According to many managers, the study was focused these strategic activities were lacking was made evident by the
on what products should be introduced but overlooked the internal production director and marketing manager. According to them, this
capability factors: it provided inadequate information on the integra- inadequacy has led to the problem in the implementation of the G&C
tion of new assets with existing assets for technical capability. Line by resulting in a lack of coordination between supplier and
The managers of existing assets were not involved in selecting implementation team due to inadequate contracting, incomplete
suppliers or in setting the contracts. Therefore, the decision was information and lack of expertise of team members.
 K. El-Akruti et al. / Int. J. Production Economics 146 (2013) 227–239 233

Table 6
Mapping the AM system strategic relationships related to Case 1.

Elements of framework (Fig. 1) Status Indication of action and/or resulting outcome

Identification of strategy triggers and definition Inadequate  The analysis and evaluation to identify strategy events and relate them to asset requirement
of strategy event/change or performance were missing.
 Market studies were outsourced to foreign consultants that did not consider local
market factors.
 Less consideration of local market demand increase than export and improper forecasting
of such increase.
 Overlooking the priority of local demand increase over export.

Definition of the required outcome and asset Inadequate  The analysis and evaluation to define the required asset, its performance, business output
performance to achieve strategy and requirement were missing.
 Definition of required business outcomes focused on export and overlooked local demand.
 Inadequate definition of asset requirement to cope with the business outcomes.
 Inadequate definition of long run requirement.
 Inadequate definition of life cycle cost requirement.
 The evidence that the requirement for integration with existing assets was overlooked.
 Lack of interaction between AM and business management led to a G&C Line project that
failed to achieve targets.
 Resulting in problems associated with G&C Line′s input coils.
 The G&C Line contributed negatively toward strategy.
 Resulting in high losses, high costs, delays and cancelation of customers′ orders, low customer
satisfaction, less competitive and consequently damaging the reputation of the company.

Definition and provision of assets solution Inadequate  Proper activities to contract, acquire, deploy and install assets were missing.
and alignment with required performance and  Inadequate provision led to failure to meet the set targets.
resources  Asset requirements were overlooked.
 Inadequate contracting terms and clear documentation has resulted in unclear
supplier responsibilities.
 Implementation of G&C Line project resulted in problems.
 Implementation problems of G&C Line project impacted on business outcomes and had negative
contribution to strategy.
 For the HBI module project, a selection of a familiar supplier with existing assets led
to its successful implementation.

Setting strategies, policies, targets and Exist/  No clear policies or strategies for assets acquisition.
aggregate plans inadequate  Inadequate experience of setting strategies and adopting plans for supervision of projects′
implementation.
 Adequate operation and maintenance strategies or plans existed.

5.1.2.2. Mapping and interpretation of status of relationships with 3) Selecting the same supplier of the two older modules provided
strategy. Evidences from company records and interview transcripts familiarity and capability to avoid any problem in design or
summarized in Table 6, indicate an absence of interaction between integration with other facilities.
the asset managers and strategic decision makers proposed by the 4) Selecting a project team familiar with the older modules
framework. This interaction was missing the required analysis and helped to maintain successful implementation and utilization.
evaluation to provide feed-forward to support the decision. It was
also evident from replies that if the analysis and evaluation activities For G&C Line, the indicators have shown that it was a disaster
existed, better alternatives could have been considered. because it had a negative impact on the organization′s ability to
Although the evaluation and analysis activities were missing at the achieve its strategic objectives and affected their reputation with
time, it is essential to determine what action led to a disaster in the customers. From the interpretation of the decision, provision, and
G&C line and a success in the HBI module. The reason given by quality results of the G&C Line project, it is concluded that the company
control manager was probably luck to contract with the same supplier lacked those evaluation and analysis activities to establish the
of existing DR modules. Most managers did not say why or how the right decision relative to alternative investments, indeed most
same supplier was selected but that the selection did make a decisions were based on minimum capital cost only, and over-
difference. They also stated that the HBI module was similar to those looked the other life cycle costs. Missing expertise and experience
old modules and the ad hoc team had experience with those similar and lack of allocating responsibility of the AM activities led to
modules. Furthermore, one of the project implementation supervisors absence or inadequacy of evaluation and analysis activities, and
stated that this HBI model was easy to integrate with existing facilities. interaction with strategic planning which resulted in an inade-
It did not depend on input from other plants therefore integrating and quate provision and implementation reflected in terms of:
fitting it to the old modules and supporting facilities or services was
easy in addition to having the same supplier of the old modules. 1) Selecting a supplier based only on low capital cost due to lack
In summary, the right decision-making to purchase and install of analysis and evaluation.
the HBI module is ascribed to the following: 2) Lack of proper contracting procedure due to lack of experience.
3) Lack of expertise in supervising and coordinating the project.
1) The decision was based on the right prediction of the market
need or demand. An overall conclusion regarding the strategic role of AM can be
2) Being a single business unit supplying its output directly to the made from the results of Case 1 as follows. The absence or
international market minimized the interfaces and so the need inadequacy of proper AM system activities and relationships conflicts
for integration with the rest of the existing facilities. with the strategy and results in an inadequate performance and
234 K. El-Akruti et al. / Int. J. Production Economics 146 (2013) 227–239

