Equipment manufacturers showed more than machinery at Conexpo-Con/Agg last month in Las Vegas, they exhibited a refreshingly upbeat mood. Demand for product continues to be strong, yet for equipment users, other demands are working in concert to produce some anxiety.
As equipment manufacturers ramp up to provide the machines, they're finding it more difficult to keep the materials flowing to the factories. Steel, tires and oil-based materials such as plastics loom as concerns for manufacturers as they compete with other consumers for these raw materials. Strong demand for petroleum products is coming from China and certain European nations. Steel and rubber are shipping to nations other than the United States, too.
As demand strengthens, price pressures increase. According to Construction Equipment economist Jim Haughey, director of economics for parent company Reed Business Information, equipment manufacturers have "regained pricing power" as orders increased by more than 40 percent in 2004. He estimates that prices will rise about 2.5 percent over the next two years, a rate ahead of overall inflation trends.
Equipment managers need to manage these cost increases, starting with a review of acquisition strategies and including a look at equipment cost management. Inflation concerns provide a good reason to look at how a fleet acquires machines. Purchasing, no doubt, will remain the most popular and viable method, and the manager's focus should be on whether a finance deal offers cost benefits that can be spread over the lifetime of the machine to ease the cash-flow pressures from price increases.
Regardless of the acquisition strategy, though, rising machine prices mean equipment managers must become even more adept at managing machine costs. Knowing equipment owning-and-operating costs will protect the business as machines are integrated into the fleet and as they're put in the field to do the jobs. The correct machine costs translate into an equipment rate that recovers all it's suppose to recover and allow estimates to realistically judge a project's costs.
In a real sense, the equipment manager's accuracy in determining and managing machine costs has a direct impact on the business's success. How accurate are you?