Taking Control of Your Costs Helps You Find the Right Size of Your Fleet
In the years prior to 2008, many construction companies increased their fleet size to meet the demands of increasing workload. However, as annual construction spending plummeted—from a high of over $1 trillion to below $800 billion (2012)—companies have been working to find new ways to reduce costs and effectively manage their fleets.
As if the uncertain economic recovery weren’t enough of a challenge, federal stimulus monies are evaporating and state and local budgets for infrastructure projects are being cut. There’s never been a better time to take a hard look at fleet efficiency. Here are a few tips to help you scrutinize operating costs and what they can tell you about your fleet.
Accurately tracking your equipment cost is critical to good margins
When you create an estimate for a project, you include a rate for each piece of equipment that will be working on that job. The financial goal is to recover all of the equipment costs through those charges.
In an intensely competitive bidding environment, accuracy is vital to your company’s success. If your equipment costs are not complete, you may win the bid but lose money on the project. On the flip side, if your costs are skewed too high, you may be overpriced for the market and lose the work.
Here’s a list of the key operating costs you should be tracking for each piece of equipment in your fleet:
Equipment operating cost
- Lubricants, maintenance products
- Shop labor
- Repair parts
- Work Tools
Importance of cost per hour utilized
Not only will you want to understand the total costs, you will want to look at it in a systematic way—such as operating cost per hour utilized. Tracking utilization (typically a percentage of the number of hours the machine is available compared to the number of hours it actually worked) along with costs is critical because it is a direct indication of the efficiency of the equipment allocated to a particular job. In more lucrative economies, it was not unusual for additional machines to be “held” on jobs just in case they were needed. From a fleet efficiency point of view it makes more sense to move an idle piece of equipment to a job where it can add to productivity rather than sit idle.
Evaluate operating cost and utilization to right size your fleet
As a regular part of your business planning, you should evaluate the cost and utilization of each piece of your equipment. When you can look at this type of tracking over several projects or an entire year, you will have a clear snapshot of the efficiency of your fleet and what projects are the most profitable.
If your entire fleet is below 80% utilization or if you have specific pieces of equipment below 50% utilization, it is an indication that your fleet could be smaller and still complete the same amount of work. In other words, you would have fewer pieces of equipment, but they would be utilized closer to 100% of the time.
For example, a company’s fleet has six dozers (similar age and configuration). The owner is considering the purchase of another. To help make the decision, he looks at the utilization report. It shows three dozers running at 80% utilization for the last quarter, two dozers at 50% utilization and one dozer at 20% utilization. The reality is that he doesn’t need another dozer. In fact, he could eliminate one dozer and bring up the overall utilization of dozers within the fleet—which also frees up the capital tied up in an under-utilized machine.
Rental may add to efficiency
Recent surveys of equipment owners and distributors indicate that equipment rentals will continue to rise. This trend is the result of companies realizing the cost and efficiency benefits that rental equipment can bring to their projects. If you have a piece of equipment that is consistently under-utilized, it makes sense to consider eliminating it from your fleet—along with its associated costs—and renting that equipment on an as-needed basis. Depending on your business, using more rental equipment may also help free up additional credit and capital for your company.
Technology can increase accuracy and efficiency
Telematics make near-real-time data such as machine location, idle time and fuel consumption available to you typically in web-based reports. Having constant access to this kind of data can help you increase the accuracy of your information and help increase the overall efficiency of your fleet.
For example, the hour meter is one way to look at how much a machine works, but it doesn’t differentiate between “on time,” “working time” and “idling time.” Telematics systems can provide this kind of information. Telematics benefits in the short term include:
- Reduced unnecessary idle time (through operator awareness, training and goal setting)
- Reduced cost of fuel
- More accurate utilization numbers for your equipment
- More effective decision making for your fleet and your business
The more information you have, the better your business decisions will be.
If you’re interested in how equipment rental can benefit your business: