A Precious Commodity

Rod Sutton, Editor in Chief | September 28, 2010

 

Rod Sutton, Editor in Chief
Rod Sutton, Editor in Chief

 

The roar of Harley Davidsons signals spring in Chicago. This year, Vespas and other motorized scooters hit the street as consumers try to combat rising gasoline prices. Vespas don't move earth, though, so equipment managers have to find other ways to manage increasing fuel costs.

Fuel cost comprises a significant percentage of a machine's operating cost, and that percentage has been increasing rapidly in recent months as oil prices have climbed. The climb has made managing operating cost difficult, and we can presume fuel prices will continue to increase rather than decrease.

But what's disturbing is the lack of knowledge and information among equipment managers on actual fuel usage. Many equipment fleets do not track fuel consumption, a situation one leading equipment executive labels "gross mismanagement." His reasoning: How can you manage a fleet without knowing how much fuel is being consumed by each machine? More important, perhaps, is how can a firm expect to make winning estimates for upcoming projects when it doesn't have an accurate equipment cost to use in the calculation?

Here's a simple example to illustrate this problem. Assume diesel fuel costs $1 per gallon. Multiply that by 1.7, a factor that includes the cost of dispensing the fuel, and the cost becomes 1.70 per gallon. Take a machine that uses 3.6 gallons per hour to operate, and the fuel portion of your machine rate is $6.12 per hour.

Change the price of fuel to $2 per gallon, and the rate jumps to $12.24 per hour. How will the equipment owner capture that increase in cost? More to the point, if the manager doesn't know how much fuel the machine burns in an hour, he has no way of knowing what that $1 increase in fuel cost really means to machine profitability, not to mention overall fleet performance.

Managers today track machine hours as a matter of course. But, as our executive says, tracking fuel consumption gives a far more accurate look at actual machine costs. In an era of rapidly rising fuel costs, the successful fleets will know exactly how much precious fuel is used by each machine.

ConstructionEquipment.com houses an Excel spreadsheet that allows managers to calculate machine rates using their own numbers for various components of owning and operating costs. See the March 2004 Equipment Executive article at http://www.constructionequipment.com/article/CA468740.html for a link to the spreadsheet.

630-288-8130, rsutton@reedbusiness.com

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