What Is Asset Utilization (And How Do You Calculate It)?

Running a production facility 24/7 is one thing, but most production units power down at least a few hours each quarter. Reasons for this vary across businesses — maintenance teams may need to pause production for routine maintenance, or the equipment might unexpectedly break down. As a result, an asset’s potential isn’t fully realized and that’s where asset utilization comes into play.

In this guide, we dive into the basics of asset utilization. We explain how to calculate it and use it to achieve optimal capacity as well as ways to improve asset utilization when necessary.

What Is Asset Utilization?

The asset utilization ratio is a key performance indicator (KPI) that measures the efficiency with which a business uses its physical assets to generate revenue. Note that it measures actual utilization, which is always lower than potential utilization (an asset’s maximum capacity under the assumption that things are running perfectly).

Picture this: You have an extruder machine that produces polystyrene profiles. Under perfect conditions, the extruder can produce 1,500 profiles per day, but perfect conditions don’t exist in real life. To maximize an asset’s useful life, you need a proactive maintenance schedule, which leads to planned equipment downtime. But sometimes the extruder might stop working unexpectedly because of wear and tear, which leads to unplanned downtime.

That’s why actual asset utilization is almost always less than 100 percent in real life.

Why Is Understanding Your Asset Utilization Ratio Important?

The asset utilization ratio helps identify the status quo (your utilization ratio under normal operating conditions). Any major or abrupt drops in utilization are your cue to jump in to investigate the cause, fix it and restore your normal asset utilization rate.

Here are things that widen the gap between actual and potential utilization:

• Scheduled downtime: Planned maintenance lowers asset utilization in the short run because most assets can’t be used during maintenance. However, proactive maintenance improves asset utilization in the long run because it extends the asset’s useful life.
• Employee breaks or changeover: Manual processes are paused when employees take a break or relay the shift to the next employee.
• Unexpected equipment failure: An asset might stop working because of many reasons. An employee might mishandle the asset, or it might stop working because it needs a repair. Whatever the reason, your utilization rate drops because of unexpected failures.
• Holidays: Any manufacturing process that’s not fully automated must be paused during holidays.

Addressing the root cause of dips in asset utilization:

• Improves efficiency: Higher asset utilization helps produce more and improve operational efficiency.
• Helps increase profit margins: Higher production leads to higher revenue and higher profit margins.

Unfortunately, planned downtime makes it impossible to achieve 100 percent asset utilization. However, you should always aim to keep your asset utilization over 70 percent.

Other Key Metrics Used to Calculate Asset Utilization

Here are some of the various metrics you can use to calculate asset utilization:

• Product yield: Product yield measures the number of “good” units (meaning you’re able to sell them) produced as a percentage of total units produced. A higher yield indicates your equipment is performing effectively and fewer materials are going to waste.
• Overall equipment effectiveness (OEE): OEE is calculated using a combination of quality (percentage of good units produced), performance (actual production as a percentage of maximum production capacity) and availability (uptime as a percentage of standard uptime). High OEE indicates effective utilization. However, you may need to look at some historical data for a piece of equipment to establish a standard OEE threshold.
• Unplanned downtime: You lose productivity when equipment sits idle because of unexpected breakdowns or other disruptions. Track your unplanned downtime to find the root cause and fix it. For example, if frequent equipment failure is causing unscheduled downtime, consider a major overhaul or replace the machine.
• Maintenance costs: High maintenance costs indicate there are underlying inefficiencies in your maintenance processes. The solution could be modifying the maintenance strategy, a major overhaul or replacing the asset. Monitor assets with high maintenance costs and do a cost-benefit analysis to decide if you should optimize maintenance, repair or replace the asset.

How to Calculate Asset Utilization

Calculating asset utilization is mathematically simple, but there are several variables to consider. Here’s how to calculate asset utilization:

Step 1: Calculate the following, and sum them up:

