The last thing you want to do today is to waste resources. With funding sources plummeting, every penny counts in the biotech industry. A major loss of revenue can come from an unexpected and calamitous equipment breakdown. For every second the equipment is offline, production and income are lost due to the instrument’s and the employee’s downtime.
What is Asset Utilization?
Asset utilization, or fixed asset turnover, is an important ratio for every lab manager to know. Asset utilization indicates if your lab instrument is being used to its full potential and efficiency. Asset utilization monitors your equipment’s performance to help increase sales revenue and/or improve productivity. Simply stated, the higher the ratio, the more efficient the management of the lab instruments and the greater the sales and output potential – though there are circumstances when a high ratio can be deceiving.
Lab equipment, unless rented or leased, is considered one of your organization’s fixed assets, along with property and buildings. Over time lab equipment depreciates in value. In the eyes of the IRS, the expected life for lab equipment is 10 years. So determining the realistic expected life time of your lab equipment is needed to figure out the asset utilization ratio.
Asset Utilization Ratio AKA Fixed Asset Turnover Ratio
The fixed asset turnover ratio is expressed as:
Fixed-asset turnover = net sales / average net fixed assets
Your net sales could also be your net production levels or net funding accrued. The average net fixed assets are the cost of the fixed asset less their depreciated value.
What you are determining is: for every dollar spent on fixed assets, how much revenue am I earning OR how productive am I?
A high ratio tells you that your fixed assets are working efficiently. As mentioned above, a ratio that is too high may also indicate that your equipment is too old and past its depreciated value life span.
How to Improve Your Asset Utilization Ratio
Improving your asset utilization ratio can be achieved with a number of different ways:
- Replace equipment past its useful life — Know the expected life of each unit
- Maintain your instruments in proper working order — Take care of small problems so they don’t become big ones
- Schedule regular maintenance — Preventative maintenance ensures fewer breakdowns
- Know the piece of equipment’s efficiency level — What should be the output?
- Regularly test for efficiencies — Schedule your testing on the calendar
- Record all testing results – Keep good records
- Compare testing results over set time periods — Can alert you to any issues with a change in efficiencies
Maintaining the highest efficiencies of your lab through the close monitoring of your asset utilization ratio will contribute to both your bottom line and production levels.