Equipment management is a tough business, but we do it right more often than we think. Here are seven success stories to acknowledge what has been achieved. Space limits me to seven stories. You may recognize your business and the work we have done together. If you do, take time to smile. If you do not, take time to think about what your colleagues are doing and see if you can use this as inspiration to try some new ideas.
Unscramble the equipment account
The company started with a pretty standard problem: Job charges did not recover the true cost of the equipment used to produce the work. Good job margins vaporized, and the company produced less-than-acceptable levels of performance once losses on the equipment account were consolidated into the operating statement.
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The first thing we did was split the equipment account “horizontally” by rate class to find out which rate classes were not recovering their costs. Problems with reported hours worked were fixed and rates were adjusted to eliminate cross-subsidization between rate classes and make sure that the dozers pay for the dozers, the pickup trucks support themselves, and the small tools do not run at a massive loss.
The second step was to produce actionable cost information with multi-line cost reports for each unit and rate class in the fleet. These showed whether the problem lay with owning costs—where the culprit was low utilization—or with operating costs—where the problem is most likely to be over expenditure on repair parts and labor.
Understanding exactly what was going on in the equipment account and balancing both owning costs and operating costs for each rate class enabled the company to identify the root cause of the problems and act to reduce losses in the equipment account.
Calibrate equipment rates
Having straightened out the account, the company wanted to ensure that its rates were realistic, competitive, and up to date. So, it did three things for each rate class.
First, it reviewed deployment and utilization in the years past and made a good, reliable estimate of the utilization it could expect in the year ahead. Second, the company made a good estimate of the owning costs it would most likely experience in the year ahead and calculated the rate needed to recover the owning costs for the rate class based on the previously estimated utilization. Third, it looked at the year past, understood what it cost to operate the units in the rate class, made appropriate changes for what it expected in the year ahead, and used this to estimate the operating cost recovery rate needed to recover anticipated operating costs for the year ahead.
All work done was completely transparent and understood by all. The rates are now calibrated annually and accepted as the best estimate that can be made for the year ahead.
Have a single source of truth for utilization
Almost every company struggles with defining utilization and collecting the required data. This company took a firm stand and developed a single source of truth that they use to eliminate dueling spreadsheets and data wars. It did three things to solve the problem. First, it set up and agreed on the metrics. Monthly deployment was defined as number of working days on site in a month divided by 20. Utilization was defined as number of hours worked in a week divided by 40. Second, it set the goal of measuring days at a particular location using GPS position and measuring hours worked using telematics. Third, it accepted that GPS position and telematics data are less than 100-percent reliable and set up competent data collection, data validation, and exception-reporting procedures to check location and hours worked data against daily job cost reports and periodic service meter readings.
The data validation algorithms run constantly in the background and everybody accepts the validated data as the single source of truth when technology and field reporting either differ or fail.
Filter your fuel
The photograph to the right is worth a thousand words. This company understands that most engine failures start in the tank. It looked at the quality of the fuel it was receiving and installed a best-in-class fuel filtration system. Fuel is filtered as it is delivered, valves are changed and fuel is filtered as it leaves the tank for final use or distribution.
Best-in-class companies know and understand that reliability starts with cleanliness. They manage the five fluids (fuel, DEF, oil, coolant, and air) with dedicated care and attention and harvest best-in-class results. There can be no compromise when it comes to ensuring that machines run on nothing but the cleanest, highest-quality fluids.
Report and manage maintenance requests
Managers in this company and I spoke a lot about reliability and the difference between maintenance—when you take planned and scheduled action before failure to prevent failure—and repair—when the machine is down and you take emergency action to return it to service. We initiated a campaign to reduce Reported Emergency Down (RED) events to zero and minimize the emergency fire drills that dominated every day. The first step was to enlist the support of everyone on site, especially the operators, and set up a simple process to submit and log maintenance requests by anyone at any time.
Every machine now has a QR code in the cab and at a standard ground-level location. When any one scans the code on a smart phone, they are taken directly to the maintenance request page for the machine where the work is defined, prioritized, and backlogged for future action. It is simple and straightforward. Even I can tell the maintenance scheduler that a hose is leaking or a tire is cut. Every operator and everyone on site can do the same. Having the information and taking scheduled maintenance action before failure has the potential to reduce unplanned downtime and repair expenditure to a trickle. The company is on its way to its goal.
Take a long view on replacement capex
This company needed to take a long-term view on replacement capital expenditures (capex). It understood that machines wear out in the production of work and that replacement capex should not come as a big surprise. It did three things. First, it established economic-life benchmarks for all the major rate classes in its fleet. Second, it established “burn rates” that could be used to predict the rate at which machines were progressing towards their economic-life benchmarks. Third, it established a structured, routine process for reviewing the likely age of the fleet over the next two or three years and developed the replacement capex budgets accordingly.
Fleet average age is no longer a mystery, capex budgets are no longer a crisis, things run much more smoothly.
Understand the lead indicators
I spend a lot of time with many companies talking about cost and cost management. Truly best-in-class companies understand that cost and cost overruns are caused by problems or less-than-expected performance somewhere in the business. They know and understand that low utilization causes higher owning cost per hour, they know and understand that low reliability is likely to result in high operating cost per hour, and they appreciate the fact that every hour a machine works beyond its economic life is more expensive than the average cost of all the hours that have gone before. They know that utilization, reliability, and age are lead indicators of higher-than-desirable costs. My best clients maintain a laser focus on these three factors to stop themselves from throwing good money after bad.