outcome that cannot fulfill to achieve the organizational strategy or 5.2.1.3. Establishing indications of resulting performance, outcome
the competitiveness. and contribution. These indicators evidence that the introduction
and application of these solutions enhanced performance in the
following aspects:
5.2. Case 2 – Replacement and repair optimization of assets
1. Increased availability, reliability, and productivity of the EAF,
including a reduction in stoppages for replacement and repair
5.2.1. Stage 1 – Establishing the phenomenon
by application of the developed lining replacement model. This
5.2.1.1. Establish the asset solution in response to a strategy event. Case 2
resulted in savings, values and criteria as presented in Table 9.
is a set of asset solutions as responses for continuous improvement
2. Eliminated pour-backs leading to a better process yield, reduced
strategy. These solutions aimed at optimized performance to
delays in casting, energy, time, and utilities, and increased the
enhance customer value and remain competitiveness. The strategy
quality of billets, blooms, and slabs by introducing the ladle
event and asset solutions for Case 2 are summarized in Table 7.
furnace.
3. Provided better control and helped produce more precise steel
grades/alloys leading to better final products quality by replacing
5.2.1.2. Establishing indication of provision actions. The resulting Asset those external cooling rolls by internal cooling ones. Example of
Solution Provisions and its indications are summarized in Table 8. the related benefit is due to improved yield from 85%, 86% to
These solutions established decision criteria based on analysis and 92%, 95%, for the two production lines.
evaluation done by the technical support and development to
optimize life cycle cost of specific assets. For example, Figs. 5 and The asset performance and its resulting indicators are summar-
6, show the analysis that determined the criteria for optimizing ized in Table 10. The business outcome and customer value
replacement and frequency of hot repair for one lining supplier. This contribution in this case as summarized in Table 11 is an outcome
department was able to analyze the alternatives and performance from asset performance.
data and conducted cost and benefit analysis to introduce the ladle
furnace and replace the external cooling rolls in the continuous
casting as evidenced in Table 8. These solutions represent the 5.2.2. Stage 2 – Drawing implications from the phenomena
evaluation and analysis that provided a view on the economics of 5.2.2.1. Mapping and interpretation of status of activities. Evidence
repair and replacement for decision making. of the status of the AM system activities at the strategic level is set

Table 7
Strategy event and asset solutions for Case 2.

(1) Strategy event (2) Asset solutions

The strategy of optimizing performance to achieve competitive quality, quantity and unit cost of products EAF lining replacement and repair optimization.
and sustain profitability. Introduction of the ladle furnace.
Replacement of cooling rolls in continuous casting.

Table 8
Resulting Asset Solution Provision indicators for Case 2.

Asset solution Asset Solution Provision indicators

Replacement and repair optimization  The provision of this solution involved undertaking the research in conjunction with a university to develop the model
modeling of EAF based on the working lining life cycle cost.
refractory lining.  It involved determining optimum working lining replacement time, critical repair sequence and optimum repair limits
and optimum material supplier.
 It involved determining a clear procedure to follow for the application of models for optimum replacement, repair
and supplier lining material selection.
 It involved estimating the value lost due to repair or replacement stoppages.
 It involved application of the models for achieving optimum performance.

