Managing Giant fleets since North America's largest equipment-owning firms started reporting steep declines in work volume in 1999 has been chaotic. New-machine purchasing has been in freefall, rental spending is schizophrenic, and repair spending is holding steady even though work volume is down. 2003 may be a turning point, though, as a growing percentage of Giant firms expect work volume to increase for the first time since 1999.
Business-year forecasts remain dismal, though. Certainly there are many reasons why one year's turnaround in work volume doesn't change the business outlook from red ink to rosy, but for equipment-intensive operations like those found on the Construction Equipment Giants list, it seems fleet management may be one of the primary obstacles to a quick return to profitability.
The urge to keep a tight lid on equipment-replacement budgets until asset managers are convinced that work volume will keep increasing presents major challenges for equipment and operations professionals. For example, despite Giant contractors' improving hopes for both work volume and business quality this year, they are among the most likely types of Giant firms to decrease spending on new equipment. Producing more work with a fleet that has been aging for a few years and is eating up lots of repair and maintenance dollars is forcing equipment professionals to rethink how they match fleet size to work volume.
Modern Continental Construction, for example, started managing its fleet using a new system for reporting utilization that has helped them do more work with a steadily shrinking equipment fleet.
Simple weekly reports list all Modern's machines that ran less than 40 hours per week for two weeks in a row. Fleet managers can see if there are rented or less-reliable machines working enough hours to warrant replacing with a Modern-owned unit that's not working 40-hour weeks.
"Project managers who are only getting a few hours a week on one of our machines can always fill in with a short-term rental," says Scott Crowley, equipment-division controller. "And the company saves money overall."
Expenditures on replacement equipment has fallen and repair costs are holding steady. As utilization improves, hourly costs of operation are falling. The most dramatic cost savings is in rentals—it is approaching $1 million.
Weekly updates of machine utilization are revamping the way Modern buys and rents equipment, but in the brief period since some rental companies grew capable of serving Giant appetites for part-time machines, rental spending by all Giants has been erratic. It has tapered as the economy slowed, but rentals have not dropped nearly so steeply as the plunge in Giants' work volume.
The percentage of Giant firms increasing equipment rental appears to be stabilizing in the vicinity of 30 percent. It's likely that more Giants will increase rental spending this year than the 19 percent forecast. Assuming that they're right about increasing work volume (and work-volume forecasts are the most accurate in the Giants survey), that percentage should exceed 25 percent as firms rent to meet production peaks.
Rental plays a critical role in helping Blythe Construction meet peak demand. The Charlotte-based division of The Hubbard Group is managing its fleet by utilization, but unlike Modern Continental, Blythe is actually renting more.
Any machine that fails to maintain 70 percent utilization (based on 2,080 hours per year), is a candidate for disposal, if a comparable rental unit is readily available. Underutilized machines are either reassigned to other projects, repaired to improve reliability, or sold. Blythe has cut the number of heavy-equipment units by 30 percent, replacing about half of this low-hour horsepower by renting. And rentals now fill about 25 percent of small-machine demand. Disposing of the least reliable machines has helped control repair costs.
There has been very little change in Giants' repair spending, compared to the steep declines in work volume and replacement budgets between 1999 and 2002. Consistent differences between forecasts and actual repair spending in each year prove Giants to be over-optimistic about cutting repair costs. Assuming they remain true to form, this year's actual-spending percentages will very likely be closer to 2002 levels than the forecasts suggest. Steady repair spending combined with less work to do over the past five years implies that repair costs per working hour are rising.
Some Giant-fleet managers have carefully eliminated the least unproductive machines and reserved rebuild dollars for the hard workers with the greatest likelihood of being returned to reliability. They're spending meager new-equipment budgets replacing only the highest-production that are in the worst condition. These firms have built productive, reliable fleets that will allow them to quickly reach high levels of productivity at low cost.
In a situation where demand for equipment hours suddenly skyrocketed, the joint venture formed to move 25 million cubic yards of dirt and rock for the new runway at Atlanta's Hartsfield International Airport demonstrated the fleet-management agility necessary to immediately turn opportunity into profit. The venture, 5R Constructors, pulled the local Caterpillar dealer into a partnership to support 82 major pieces purchased for the job because the project itself demanded high utilization.
Yancey Brothers guaranteed uptime for the duration of 5R's three-year contract in exchange for a complete maintenance and repair contract. Each machine is expected to rack up 7,500 hours during the project. Unlike other equipment-supply proposals considered by 5R, the Cat team did not recommend standby equipment. Yancey crews are performing all maintenance and support functions except fuel and grease.
Time is a factor, as 5R is working two shifts, six days a week. The system is designed to move as much as 120,000 tons in each 16-hour day, so downtime is expensive. But the service contract also reflects the premium 5R places on lifecycle management.
At the end of the three-year contract, the joint venture will have a fleet of aged but well-maintained production machines that can either be deployed on subsequent projects 5R might land (the Hartsfield job is expected to last 10 years), or sold at a premium.
Modern Continental, 5R, and Blythe each took a fresh approach to equipment-management challenges they have faced at every economic downturn for decades. Their examples are certainly not repeatable in all circumstances. But the continuing slide in business confidence for 2003, despite improving work volume, suggests that many Giants should consider fleet-sizing innovations that could help them deploy construction equipment better.
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