Guidebook for Considering Life-Cycle Costs in Airport Asset Procurement (2017)

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asset Management Systems Implementation—a Catalyst for Life-Cycle Cost 9 • Information management – Integration with geographic information system (GIS), finance, and other databases – Integration with supervisory control and data acquisition and data historian for asset con- dition monitoring • Modeling, model integration, and visualization – Leverage tools for simulation – Visualize the condition of the assets • Standards – Configure data based on national and international standards – Compliance with regulatory reporting standards Informing Life-Cycle Cost Through EAM EAM data systems house and provide access to information that supports both daily opera- tions and wise capital investments. In this way, EAM systems impact the various operational and managerial levels within any organization. Having key performance indicators (KPIs) for an EAM system allows the organization (front- line and decision makers) to identify the areas of concern within the system, reveal ways to opti- mize the processes, and track cost and the ROI. The most common measures for EAM systems are as follows (Crain 2003): • Planned versus reactive maintenance (cost and number of hours) • Ratio of preventive maintenance of planned (cost and number of hours) • Ratio of predictive maintenance of planned (cost and number of hours) • Schedule backlog (cost and number of hours) • Inventory turns • Cost by equipment class • Maintenance cost as a percentage of equipment replacement cost • Percentage of equipment availability • Loss of revenue These measures are integral for any organization to track costs and resources. Tracking these costs and resources through EAM allows the organization to become more lean, robust, and sustainable. Organizations that implement EAM have claimed a return of three to five times the initial investment within the first 3 years (Maintenance Maven 2015). The average savings on maintenance expenditures range between 10 and 40 percent (Maintenance Maven 2015). A further breakdown of these benefits is in the following list (Berger 2010; O’Brien 2010): • 15 to 20 percent increase in productivity • 15 to 25 percent reduction in equipment failure • 20 to 40 percent reduction in overtime • 15 to 35 percent reduction in spare parts cost • Up to 35 percent reduction in spare parts inventory • Up to 50 percent increase in equipment’s residual value and its life cycle Successfully utilizing and implementing EAM systems at airports is fundamental to tracking and managing the life cycle of assets and reducing the TCO. Once an EAM system is incorpo- rated, it will provide the organization with information that will allow it to make better opera- tional and capital decisions.

10 In asset management, procurement lies at the “beginning” of the asset life cycle. As part of an effective asset management program, procuring an asset requires knowing and considering the total life-cycle cost rather than simply its purchase price. This chapter discusses elements of devising a procurement strategy that incorporates TCO as a way of ensuring new assets support the overall asset management program objectives. Introduction Procurement is an important and strategic driver in the overall process of managing costs and delivering expected levels of service by an organization. Organizations that implement strong and reliable procurement practices are able to reduce costs [capital expenditures (Capex) and operational expenditures (Opex)] and get twice as much measurable reduction as typical ones. This cost reduction comes from gaining a competitive advantage through implementing risk management practices and supplier-driven innovation (Blascovich et al. 2014). Procurement innovations lead to better supplier management, timely procurement of assets, and organization integration and alignment toward a common strategy. Over the years, procurement has progressed from “I need a purchase order for this” to an integral alignment between business units and functional strategies, combined with analysis of market dynamics. As part of the research informing this guidebook, airport personnel were asked about the procurement methods used at their airports (Figure 3-1). The results showed that airports use multiple procurement methods [low bid, request for qualifications/proposals (RFQ/RFP), on-call services, etc.]; however, the one that is used the most is low bid. Implementing procurement best practices realizes many benefits for organizations. These practices can be achieved through having proper planning, processes, policies, guidance, and resources in place (Local Government Victoria 2013). Procurement best practices allow an organization to achieve the following: • Get the best value for the money invested • Provide stakeholders with reliable services • Effectively and efficiently distribute available resources • Comply with federal and regulatory requirements • Reduce and manage risk A study on excellence in procurement concluded that the procurement departments of the most successful organizations had medium to high involvement in the organization’s strategic plan (Blascovich et al. 2014). In these organizations, procurement helps to shape the business strategy and make sure that it is fully aligned with other business processes. A description of the value a procurement organization contributes to the business, as it moves from a transactional to a class-leading one was detailed by Clearview Procurement Business Services (2016). This description of the procurement value is illustrated in Figure 3-2. C h a p t e r 3 Procurement Best Practices and TCO Implementation at Airports