Asset Management

No matter what it is called, managing inventory is critical to a water well company’s success.

By Ed Butts, PE, CPI

There are a few buzzwords floating around the business world these days and “asset management” is one of them.

Though, asset management is not new. It is also called inventory control, rolling stock administration, supply chain management, and cash flow control. We will explore in this column the importance of asset management for a typical water well firm and how it can be made to work for your company.

Please remember these recommendations are based on my personal experience and may require adjustment or may not apply at all to your firm.

Asset Management Techniques

Asset management is defined as the practice of increasing total wealth over time by acquiring, maintaining, retiring, replacing, or trading investments that have the potential to either grow or decline in value.

It is becoming increasingly popular for private and public utilities as well as businesses. Asset management for a business is a way to help companies keep track of and manage all physical and non-physical assets including equipment, vehicles, facilities, cash, and cash-equivalent investments.

There are firms and individuals well-versed in asset management techniques that can provide this service, if needed, to water well and pump firms. For a typical water well drilling and pump business, this may be limited to large and small equipment, inventory, supply chain dynamics, and rolling stock (i.e., vehicles).

Proper asset management helps with the efficient allocation of all company resources. By understanding the condition and performance of assets and using modern computing methods, including AI and IoT tools, water well companies can prioritize maintenance and eventual replacement of assets, ensuring that critical, profit-centered equipment such as drilling rigs and pump hoists remain functional and in optimal condition at all times.

Asset management also enables the identification of potential risks and failures in rolling stock and other needed equipment. By correctly tracking and assessing the condition of assets, including an understanding of their individual life cycles, firms can proactively address simple issues before they escalate, reducing the potential risk of equipment failures and downtime during their times of highest demand.

Strategic asset management that uses routine, scheduled maintenance leads to cost savings by preventing unplanned or unscheduled downtime, loss of use, as well as reducing the frequency and higher costs of emergency repairs. Regular maintenance and timely replacement or retirement of aging or unproductive assets can help prevent costly situations of not relinquishing a non-productive asset in time, contributing to a firm’s long-term fiscal responsibility and viability.

The selection and purchase of resilient and reliable equipment is also crucial for effective asset management. This process ensures that critical, income-generating assets are selected, operated, and maintained with resilience in mind, enabling them to withstand ordinary or excessive wear or structural failures, accidents, or other unexpected events.

This belief definitely applies to well drilling rigs and pump hoists, but may also apply to other specialized, high-value equipment such as air compressors, mud or grout pumps, excavation equipment (backhoes and trenchers), support trucks, and water tenders/flatbed trucks.

Before their acquisition, equipment subject to continual vibration, heavy lifting loads, substantial road miles, long idle periods, and other significant stresses should be carefully evaluated for resistance to these stresses. This requires careful appraisal of the equipment’s material and operating specifications, fabrication and assembly details, and occasionally the brand.

Finally, the evolution of computer-based systems provides distinct advantages for asset management. Asset management using computer software or Excel spreadsheets can provide real-time data on the status and location of assets, enabling quick decision-making for managers or owners to allocate resources efficiently and respond to issues promptly.

Effective control and management of assets also require accurate and current information. The condition and functional status of all assets should be updated no less than yearly.

Proper asset management provides a wealth of usable data for scenario planning, risk assessment, and resource allocation. This approach enhances the preparedness and effectiveness of an asset management program. To summarize, an effective asset management program should be able to evaluate the following questions:

• What assets do you now own?
• What level of service must they effectively perform, and do they?
• Which assets are most critical to the operation of the firm?
• Which assets are displaying increased maintenance costs without an adequate return?
• What assets can be retired or disposed of with minimal impact on the firm’s operation?
• What new or replacement assets are needed to improve or modernize the firm’s operation?
• What annual and capital investments in new or replacement assets are required?
• How will these investments be funded?

Supply Chain Management and Inventory Control

For modern water well businesses, the terms “supply chain management” and “inventory control” are interrelated as the impact from delays or disruptions in the supply chain often impacts the need for an increased inventory.

The COVID-19 pandemic that began in early 2020 and ran through 2022 highlighted vulnerabilities in global and regional supply chains across all industrial sectors, including the water well industry. This led to a reevaluation of strategies and increased focus on resilience, inventory control, and adaptability.

At the time of the pandemic, only around 2% of companies believed they were adequately prepared, while severe disruptions in supplies negatively affected up to 75% of companies.

In the water well drilling industry, delivery disruptions and supply chain challenges were felt most in fuel shortages, delayed shipments of purchased equipment, shortages of essential materials such as well casing, well screens, drill rig parts, specialty items, and cement—while simultaneously facing challenges in maintaining operations in compliance with state regulations.

The water well pump industry also experienced significant delays and disruptions due to supply chain difficulties. These disruptions primarily impacted availability of custom or non-stock items such as built-to-order pumps, packaged pump stations, electrical switchgear and motor controls, large drop cable, vertical turbine pump components, and specialty equipment including valves, pressure vessels, and filtration equipment.

It often prompted companies to invest more heavily in inventory as well as increased technology, diversification, and expansion of their supply sources to accommodate customer demand and reduce future risks. Thus, the well drilling supply chain not only mirrors the complexities seen in other sectors but also offers unique challenges and opportunities that require targeted strategies and solutions.