Development in terms of introducing the  The provision of this solution involved undertaking the study by the technical support and development department in
ladle furnace coordination with the Steel Melt Shops departments to decide on the development of the ladle furnace and its acquisition
in 2001. and installation.
 The study involved comparing the benefit and cost of introducing the ladle furnace under the existing and expected
operation conditions.
 The outcome of the study advised introducing the ladle furnace.
 The provision also involved selecting supplier, making contract and following up on implementation, commissioning,
operation and maintenance.

Development in terms of replacing external  The provision of this solution involved undertaking the study by the technical support and development department in
cooling rolls by coordination with the Steel Melt Shops departments to decide on the replacement.
internal cooling rolls in the continuous  The study involved comparing the benefit and cost of both types under the existing and expected operation conditions.
casting in 2001.  The outcome of the study advised replacement of external cooling rolls by internal cooling rolls.
 These internal cooling rolls were purchased and installed in place of the external cooling ones.
 K. El-Akruti et al. / Int. J. Production Economics 146 (2013) 227–239 235

Cwa Cra Cha Cca Cta

1400

1200

1000

COST (ED)
800

600

400

200

0
0 20 40 60 80 100 120 140 160 180 200 220 240 260 280 300 320 340 360 380 400
LIFE (HEATS)
Supplier-B: Life Cycle Average Cost
Fig. 5. Determining the optimum replacement (Technical Support and Development Department Records).

No of Gunning Occurrence Gunning per Period

10
Gunning (Ton) or No. of Occurrence

0
1 4 7 10 13 16 19 22 25 28 31
Periods
Supplier-B: Gunning amount
Fig. 6. The Hot Repair Sequence (Technical Support and Development Department Records).

Table 9
Optimum performance indications (Technical Support and Development Department Records) (El-Akruti, 1999).

Parameter Unit Material suppliers

Supplier-A Supplier-B Supplier-C

Replacement cost $ 175,490 161,614 152,613

Cold repair cost $ 91,446 91,446 91,446
Maximum gunning Ton 5.20 6.0 5.50
Hot repair period length Heats 10 10 10
Max. hot repair cost per period $ 13,682 14,007 15,907
Optim. EAF working lining life Heats 278 319 229
Cold repair limit Heats 120-to-130 110-to-120 80-to-90
Cold repair actual application – Not Feasible Feasible Feasible
Total cost per heat (Cta) $ 1426 1544 1652
Total cost per ton of liquid steel $ 15.6 16.8 16.8
Expense in terms of use – Cheapest Moderate Most Expensive
Priority for use – First Second Third
Optimum life achievement – Always achieved, or overpassed Rarely achieved but Never achieved and much less
close to
Priority of safety based on optimum life – Highly safe since it overpass Moderately safe since Low safety since it never reaches
achievement it is close to
Total annual cost based on use of each suppliers $ 5,436,058 5,887,760 6,298,710
material alone
Matrix for annual savings or losses based on optimum life criteria of one EAF
Material supplier Supplier-A Supplier-B Supplier-C
Supplier-A – $451,703 $862,653
Supplier-B $862,653 – $410,950
Supplier-C $862,653 $410,950 –
Result by comparing actual life to optimum life High savings by not overpassing Almost zero losses by High losses because optimum life is usually
optimum life being close to achieving not achieved
optimum life
236 K. El-Akruti et al. / Int. J. Production Economics 146 (2013) 227–239

Table 10
Asset Performance and its resulting indicators for Case 2.

Asset solution Indications of resulting asset performance

Replacement and repair optimization modeling  Improvement in performance of EAF by applying the model.
of EAF refractory lining  Increasing EAF availability by minimizing repair and replacement time.
 Increasing EAF reliability by determining critical repair sequence.
 Increasing productivity as a result of higher availability and reliability.
 Reducing cost and stoppages for replacement and repair and increasing the production rate.
 Resulting in optimum refractory lining life cycle leading to higher availability and utilization and lowering
refractory lining life cycle cost by 10–15%.

Development in terms of introducing the ladle  Facilitated heating within the ladle to keep temperature of liquid steel as required for continuous casting.
furnace  Led to better control of quality and achieving more precise steel grades/alloys.
 Provided the ability to sustain the temperature at the suitable level for casting and eliminated pour backs.
 Reduced process losses such as energy, time, logistics and yield losses.
 Enhanced product quality, increased productivity and reduced process losses and resulting in lower cost.

Development in terms of replacing external  Helped overcome the formation of scales on slaps in steel melt shop 2 and on billets or blooms in steel melt shop 2.
cooling rolls  Eliminated those stoppages due to adjustment of the water cooling rate to keep uniform surface cooling of those
by internal cooling rolls in the continuous external cooling rolls.
casting  Resulted in achieving a smother rolling in the down-stream processes of flat mills or long mills due to scales
elimination.
 Resulted in enhancing the utilization in the rolling processes leading to higher productivity, better final products
quality and less processes stoppage or breakdown.

Table 11
Resulting business outcome and value contribution to strategy for Case 2.

Asset solution Business performance and value contribution indicators

Replacement and repair optimization modeling of EAF  A better business outcome is achieved as a result of applying this model.
refractory lining  A lower liquid steel unit cost was achieved as a result of: optimum lining life cycle cost while
maintaining high availability, reliability and utilization.
 The better asset performance contributed to increasing the production, the quantity and quality
of final products and lowering cost of all final products.
 A 10–15% saving in the lining life cycle cost.
 Resulted in competitive prices of products and higher profit margin.

Development in terms of introducing the ladle furnace  Introducing a ladle furnace resulted in better business outcomes.
 Eliminated pour backs and many other process losses that led to higher productivity, more
production and lower product unit cost.
 Facilitated better control that enhanced final products quality.
 Resulted in a positive contribution by obtaining more precise steel alloys.
 Contributed to lowering unit cost of all products and enhancing quality.
 Contributed to better products quality and gaining more competitive prices of products or
higher profit margin and maintaining a competitive position.

Development in terms of replacing external cooling rolls by internal  This replacement resulted in better business outcomes.
cooling rolls in the continuous casting  Resulted in reduced maintenance and replacement cost in steel melt shops.
 Enhanced utilization in the rolling processes leading to better quality.
 Resulted in a better quality slabs or billets produced.
 Contributed to increasing final products′ quality, quantity and lower unit cost.
 Contributed to better products quality and gaining more competitive prices of products or
higher profit margin and maintaining a competitive position.

out in Table 12. For all three solutions of this case as shown in It is also evident that analysis and evaluation as part of the AM
Table 9, the analysis was coordinated between the technical strategic planning and control activities as proposed by the frame-
support and development department and the operation and work served the organization strategy. The coordination between
maintenance departments of the steel melt shops. For all the the technical support and development department and main-
three solutions, the technical support and development tenance, operations and quality departments served the selection
department assisted in the analysis and decision regarding the and adoption of asset solutions to support many initiatives and
selection and adoption of these solutions. resolve operation and maintenance problems.
It is obvious that the strategic planning and control activities As set out in Tables 12 and 13, the existence of these AM system
existed as a result of coordination between these departments and activities served in maintaining relationships, better suited main-
provided a means for conducting analysis and evaluation activities tenance and operation strategies, confidence in production and
that helped make AM decisions related to development, main- maintenance planning and reporting on those key performance or
tenance, and operation practice. compliance indicators.
 K. El-Akruti et al. / Int. J. Production Economics 146 (2013) 227–239 237

Table 12
Mapping AM system activities relative to Case 2.

Elements of framework Status Indication of action and/or resulting outcome

(Fig. 1)

Analysis and evaluation Exist  The establishment of the technical support and development department one year prior to this event served in providing the
required analysis and evaluation for selecting and adopting the proper asset solutions that improved performance to meet
strategy.

Decision making Adequate  Due to the existence of appropriate analysis and evaluation by the technical support and development department, decisions in
this case were adequately taken.

Coordination and Exist/  The coordination and planning activities were adequate among technical support and development, maintenance and operation.
planning adequate  All requirements for analysis and evaluation were.
 Operation and maintenance coordination and planning existed in terms of well managed departmental procedures.

Work task control Exist/  Operational work tasks control adequately existed.
adequate  Operation and maintenance tasks were well managed.
 Data accumulation was mostly manual or semimanual.

Measurement and Exist  Data gathered in shifts presented indicators for weekly reports.
monitoring  Technical performance measurement indicators established.
 Many measured indicators but mostly lagging indicators.
 Condition monitoring was limited to time based inspection.

Control and reporting Exist  The performance reports are periodically produced.
 There is existence of adequate reporting on compliance to plans.
 Reporting is mostly manual and focused on lagging indicators.

Table 13
Mapping the AM system relationships related to Case 2.

