September 2008 – Equipment Procurement
According to Campbell, companies must be able to determine when the threshold has been crossed and the cost to run a machine on a per-hour basis actually exceeds the cost of buying a new machine. “I’ve learned that the companies that have the lowest operating costs are the ones that track their costs by machine, such that they know what each machine is costing them,” he says. And if a customer decides the most cost-effective choice is to maintain, repair, and keep the same machine running, then Campbell also says the customer must not fall into a pattern of neglect just because capital is tight. “Neglecting maintenance is a huge mistake,” he says. “You might get by in the short term, but long term, it will come back to haunt you in the form of a catastrophic failure. Then you will be faced with an even greater cost to repair – or ultimately replace – the machine. You can’t starve the machine and have it work for you in the long term,” he says.
John Stolowski, general manager, North American marketing for Metso Minerals, says most manufacturers and dealers are dedicated to supporting their customers as they continue to maintain or repair existing machinery. “Of course, we would like to see customers replace old technology, but we know it’s not always economically feasible even in the best of times,” he says. “So it’s important to us and our dealers that we fully support the machines in the field and do what’s necessary to keep them running as efficiently as possible.
“Ultimately, parts purchases go on the books as expenses,” Stolowski continues. “An equipment purchase goes on the books as a capital investment, which makes a difference, even if a catastrophic failure forces a customer’s hand. The capital expenditure is more visible. So it comes down to dollars and cents in their long-range forecasts, and we have to support them in every situation.”
When it’s time to buy
According to Druyor, for Rogers Group’s rolling stock, 20,000 hours of service is the typical average lifespan of components. “We start to intensely scrutinize them at 18,000 hours. We rebuild the major components at 20,000 hours, then run the machine through another cycle. Midway through its ‘second life,’ we evaluate the machine to determine when to replace it with a new machine,” he says, adding a rule of thumb he follows in making the ultimate decision to replace a piece of equipment: “Typically, when we’ve spent as much in repairs as we paid when we bought the machine, then it’s a good time to roll it out of our fleet and replace it.”
This leads to a trend Campbell says he is seeing more of: the elimination of older equipment – through sale or trade – when a producer or contractor buys new equipment. “A couple years ago, customers were concentrating on expanding their fleets. Now they will replace equipment, rather than adding to a fleet,” he says.
And once a producer has decided to purchase new equipment, what factors into a good purchase decision? Cost-of-ownership projections are extremely helpful, and most manufacturers can provide this information. At the same time, Druyor suggests that keeping good maintenance records for existing equipment also helps when it’s time to buy new. “We rely a lot on our own information,” he says. “We look at cost per hour, including fuel dollars spent, total dollars spent on maintenance and repair, availability, utilization, and even ergonomics. Within our five-year plan, then, we also look at production goals for each location. We’ll look at equipment size to make sure it’s appropriate for production requirements and goals, and if it’s not, then we might buy new or move an existing machine.”
Campbell says this data can then be compared to the projected costs provided by the manufacturer/dealer. “It takes the customer that can track the operating costs of existing equipment and a manufacturer and dealer that can give cost formulas for new equipment to provide the real picture of how new equipment will affect operating costs.”
Fuel costs are one example, according to Campbell. “If you look at the lifecycle of the machine, it used to be that fuel costs were about 14 to 15 percent of the total cost to own a machine over its lifetime. Today, fuel costs have become more than 25 percent of the total lifetime cost of a machine. They’ve become a much bigger part of owning and operating a piece of equipment.” Campbell also says that while the purchase price typically comprises 15 percent of a machine’s cost over its lifetime, the most expensive cost involved in owning and operating equipment is still the operator.
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