Try Sente's TCO calculator, which helps readers see their own potential for dramatic improvements in test equipment management initiatives.

Paul McNamara, CEO
The Sente Group

"What if we could design a way to bring new profitability and speed to our test-related functions?"

For decades, that question has intrigued Finance, Engineering, Operations and Quality executives in high-tech electronic product manufacturing. This explains why scores of companies have launched asset management initiatives aimed at wringing measurable benefits from their test environments. More often than not, however, these asset management initiatives have produced disappointing results. Poorly defined approaches and the lack of sufficient metrics have led to the early demise of many programs.

Market leaders in defense electronics and telecommunications, however, are enjoying profitability improvements of tens of millions of dollars, as well as equipment utilization and engineering productivity improvements—all while enhancing their technology portfolios. So what do they know that the rest don't?

Leaders of these companies understand breakthrough results—saving 50% to 75%—happen by adopting a bolder posture and expecting more. Companies like GE, for example, thrived under Jack Welch because he demanded dramatic results. They also know that effective test equipment asset management requires more than managing assets.

Three Parts, Not One
If improving business performance were just about managing test equipment, producing big gains would be easy. After all, equipment is much easier to manage than people. Spectrum analyzers aren't moody. They don't have agendas. And they couldn't care less about inter-office politics.

The term "asset management" tends to blind people to the fact that work gets done in a test environment when people use tools to perform specific practices.

Today, though, test equipment asset management approaches tend to focus only on the tools part of the equation. The most common scenario goes like this: management concludes that by deploying asset-tracking software the company can foster increased equipment sharing, thereby cutting test-related capital expenditures.

How significant are the business improvement opportunities in the typical test environment? Consider capital spend. A single piece of new test equipment can cost between $5,000 and $150,000 when purchased new. (Sente's data shows acquisition costs average $9,500 per piece of equipment.) It's common for large OEMs to have, on average, 10,000 discreet pieces of test equipment at a single campus at any given time. At a $9,500 acquisition cost per asset, a typical large company would have $95 million worth of test equipment at a single location. The vast amount of capital expended on test equipment isn't necessarily cause for alarm—especially if these expenditures are needed to make sure engineering personnel can do their jobs. But the picture changes when you consider that industry averages for equipment utilization hover between 5% and 20%. Meaning that at any one time, as much as 95% of a company's test equipment assets are sitting idle. This fact—combined with the size of the installed base of test equipment—suggests that capital spend on test equipment is 50%-75% higher than it needs to be in the typical high-tech product company.

Most asset-management efforts that simply deploy asset-tracking software expect marginal results. Furthermore, these database tools automate many of the practices that users already distrust. Users adopt the low-leverage process convenience of these tools, but still hoard equipment, ensuring the best equipment is not available for broader use, which ultimately drives utilization down and costs up. This is not to say that typical asset-tracking tools available today have no value. If that were the case, no one would buy them. These tools often offer some conveniences, such as automating existing processes like completing a purchase order.

Automating existing practices, however, will not produce dramatic improvements. The key to driving exemplary results lies in the innovation of new sets of practices that are supported by tools and automation. Ultimately, these new practices replace whole sets of old practices. We are not talking about giving a horse and buggy better suspension, rather the equivalent of replacing the horse and buggy with an automobile.

The Sente approach replaces the ad hoc and local practices that have produced inventories deployed inside most companies that are poorly utilized, non standard and often not the most effective equipment for the job. Our sophisticated technology alignment practices, capacity alignment practices and other practices—that as far as we know do not exist elsewhere—are actually responsible for producing the big difference. Do we automate some common practices for convenience? Yes. But we are clear that common practices, whether automated or not, are not what drive dramatic improvements that result in competitive advantage. To gain an advantage over the competition, therefore, companies must go beyond simply automating already existing practices.

Old Habits Die Hard
Test equipment end-users are rightly focused on doing what it takes to keep projects moving forward. Time and budgets are tight. There's little room for missteps or delays.

No wonder end-users are resourceful and even ruthless when it comes to test equipment. They hoard and even hide equipment to ensure it's available next time they need it. They take equipment without properly "signing" it out, and my experience indicates that engineers only follow such procedures 50% of the time. They appropriate equipment they find sitting idle—not knowing whether someone else is counting on that piece of equipment to be there for a critical test the next day. One engineer I spoke with summed it up this way: "Beg, borrow or steal? My only real option is to steal." Over time, these "practices" become deep-seated and habitual.

Then management launches a new asset management initiative, complete with asset-tracking software and a centralized equipment pool. But the program doesn't make engineers feel any more confident that if they release equipment to the pool today, they'll get it back tomorrow. Plus, the technology that people release to the shared pool tends to be the stuff nobody will miss—usually older, even obsolete equipment. So rather than risk not being able to perform tomorrow's tests, end-users quickly find ways to circumvent the new equipment management initiative. Or they ignore it altogether. Best case scenario: new databases automate old practices that have already been proven ineffective.

The bottom-line? When you implement software applications without addressing people's customary behaviors, you limit yourself to marginal results at best. It turns out this phenomenon isn't unique to engineering environments; it's a reflection of how productivity improvement fundamentally happens (or doesn't) in business as a whole.

Put People and Practices First
Momentum Research Group's Net Impact 2005 study confirms that the best way to improve productivity within a business function is to deploy software applications after processes have been re-engineered.

Conversely, when companies re-engineer their processes after or in response to an application deployment, they tend to realize 50% less cost savings than their counterparts that address process first. That's because the primary obstacles to productivity growth are organization/cultural behavior and business processes.

Make no mistake about it: software tools are indispensable to an effective management program. But short of a more holistic approach to managing the test environment—one that includes custom-designed processes for ensuring end-users have what they need when and where they need it—a "tools only" solution will produce limited returns at best.

That's why, when designing a test environment management program, it's critical to start by addressing the people and practices components.

Know Your Customer(s)
In most companies, a test management function has two sets of customers: management and end-users. Think of yourself as a customer service representative within a business. Your two sets of customers have distinct business concerns and distinct metrics for measuring performance. Understand these concerns and metrics, and design your program accordingly.

Leaders in Engineering, Finance and Operations have the power to kill or expand programs. Identify key players in these functional areas. Enroll them early by learning what business results they care about, and designing ways to measure your performance using metrics that work for them.

For example, operating expense and cash flow are measurements used by Finance every business day. But most project leaders outside Finance don't use these metrics to measure their performance. By rigorously and recurrently measuring your test environment management program in financial terms, you can build credibility with the financial leaders who often play an influential role in assessing the value of new initiatives.

Deliver, Deliver, Deliver
Engineers and technicians—the end-users for test equipment—can give life to or kill a program based on their assessment of the program's value. Identify prospective program champions as early as possible. Work with these champions to understand end-users' needs and concerns—and to design practices that are effective in your company's unique test environment and culture.

Start small—at a project or program level. That way, you can earn the trust of a relatively small group of end-users by delivering what they need when they need it without fail. You also begin building a history of success that can be used to make the case for continuing or expanding your initiative.

Delivering for end-users also means making sure they benefit directly from any gains produced by the program. When capital spend is reduced as a result of the program, or lab space is freed up through the sale of unneeded equipment, use the part of the freed up financial capacity to offer better technology to the engineers participating in the initiative.

Engineers focus their resources on completing projects. Every hour an engineer spends on administrative functions related to managing test equipment—research, product comparisons, filling out paperwork, locating equipment, etc.—is an hour that cannot be spent on activities that are core to end-users' roles. If your program helps engineers complete projects faster or at a lower cost, communicate these gains to end-users and functional leaders alike. Of course, this requires that you first design and implement metrics for measuring these impacts.

Measure Key Performance Indicators
As indicated above, it's smart business to measure your program's effectiveness in terms that are relevant to specific internal customers: capital expenditures reduced (Finance), man-hours saved by eliminating test-related administrative burdens (Engineering), lab space freed up (Operations), etc.

At the same time, there are performance indicators that are specific to effective test environment management programs. The first is Equipment Utilization (see sidebar for industry averages). When measuring utilization, count a piece of test equipment as "utilized" only if that asset is turned on and either sourcing or measuring a signal. If it's turned off and sitting on a lab bench, it's not utilized. This will go a long way toward helping you quantify the financial impacts of having more equipment on-site than is actually needed.

You'll need to measure your company's Total Cost of Ownership (TCO) for test equipment. By determining your TCO prior to implementing a new program, you establish a baseline from which you can determine financial impacts post-implementation. The same TCO model should allow you both to baseline pre-implementation costs, and to measure TCO over the program's lifespan. (See sidebar for more.)

Measure your effectiveness at responding to equipment-related requests from your end-user customers. We encourage the companies we serve to use a metric called Requests Kept or RK. Our customers track their RK performance and share it with the end-users they serve as part of a broader dashboard on program results. End-users find it easy to trust a system that has benchmarks and a linear pattern of continued improvement.

Prove Your Potential For Test-Related Improvements
Visit the TCO calculator to begin calculating your company's TCO benefit for test equipment. This tool is based on The Sente Group's proprietary TCO model, which uses algorithms developed from data gathered in companies' test environments to project expected results from a test equipment management initiative.