Elements of framework (Fig. 1) Status Indication of action and/or resulting outcome

Identification of strategy triggers and definition of Exist/  Benchmarking studies done by the technical support and development department helped
strategy event/change adequate identify many triggers.
 Benchmarking defined higher than competitors costs.
 Reviewing available technology served to identify solutions.

Definition of the required outcome and to achieve Exist/  Benchmarking analysis helped define required outcomes.
strategy adequate  Analysis by the technical support and development department provided the link between AM
and business management.
 Analysis resulted in defining requirement for appropriate decisions such as the life cycle cost
analysis.
 The resulting performance improvement indicates that it was as targeted and that it had positive
impacts on the strategy.
 All three solutions contributed to the strategy by optimization: minimum cost, maximum
production and sustainable quality.

Definition and provision of assets solution and Adequate  All three solutions were provided based on coordination between relevant departments and
alignment with required performance and proper analysis.
resources  The EAF model as a solution was developed based on research done in association with a local
university.
 Implementation of solutions was successful, shared by operation, maintenance and in
coordination with technical support and development.

Setting strategies, policies, business targets and Exist  These solutions changed the operation, maintenance and replacement strategies in steel
aggregate planning melt shops.
 Implementation strategies of these solutions were coordinated between departments.
 These solutions served in coping with business targets.
 Annual business, production and maintenance plans were made based on business targets.

5.2.2.2. Status of AM system relationships with strategy. From realization led the company to improving its performance. Objec-
Table 13, it is clear that the relationships in the AM system with tives were set to reduce unit costs below those of its competitors
the strategic management are enhanced by the analysis and while sustaining quality leadership. Therefore, the company had to
evaluation activity provided through the coordination between find new methods of minimizing its production costs while
the technical support and development department and other maintaining the high quality of its products. The first steps taken
departments and that this enhancement contributed to the to minimize production costs focused on the melting process in
organization′s success. steel melt shops because it was thought to be a major cost
With respect to this case, the benchmarking showed that the contributors for all the products. The matter was allocated to the
company had higher production costs than its competitors. This new established technical support and development department,
238 K. El-Akruti et al. / Int. J. Production Economics 146 (2013) 227–239

which has done the analysis in coordination with the related suggested to exist previously, this framework is a reflection of the
departments in the steel melt shops. AM system elements required for proper strategy making. It
It is concluded that two of the three solutions in Case 2, provides a more AM-oriented, systematic and holistic approach
improved performance and contributed positively to the organiza- to analyze activities, relationships and mechanisms that constitute
tion strategy achievement. This confirms that the independent AM the linkage between AM and strategy. In this paper, emphasis is
control between decision making, solution provision and the directed toward utilizing this framework to provide evidence of
resulting performance of asset-related activities has an effect on the role of AM in strategy making as discussed thoroughly in the
strategy achievement. The results from these three solutions also analyzed case studies. The case studies highlighted that the effect
imply that the life cycle cost is essential for AM control in of inadequate or missing elements of the framework can result in
considering the inter-dependence of asset-related activities along negative impacts on cost, productivity and quality and ultimately
the life cycle stages. business outcomes.
AM as defined by the hypothesized framework has a key role to
play in strategy development and implementation. This strategic
6. Overall findings from the two cases role is maintained based on planning and control of the asset-
related activities. This planning and control mechanism is pro-
Overall, having the AM activities in place as proposed by the vided as a framework that explains how the AM activities,
framework and managing the inter-relationships between asset- relationships and mechanism account for the interdependence
related activities for decisions related to development, performance, between the asset-related activities and lead toward successful
strategic planning are of essential requirements for success. The role strategy achievement. The case supports the proposition that in
of these AM strategic planning and control activities is critical to managing the interrelationships between asset-related activities,
achieve any production or quality improvement strategy for the the adequate existence of AM activities, relationships and mechan-
organization to compete successfully. ism as proposed by the framework is an essential requirement for
Case 1 and 2 show that the existence of proper AM system success. This AM planning and control mechanism is critical to
activities and relationships result in an adequate asset perfor- achieving an organization′s strategy. In addition, inadequacies in
mance and business outcomes to achieve the organization′s one activity represented in the framework can result in other AM
strategic goals. activities being inadequate and resulting in unsuccessful strategy.
For Case 1, the poor results are indications of absence or
inadequacy of those proper AM activities proposed by the frame-
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