Equipment replacement is expensive…Enough said?… Not so fast. Equipment replacement can be an enormous financial benefit when done correctly. The concept of equipment replacement shares equivalence between productivity and cost. It is very easy to imagine a piece of equipment costing too much to be worth purchasing. It is just as easy to imagine a piece of equipment so unreliable that it cannot be depended on to complete a task. The crux of the issue is how one determines the best time for equipment replacement. First it is important to determine whether an equipment purchase is an investment in productivity or safety. The productivity or safety determination may even interlock as newer equipment tends to have many more safety features as well as more productive functionality than the predecessor of the same type. When an investment is made in productivity it is often the case that the planned equipment will lessen man hours for the same job. Productivity may also enable the Town of Jonesborough’s crews to complete tasks without having to use a contractor.
First and foremost a request for replacement or addition of a piece of equipment should start with a need assessment work sheet. A need assessment work sheet will aid in the decision to replace or eliminate equipment depending on utilization analysis. Elimination of equipment is the best option for almost any situation. A reduced fleet size is not only more cost effective to maintain it also has a positive effect on new equipment purchase. Without the burden of repair involving equipment that is well past its deprecation limits, funds can be set aside to go toward the purchase of new equipment. Using a need assessment work sheet can also identify utilization issues.
Utilization has a large role to play in equipment replacement concepts. At the point a piece of equipment becomes underutilized the repair costs are highest. Higher downtime without doubt means low productivity. The visible and hidden costs come into play when a backhoe is in the shop for an expensive hydraulic pump replacement. At first the price of the part and perhaps the shop time is considered. After the initial shock of the repair price is abided the question is often asked “how soon can it be ready?” The question is a natural one because when the backhoe is not able to perform its duty it is having a negative effect on the productivity of the department. The negative effect is often counteracted with having surplus equipment around. Back-up equipment has some merit but it eventually needs repair further burdening budget in a never-ending downward spiral. A clean lean fleet is the best option for departmental productivity and fleet expenditure.
Conventional wisdom says that putting off the replacement of equipment will save money in the long run. The concept although popular is flawed. When equipment is kept beyond the recommended life cycle the repair cost are up and the productivity of the equipment is down. The delay of equipment purchases has incurred all the repair and deprecation cost for another budget year and has cost the town productivity. At the end of this cost burden the piece of equipment still has to be replaced. Best practice fleet management is realized by using lowest annual cost replacement schedules.
The best practice for assessing the true cost of a piece of equipment before it is purchased is to calculate the annual cost of that equipment. Numerous resources exist to help calculate annual cost and luckily they are all very easy to use. The method preferred by most in the industry is the simple work sheet. Just like filling out a 1040EZ a few simple calculations and presto an annual cost of ownership emerges. Simply by taking the capital outlay and the yearly operational expenses (keeping in mind that expenses climb dramatically with age) and dividing that by the equipments projected years in service a fleet manager can make confident predictions regarding the lowest yearly cost scenario