Asset Replacement: Your Guide to the Top 3 Proven Approaches

You’re the head of maintenance at a manufacturing company, facing your worst nightmare on the job. A precision drill press that your business depended on for more than 15 years suddenly fails. While it had been an effective workhorse, you knew its asset lifecycle was nearing its end. But you didn’t have a plan in place for asset replacement. The inevitable equipment failure led to a frantic search for a new asset, costing tens of thousands of dollars in a rush procurement and causing a significant disruption to the production line. This is a prime example of an unplanned capital expenditure due to a lack of proper asset management.

This type of unexpected downtime is a scenario countless businesses face. To prevent such a catastrophe, companies across sectors need a proactive, defined strategy for replacing or upgrading equipment, known as an asset replacement policy. This policy ensures that existing assets are replaced at the right time — before they break down — based on maintenance metrics like age, condition or usage rates. A key part of this strategy is the careful allocation of resources and accurate valuation of assets.

But how can you tell when an asset reached the end of its useful life? And what are the benefits of a more proactive approach? In this guide, you’ll see multiple defined approaches to asset replacement and the benefits of each. It’s a key part of your capital budgeting process, helping you to forecast future needs and optimize your spending.

Why Your Team Needs a Clear Asset Replacement Policy

Building a thorough asset replacement policy is critical for maximizing efficiency and productivity while mitigating the risk of unforeseen equipment downtime. Here are the core benefits of having an asset replacement plan in place:

• Reduced unplanned downtime: Asset replacement mitigates unexpected downtime by dealing with aging or malfunctioning equipment before it breaks down. Reduce the likelihood of equipment failures that could halt production or disrupt services by addressing potential issues early using predictive or preventive maintenance strategies. 
• Increased operational efficiency: Keep your equipment fully reliable and performing at its optimal level. Replacing outdated assets or ones with extensive wear and tear can reduce downtime and help you avoid costly repairs. This proactive maintenance management approach allows your maintenance team to focus on the tasks that matter, streamlining operations and maintaining a smooth workflow. This also helps improve the overall sustainability of your operations.
• Controlled costs: Asset replacement controls your business’ overall total cost directly by preventing the need for expensive emergency maintenance on aging equipment that can halt operations and result in significantly higher maintenance costs. This can be a key part of your financial management strategy and can also reduce labor costs. By considering the lifecycle cost, you can make more cost-effective decisions. This also helps with cash flow and reduces annual and straight-line depreciation.
• Improved safety: Keeping equipment up-to-date and functioning properly mitigates the risk of malfunctions and accidents that could endanger employees and lead to injuries. An effective asset replacement plan creates a safer work environment, reducing injury risks while maintaining regulatory compliance. 

Real-World Asset Replacement Strategies

Approach 1: The Age-Based Asset Replacement Policy

The age-based asset replacement policy is the simplest and most straightforward approach. With this approach, you replace an asset after a set number of years, regardless of their condition. This works best with assets, such as computers or vehicles, that have predictable lifecycles and are easier to maintain and service. Benchmarking your fleet against industry standards can help in this process.

When to use it: This policy is ideal for standardized assets with clear end-of-life markers, such as fleet vehicles or office equipment.

The McCluskey Group, for example, uses Coast to manage equipment across 33 Tim Hortons franchises because they had a lot of downtime. “We had a repair and maintenance worker who we brought into the company, but he didn’t know what was broken or the spare parts he needed, so he’d spend a lot of time going to get them,” says Tara Lee-Hendrycks, director of operations with The McCluskey Group.

With better maintenance management policies in place, their maintenance technicians became a lot more efficient, reducing equipment downtime as well as reducing maintenance expenses by 50 percent in that first year after implementing Coast as their computerized maintenance management system (CMMS).

