By Keith Trumbull
Does your organization have equipment such as forklifts, pallet jacks and scissor lifts? Your goal should be to manage these assets as effectively as possible. Understanding associated costs is the first step toward greater productivity at lower cost. At Element, we’re focused on making capital work for clients. Our clients often tell us these direct and indirect costs can be difficult to capture. To better understand your organization’s asset costs, explore these seven factors:
1. Total Cost of Ownership
One of the best ways to track costs associated with equipment and benchmark them against other regions, companies and industries is to convert them to costs per hour of operation. This metric is an industry standard and allows for quick comparison of different equipment models and/or their performance in different locations. Equipment with the lowest cost per hour that can handle the job effectively is preferred. You can calculate the cost per hour by adding up all costs (depreciation, fuel, maintenance, etc.) and dividing that number by the total operating hours.
Total cost of ownership = sum of all costs / total operating hours
Factors affecting fuel costs include the type necessary to power the equipment and how each piece is used. Historically, diesel and liquid propane-fueled equipment have been considered higher performance than their electric counterparts. Liquid propane is often the fuel of choice for warehousing environments and diesel trucks are best suited for outdoor applications. However, the industry is currently experiencing a change in perception regarding electric material handling equipment. Manufacturers are building electric equipment with batteries protected from the elements for outdoor use to provide the best of both worlds: high performance and low cost.
It’s important to have a planned exit strategy for each piece of equipment, selling it at the optimum time to reap the highest price and avoid increasing maintenance costs. Higher resale amounts will contribute to lower total cost of ownership.
4. Indirect costs
In addition to the main cost drivers listed above, there are a number of hidden expenses that you should also consider when using material handling equipment. These include downtime, pre-shift OSHA-required inspection checklist and its administration, insurance for operators, administration and training, record keeping and potential damage to facility or products.
Two of the most common ways to tackle maintenance-related costs are enrolling in an all-inclusive maintenance program, or paying for repairs on an as-needed basis. All-inclusive programs require you to pay a monthly fee, regardless of whether the equipment requires repairs. The monthly fee does not change and most maintenance repairs are covered by this premium.
The as-needed solution is widely popular among companies that prefer avoiding monthly premiums and only paying for repairs when necessary. The most effective way to manage costs in this case is to track avoidable damages and operator errors, pinpoint potential training opportunities and generate reports to make sure equipment is maintained properly with little-to-no downtime.
Getting the right equipment to handle a specific job is key to the purchasing decision. Operating equipment matched to your application will reduce overall expense.
7. Data and reporting
With advanced technology, fleet managers have the ability to collect data and make decisions based on the insights provided. Unfortunately in the case of equipment, the data necessary to analyze specific costs is often not gathered. Not having visibility into equipment inventory and associated expenses makes it difficult to develop and implement best-in-class policies and recommendations.
Material handling equipment costs are often large enough to impact your organization’s bottom line and are worth investigating, documenting and reducing. Curious to learn more about understanding costs? View our in-depth material handling equipment costs tip sheet.
Each month Fleet Management Weekly features material handling equipment guidance from Keith Trumbull, vice president of material handling equipment at Element Fleet Management.