The construction industry has taken a slight hit over the glory years of the housing bubble, but these companies feeling the downturn are also the same companies that built infrastructure over the last 200 years. They will prevail over any short term drop in overall construction demand; with that said there is always attention that could be given toward the return on investment that your construction assets bring to bear. In this specific case we will be discussing construction tools and equipment.
My history is in the rental industry, in that industry we were return on investment orientated by understanding each assets contribution to the bottom line by having a real time understanding over time utilization and dollar utilization. After starting my own construction business several years ago, it became apparent that although I did not have the same measurement tools available with owned construction equipment, the emphasis on return from equipment investment still needed to be there. Construction companies are at different levels of understanding the return on invested fleet dollars. I have seen large construction companies that do not track costs per equipment piece. I have seen small companies do an extremely good job of understanding how their assets are working for them. In today’s market all companies should work toward a tightening of the belt by comprehending how to obtain a better return on equipment investment. First and foremost, construction companies need the ability to create a true measurement of outflow of expense in relation to their construction equipment. Fleet managers, operations managers and accountants need to have a form of tracking that contributes specific cost to individual equipment items. Figure a way to collect, store and use the data that tells you exactly what is taking place with your construction fleet. It is important that you understand asset utilization and return on investment by analyzing both your utilization and ROI numbers, you can identify key areas within your operation that need improvement, and take the appropriate steps to adjust the way that business is conducted.
Once you start tracking and measuring you will start to develop the needed data to make informed decision on your construction fleet mix. When it comes to decision making it is all driven by opportunity cost which is the cost of any activity measured in terms of the best alternative forgone. It is the sacrifice related to the second best choice available to someone who has picked among several mutually exclusive choices. When we analyze opportunity cost as an operations manager we have to understand about other opportunities available. As markets change so do opportunities. In the case of construction equipment you need to understand current market value of the equipment and measure that against other available fleet options.
After careful analysis you might find that your equipment is not providing the needed return where the value of the machine could be put into higher return areas for the company. If that is the case you need to look at your true cost of keeping the machine by a careful analysis of other industry opportunities. In many of the markets equipment rental rates have fallen to a level that does not warrant for contractors to own an abundance of certain equipment types.
If you find that you need to change fleet mix or increase the return generated on a specific piece of equipment there are many marketing opportunities out there.
1) Fleet share – Look for a venue that contractors can list equipment for sale and also let other construction professionals know that they would be willing to lease or rent the item during the interim. This will allow contractors to generate additional local revenue while they market the equipment for sale.
2) No cost to Market venues – Find an attractive venue that allows you to list your fleet with little or no listing cost, no settlement fees. Generate interest on the equipment over time and do not be subject to inflated costs to take the piece to market.
3) Look for industry deals on New Equipment from the Manufactures. Many manufactures are offering deferments in cash outflow for those with qualifying credit.
4) Do not settle on new or used equipment purchase until you have really looked at the offering of the overall market. Make sure that you are informed on the overall opportunitiy available. This occurs in both used and new equipment markets and can be remedied by spending the time to not only understand what the machines offer but understand all the pricing opportunities for the equipment type you are looking to acquire. Bottom line is informing yourself on the prospects of the market.
The biggest take away from this article is to increase the data available by a real understanding how individual pieces contribute to the company’s bottom line. If we can measure it, we can manage it. If Construction companies make fleet management a priority it will make for a healthier bottom line.guaranteed. Be aware of the changing opportunities in the industry. Rental rates are getting cheaper, Contractors are willing to fleet share and many venues will market your construction assets free of charge.
You can visit a website that offers free services (ContractorAssets.com) by clicking HERE
or check at a short one minute video on the offerings by clicking HERE