Approach 2: The Condition-Based Asset Replacement Policy

The condition-based replacement approach leverages real-time data from inspections and performance monitoring to make informed decisions around when assets need to be replaced. Rather than adhering to a fixed timeline, assets are replaced as needed when their performance falls below a certain threshold or their condition deteriorates significantly. This proactive approach works effectively when real-time data and regular monitoring are used to ensure that equipment remains in good working order.

When to use it: This approach is best for your most critical assets in which failure could result in significant operational disruptions. Predictive maintenance technologies must be in place to monitor the health of machinery over time in an efficient and accurate capacity.

At Open Sky Zion, the luxury glamping facility leverages Coast maintenance reports to monitor the status of the fireplaces in each tent, so they immediately know when one breaks down and needs to be fixed. If the data indicates that one breaks down more frequently than the others, they apply the condition-based asset replacement approach and replace the fireplace altogether. 

Approach 3: The Hybrid Approach for Asset Replacement

The hybrid approach uses both age and condition to determine when to replace assets. This technique sets a minimum age for replacement value while simultaneously monitoring the asset’s condition in order to replace it sooner if necessary. For instance, while a forklift might be set for replacement after seven years, it could be replaced sooner if it starts showing signs of mechanical failure after four.

When to use it: A hybrid approach is ideal for organizations with a mix of assets. Think simple, standardized equipment mixed with more complex or mission-critical assets.

The facilities team for the City of Dallas, Ore., manages over 1 million square feet of facilities and adopted a hybrid approach to maintain its assets effectively. By using Coast to track over 50 assets, Dallas can plan to monitor the age of assets like fleet vehicles that should be replaced after a certain amount of time while monitoring the asset condition for critical infrastructure and equipment that could disrupt community safety if it breaks. 

Facility foreman Matt Butler shared that, “Having a software system [that] can store all that [asset] data for you … forces people to start funneling information into one singular point. And then you can start extracting that data,” to make more informed decisions across city-wide assets and infrastructure. 

How to Create Your Asset Replacement Policy

Creating an effective asset replacement policy requires careful planning and analysis, as business needs vary across sectors and companies. Follow these steps for formulating your own strategy:

1. Conduct an asset audit: Assess the age, condition and maintenance history of all of your current assets to build a data-backed foundation for your policy.
2. Classify your assets: Categorize every asset based on functionality, replacement value and importance to your operations. Critical assets typically require more frequent monitoring, while less essential equipment may be managed with an age-based policy.
3. Choose an approach: Decide whether an age-based, condition-based or hybrid approach is most appropriate for each category of asset.
4. Set clear metrics: Define the criteria for asset replacement, including age limits, performance thresholds and maintenance frequency.
5. Document everything: Create a detailed asset replacement document that outlines timelines, processes and responsibilities.
6. Review and refine: Periodically assess the effectiveness of your policy and make adjustments based on data and performance trends.

How a CMMS Helps Streamline Your Asset Replacement Goals

A CMMS like Coast can significantly enhance your asset replacement strategy. Here’s how:

• Asset inventory management: Coast automatically tracks every asset, its age, purchase date and maintenance costs within a maintenance report, providing critical context and data about your asset lifecycle.
• Condition tracking: Store inspection logs, work orders and performance data to monitor an asset’s condition over time to make asset replacement decisions based on actual equipment performance.
• Automated reminders: Coast’s 24/7 alert system ensures that relevant team members are notified when a machine is nearing its lifespan (or has signs of failure) to mitigate the risk of breakdowns and downtime. You can also monitor the current market prices to help reduce the cost of replacing an old asset.

Having a clear and actionable asset replacement policy is crucial for optimizing maintenance processes, controlling total costs and improving overall operational efficiency. Whether you choose an age-based, condition-based or hybrid approach, implementing a structured strategy is key to managing your assets effectively. 

Ready to improve your enterprise asset management (EAM) strategy? Book a demo with Coast today to see how it can streamline your asset replacement goals and help you maintain a well-organized, cost-effective operation.