Keys to life-cycle costing: Protecting your equipment investment
Determining the appropriate time in the economic cycle for replacing a vehicle is one of the most important strategies fleets must establish to run successfully and profitably. That according to John Dolce, an active fleet manager and consultant with more than 30 years of work experience in car, truck, transit, mining and equipment maintenance, and operations. Dolce will share his insights at the 36th Annual National Truck Equipment Assn. (NTEA) Convention & T3 2000 - the Commercial Truck, Trailer and Technology Expo, February 23-25, 2000, in St. Louis, Mo.
Dolce maintains that a piece of equipment will have a number of "lives," including:
* Service life: The amount of time the vehicle is capable of rendering service.
* Technological life: Represents productivity decline relative to newer models on the market. Although the older vehicles are still capable of rendering service (given an unlimited maintenance budget), they are incapable of matching modern performance requirements.
* Economic life: Relates to the total stream of costs associated with the vehicle over a given period.
"When the principal and interest payments of the old vehicle decrease," Dolce says, "usually the maintenance and operating costs increase. The increase in maintenance and operating costs is usually less than the decrease in principal and interest. When the principal, interest, maintenance, and operating costs of the old vehicle are higher than that of the new vehicle, the old vehicle should be replaced."
The annual resale value becomes the tiebreaker, along with any fleet incentives made available by the manufacturer each year.
It's critical for you to have a thorough understanding of your company's business plan and customer plans before you develop your replacement strategy, Dolce says.
Part of the strategy will be influenced by lead times, which can vary significantly from manufacturer to manufacturer and from year to year.
There are two approaches to preparing vehicle specifications - technical specs and functional specs. Technical specs quantify an item to the most exacting detail and impact vehicle design. They put responsibility for liability directly on the vehicle specification writers and their company.
More popular today is the functional specification, which is a definition of a task. Here the responsibility falls on the truck manufacturer to determine the component mix needed to meet your needs.
Before purchasing a new vehicle, a specs list must be defined and drafted for review by the end user. With the help of qualified personnel, you may elect to write the specs list. Another option is to use the expertise of sales engineers at dealers or factory branches.
Fleet requirements should be studied first. It's important to know what the trucks will haul, if there will be any backhauls, how products will be shipped, what the loads will weigh, and maximum weight per trip in order to define the vehicle specs. Loading characteristics influence specific component selections, especially horsepower requirements, gearing, and suspension systems. Routes must also be evaluated.
When replacing vehicles, the old specs can be most revealing. If the vehicles have a history of repeated engine failures, frequent clutch replacement, broken suspensions, shortened tire life, frame failures, U-joint and driveline wear, accelerated brake lining wear, or electrical system complaints, the old specs may be the problem.
If equipment or component failures have been frequent, avoid purchasing identical units for replacement. Often you can uncover problems and identify solutions by talking with drivers and mechanics.
When transferring an old body to a new chassis, ensure that the old body specs and dimensions fit the new chassis wheelbase and that the cab-to-axle dimension is the same. When buying a new body, check the old one for wear and tear first. The new one can then be properly spec'd to reduce potential problem points.
It's wise to review specs with experienced manufacturing salespeople. After careful study, you can give a standard bid request to each supplier, asking for an accurate bid on identically equipped models. Written vehicle specs eliminate the possibility of oral misunderstandings.
Developing appropriate trade-cycle strategies should be a joint process between the fleet, dealer, manufacturer, and final-stage manufacturer.
This subject is typical of the new approach NTEA is taking to provide the entire commercial truck marketplace - from manufacturers to distributors, from dealers to end-users - with the tools needed to increase understanding and improve performance.
For more information on this and dozens of industry topics to be presented at the 36th Annual NTEA Convention & T3 2000 Expo, call 800-441-NTEA; call the organization's fax-on-demand service at 800-700-2099 and request document #1110; or register online at www.T3expo.net.