When the recession hit in 2008, the nation’s construction industry took a hard hit. Annual construction spending fell, the government dissolved stimulus packages, and the budget for infrastructure projects shrank. Contractors who sized up to meet increasing construction demand before the economic downturn now have to cut costs.
One way to do this is to consider your fleet efficiency. Is your construction fleet the right size? Or are underused, excess equipment eating up your budget for regular maintenance? Right-sizing your fleet is a lot harder than it seems. There’s constant pressure from the management to eliminate vehicles to cut costs. But you also need the leeway to meet fluctuating demand from customers.
These strategies help you right-size your construction fleet while treading the line between cost-efficiency and flexibility.
Track Dollar or Time Utilization
The best way to determine an equipment’s efficiency is by computing its utilization. Use any of these two metrics: time or dollar utilization.
Time utilization refers to the number of hours a machine was used versus the hours it was available. This will give you a picture of how critical that piece of equipment is to your business. You want to track utilization over several projects or an entire year, so you can also account for seasonal spikes in demand.
Look at the scores of each equipment and your fleet as a whole. If your fleet is below 80 percent utilization, this may be an indication that you can downsize. And if one equipment registers utilization below 50 percent, this means it’s time to reconsider whether you need it or not.
Dollar utilization, on the other hand, refers to how much money a vehicle is bringing in versus its original cost. For example, one of your backhoes costs $20,000 and generates $14,000 per year. This gives you 70 percent dollar utilization.
Achieving optimum utilization is a balancing act. You want your equipment to be enough to make revenue. But you also don’t want them used too often because this will lead to wear and tear on your machinery. Also, you may lose potential clients because the equipment they need is unavailable. Utilization of 70 to 80 percent should be cost-efficient enough while still giving you wiggle room for extra projects.
Apart from time and dollar utilization, another consideration in right-sizing your fleet is criticality of need.
Account for the criticality of need
Some pieces of equipment are critical to business, although you don’t utilize them as often. For example, a dragline excavator is reserved for underwater excavations, which may not be your regular project. But you still want it in your arsenal in case this kind of assignment does come up, especially if you’re a large, national construction company.
Use a point system that combines utilization and criticality factors to weigh the continued need for a piece of equipment. Score the machines from low to high in terms of criticality and merge these with the utilization rates on a spreadsheet. Then, you can consider letting go of the equipment with low total scores.
Consider rental equipment
You can opt for heavy construction equipment rentals if you do decide to eliminate your low-scoring machinery. Letting go of consistently underutilized equipment will free you from costs, such as insurance, taxes, and maintenance, and maximize fleet efficiency. You can then rent that machine only when you need them.
Aside from these techniques, you can also leverage fleet management technologies to achieve the maximum efficiency of your equipment. With consistency, these strategies can get your fleet to a size that is cost-efficient enough to withstand economic downturns and meet customer demands.