• Planned downtime: Sum up the hours you spend each year on routine maintenance, scheduled overhauls and other annual planned downtime.
• Non-productive hours: Add non-productive hours like staff changeovers, holidays or company-wide breaks if your manufacturing process isn’t fully automated and can’t operate unless employees are present on the factory floor.
• Production hours lost due to external factors: External factors such as low demand or supply chain disruptions can lead to underutilization, even if your assets are operating normally. Add these downtime hours to your tally.
• Unplanned downtime: Unplanned downtime includes production time lost due to equipment failures, random breakdowns or unexpected accidents. Add them to your total.
• Rework: Products that are defective or unsellable require rework, which is additional time spent on activity that doesn’t increase your asset’s output. Add these quality losses to your calculations as well.
• Production rate losses: You incur an implicit loss of productivity when you run equipment at a slow rate to prevent issues. Record the number of hours when you dialed down production speed to achieve better quality instead of focusing on hitting full capacity. For example, suppose the ideal output for a machine is 100 units per hour and when operating at a slower rate, it produces 80 units per hour. That’s a 20 percent loss. Multiply this loss by the total hours the equipment was run at a slower rate. If the equipment was used for 1,000 hours at a slower rate during the entire year, you experienced 200 hours of lost operations time.

Step 2: Calculate asset utilization:

Subtract the total of step 1 from 8,760 (the total number of hours in a year). Divide that by 8,760, multiply by 100 and that’s your asset utilization ratio. Assuming the total of step 1 is 500 hours:

Asset Utilization Ratio = [(8,760 -500) / 8,760] x 100 = 94.3%

An Example of Calculating & Improving Asset Utilization

Imagine a factory that manufactures precision parts using CNC (computer numerical control) machines. The factory has three of these machines, each of which can operate for up to eight hours a day, five days a week.

• Total possible operating hours per week per machine = 8 hours/day × 5 days/week = 40 hours/week
• Total available operating hours for all three machines per week = 40 hours × 3 machines = 120 hours/week

Step 1: Measuring Actual Utilization

Now, let’s say that after tracking the actual hours the machines have been in operation, the factory finds that, on average, the three CNC machines have only been used for 80 hours per week combined (instead of 120 hours).

• Actual operating hours per week = 80 hours/week (for all three machines)
• Asset utilization = (Actual operating hours / Total possible operating hours) × 100
• Asset utilization = (80 / 120) × 100 = 66.67%

This means the machines are being used at about 66.67 percent of their full capacity.

Step 2: Analyzing & Acting on the Results

With this information, the factory managers can take several actions to improve asset utilization:

• Improve scheduling: The factory may be experiencing downtime because of poor scheduling or delays in receiving materials. Managers can adjust shifts or optimize workflows to ensure the machines are used more efficiently.
• Maintenance planning: If downtime is due to unexpected breakdowns, it might be time to implement predictive maintenance to reduce unplanned downtime.
• Increase production demand: If the machines are underutilized because demand for the parts is low, the company might look for ways to generate more business, either by marketing the products more aggressively or expanding their customer base.

Step 3: Potential Benefits

By improving asset utilization from 66.67 percent to, say, 85 percent, the factory could increase production without needing to invest in new machines. Here’s how it could impact the business:

• Increased production output: The factory could produce more parts without the need to purchase additional machinery.
• Cost savings: The factory would get more value out of its existing capital expenditures (the CNC machines).
• Better ROI: With increased utilization, the cost per unit of production decreases, leading to improved profitability.

Improving Your Asset Utilization Metrics

If your asset utilization ratio has dropped or is currently under 70 percent, you need to investigate the problems causing low asset utilization and fix them. Here are some ways to improve asset utilization metrics:

Determine the Root Cause

When equipment fails, don’t just fix it and move on. Identify the root cause — think wear and tear, operator error or poor maintenance — and address it to prevent future failures.

Improve Your Maintenance Program

Reactive maintenance can lead to poor asset performance and costly downtime. Consider shifting to a more proactive approach, such as preventive maintenance or predictive maintenance. Being proactive improves asset lifespan and minimizes unexpected downtime.

Invest in Better-Quality Equipment

Better-quality equipment may come with a bigger price tag, but it pays off in reliability and a longer lifecycle. Poor-quality equipment might be more cost-effective upfront, but it can quickly result in more frequent failures that cause bottlenecks in your production line.

Ensure Team Members Are Trained Properly 

Even the best equipment fails to perform when your team doesn’t know how to handle it. Invest in training to help employees feel more confident about operating and maintaining equipment. This will help you realize the equipment’s full potential and minimize failures caused by operator errors.

Use a CMMS to Digitize Maintenance Scheduling

A computerized maintenance management system (CMMS) digitizes and consolidates asset management data as well as automates your maintenance schedule. Whenever a work order is due, the CMMS notifies the assigned maintenance technician to that work order. When the technician completes the work order, they can mark it as done. This gives your maintenance supervisor complete visibility over work order status in real time, improving maintenance efficiency, equipment reliability and total asset utilization.