Fleet Management Finesse: Rebuild, Repair or Replace?

Identify the alternatives for effective fleet management to get the best bang for your buck.

By John E. Dolce

Construction makes the real world happen, and equipment is the backbone that holds the industry up. In order for the industry to work smoothly, equipment must run efficiently, which means staying on top of your fleet and managing it effectively. Equipment management is a five-step process. The equipment management cycle starts with the selection and purchase of the equipment. From there, fleet managers must deal with the operation and maintenance until finally machine replacement must be handled.

Information is so important in fleet management. The right metrics help managers identify problems and give us the right questions to ask to get to the root of major issues in your business. Don't let the numbers run your fleet; let the numbers tell you what questions to ask. If you see that you have 100 machines broken down in your fleet, go to the shop and ask, "What's breaking down?" You might find out that 60 of the breakdowns are tires, 30 are brake repairs and 10 are miscellaneous issues.

So you've identified your main problem is tires. This one piece of information may help you take a closer look at the source of the problem, which is your first step toward a solution. Maybe you're not changing tires often enough; maybe you need more driver training. This kind of postmortem practical approach is what keeps your fleet going.

Decision makers in the company must understand the vehicle replacement process. When a piece of equipment ages, the price of the maintenance goes up. When the cost of the old machine exceeds the cost of a new machine, you might think you have to take action.

But you're wrong: You have to do something two or three years ahead of time. Why? Because when the cost of equipment maintenance starts to go up, there is a predictable pattern.

Say for example you have a $10,000 machine that depreciates over 10 years so that it's now worth $10,000. Maintenance on the machine is $3,000, which is 30 percent of the cost. With all of your maintenance costs - planned and unplanned - you've probably got another year before you're at 50 percent of your residual value, and it's not long before you're at 100 percent. You must make a decision before that piece of equipment that was just sucking oil actually crashes and burns. The lifecycle of a machine is predictable, so you receive plenty of warning and have plenty of time to decide to repair, rebuild or replace a piece of equipment.

For instance, a truck worth $10,000 needs $4,500 in repairs, or greater than 30 percent of the current value. A new truck costs $140,000 divided by 1,000,000 miles equals $0.140 / mile. To rebuild a truck costs $85,000 divided by 750,000 miles equals $0.113 / mile. And to repair costs $4,500 divided by 25,000 miles equals $0.180 / mile. Doing the math gives you the concrete numbers to back you up when you're deciding between the options. You might decide a rebuild is enough for now, but you'll most likely decide that the repair alone isn't worth it on this particular vehicle. The only way to know is by crunching the numbers.

If you're not the money man and decision maker in the company, you have to identify to them what the alternatives are. When equipment reaches 30 percent of the residual value, you've got two years. If it fails, they're going to come to you and ask you why it crashed and burned, but by tracking the equipment, you can predict when you're going to need the money for costly repairs and rebuilds and when you'll need replacements altogether.

As the residual value decreases and maintenance costs skyrocket, you must make a conscious decision about whether to replace it. Not only do the costs go up, but also the vehicle reliability goes down. When a machine keeps decreasing in reliability, you finally get pushed to a point of no return. After all, equipment that's not working can't make you money.

Value is a key consideration when adding equipment to your fleet. The competitive nature of the industry requires us to go out and look for the best price. You identify what you want and write the specification. Keep in mind the overall needs of your fleet and how the new equipment must fit into those parameters. You may come across a cheap chassis at half price, but if it doesn't have the horsepower you need and drivability you desire, it's no good for your business.

Be proactive instead of reactive when it comes to equipment purchases. Work with dealers who know your business and how you use the equipment. Look for a fair price that dealers will stick to and make sure dealers back up their claims about equipment and maintenance costs up front.

John E. Dolce is a fleet facility and maintenance specialist for Wendel Companies, an architectural and engineering firm, and has more than 30 years of experience in the fleet industry as a manager for both public and private sector fleet operations. He may be contacted atjohndolce@yahoo.com.