As the industry continues to grow, the supply chain should also continue to evolve, presenting challenges and significant opportunities for those ready to innovate and adapt to changes. As the impact from the Covid pandemic continues to wane, it is anticipated improvements to the supply chain impacting deliveries will occur. An optimized supply chain can lead to better purchasing practices, more accurate and stronger inventory control, and accelerated and predictable order fulfillment, ultimately resulting in earlier project completions and more satisfied customers.

Since an inventory can amount to a large percentage of a business’ investment, the individual responsible for tracking and purchasing inventory plays an important role in ensuring project delivery and the profitability of a business. In addition to forecasting demand, this person must also manage purchasing activities across multiple vendors while simultaneously monitoring internal activities to safeguard against excessive purchases resulting in unusable or excessive inventory, or inferior or counterfeit products.

An example of how a supply chain can become problematic occurred during 2008 when nearly seven million sheets of drywall were imported from China. The drywall ended up in thousands of U.S. homes and soon homeowners were complaining about foul odors, breathing problems, headaches, and nosebleeds. The cause was traced to liberated sulfur compounds emanating from the drywall. This resulted in multiple unresolved lawsuits, the abandonment of numerous homes, and reconstruction of many more.

Another example of a supply chain mishap closer to home occurred during the mid-1990s when defective PVC pipe was being shipped and installed in locations across the country. This pipe, from a single manufacturer, was found to be substandard in both material and construction, which led to numerous instances of burst and failed pipes within a year of installation.

Both the drywall and PVC pipe events underscore the need to be selective regarding suppliers and not accept a product solely on its price or availability.

Overall, the most exciting aspect of the future of supply chain optimization begins with the localization and nurturing of customer-supplier relationships. By working together to develop a more foolproof system, drilling companies and their suppliers can finally achieve a streamlined dynamic that can withstand delivery bottlenecks, economic climate shifts, and even future pandemics.

Whether a firm has a few dozen products to purchase or thousands, once seasonal promotions, discounts, and changing marketing conditions are considered, the potential variations requiring a buying decision quickly become a monumental task.

Tools used for forecasting demand help to gain a more accurate and objective view of future demand with product-level sales trend analysis. The result is the shift towards improved sales predictions, purchasing, and production needs reduces out-of-stock and overstock situations, and minimizes inventory investment.

Although there are other distinctions between the terms, inventory management as a component of supply chain management focuses mainly on managing the levels of stocked goods within a company. The primary objective is to guarantee the availability of the correct products in the appropriate quantity at the designated or right time (i.e., in advance of need).

Simply put, inventory management involves skillfully balancing the need for sufficient stock to meet customer demand while minimizing excessive stock that could tie up valuable financial resources needed in another sector of the firm.

The key components of inventory management include forecasting demand, inventory replenishment strategies, available discounts, storage space considerations, order quantity optimization, and monitoring stock levels. It involves anticipating future sales, tracking each item in the inventory and understanding its movement, and making informed decisions to maintain an optimal, but not excessive, level of stock.

Effective inventory management prevents shortages, reduces storage and handling costs, and improves a firm’s overall operational effectiveness. It is one of the key factors in today’s competitive market that helps businesses fulfill their customers’ demands at the least possible cost without hampering revenue or profit.

Inventory management concentrates on controlling and optimizing stocked goods within the company, whereas supply chain management encompasses a broader spectrum of activities involving multiple organizations in the supply chain from raw material suppliers to end customers.

Inventory management seeks to harmonize the expenses associated with maintaining inventory against the imperative of promptly meeting customer demand. Supply chain management strives to enhance the overall efficiency, cost-effectiveness, and responsiveness of the entire supply chain.

Inventory management deals with short-term decisions related to stocking levels and order quantities while supply chain management encompasses strategic, long-term planning and prudent decisions that impact the scope and entirety of the supply chain.

Paper or Plastic?

This question is a simple one that relates to the best method of recording and storing the inventory for a water well and well pump company’s equipment and material; that is, whether to use computers or stick to old-fashioned written hard copies. Obviously, the size of the firm and inventory will both play roles in this decision. Fortunately, numerous supply chain and inventory management tools, some customized to the water well industry, are now available to assist with management of the process.

To start with, and in my judgment, the best method of inventory recording and storage for a typical water well or pump contractor is a no-brainer: a physical inventory should be entered, stored, and updated on a computer format and then stored on a separate hard drive with the component records primarily entered and stored on either iPads or hard paper copies for mobility and convenience.

Regardless of the method used, regularly tracking and updating a dynamic inventory is critical to a company’s bottom line. As assets, a physical inventory is often the wild card on a firm’s balance sheet, and if inaccurate or excessive, can significantly impact the firm’s year-end profit.

This is particularly true for high-valued items that are purchased for specific projects but not invoiced, placed into inventory, nor accurately recorded on accounting records. This type of purchase should be placed in a “work in progress” or similar account.

Inventories that include frequent or high-volume sales items should be updated daily or weekly, if possible, to enable efficient and timely restocking of purchased or installed items. Unusable, obsolete, or antiquated stock should be purged from the inventory as the space these items occupy will generally compromise storage space for usable materials and impact the firm’s profit.

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This concludes this month’s edition of Engineering Your Business. We will delve into effective bidding and estimating techniques next month.

Until then, work safe and smart.

Ed Butts, PE, CPI, is the chief engineer at 4B Engineering & Consulting, Salem, Oregon. He has more than 40 years of experience in the water well business, specializing in engineering and business management. He was honored by the National Ground Water Association with the 2025 Technology Award. He can be reached at epbpe@juno.com.