Written by Unnamed Author- ConExpo
So, you kicked the tires on a few new machines and think you may be ready to buy. We asked three equipment management experts to share their best practices when acquiring equipment.
- Mike Vorster, Ph.D., is the David H. Burrows Professor Emeritus at Virginia Tech where he has taught in the Construction Engineering and Management Program since 1986. He is the academic advisor to the Association of Equipment Management Professionals (AEMP).
- Ernest Stephens, a Certified Equipment Manager (CEM), is corporate equipment manager for Superior Construction, a heavy construction contractor with operations in the Midwest and Southeast. In 2017 he was featured in The Under 40 in Construction Awards published by Construction Equipment magazine.
- Adam Williams, CEM, is the director of equipment and support for MCG Civil, a company that oversees several civil construction companies across North America. He is responsible for a fleet of 500 heavy construction assets as well as an additional 1000 trucks and light construction assets. Both Williams and Stephens recently participated in AEMP’s volunteer coaching program that provides professional development to members.
1) Examine the financial impact of all your equipment acquisition options
Vorster believes there has been a lot of innovation in the way equipment is acquired, whether it is owned, leased or rented. Equipment managers need to evaluate all their options. “The way you access your machines is dependent on the that the risks you are prepared to take,” says Vorster. “Competitive edges are not going to come from choosing Brand A or Brand B, or changing the oil at 300 hours instead of 200 hours, it’s going to come from how smart you are financially.”
Buying construction equipment at Superior Construction is project-based and Stephens has found leasing works well for a majority of their projects. “Three years ago, we didn’t lease,” says Stephens. “Now, we lease about 90 percent of our construction equipment. Leasing maximizes working capital and the allows the company to turn equipment in at the end of the lease.”
To reduce risk, Stephens advises contractors to “know the end game for that piece of equipment before you buy it.” This means evaluating not only the outlook for machine usage and future work, but also the technology. If the technology could quickly be out of date, it could negatively impact the value of the machine.
“I am much more cognizant of the financial impact purchasing has on the company than I was three years ago,” says Williams. MCG’s projects typically run four-six months. Williams acquires construction equipment primarily through rental-purchase options and uses purchasing as a tax strategy at the end of the year. “Rental-purchase helps us build equity in the machine before we own. I can negotiate a better finance package at the end of the year on multiple machines,” says Williams.
2) Remove emotions from your decision
“A common mistake when buying equipment is being emotional,” says Williams. To avoid this, he uses software to track telematics information and maintenance costs so he can calculate true owning and operating costs. “A new machine with an expensive price tag may cost less per hour than an older machine that is constantly breaking down.”
Williams believes that making the right purchase decision is a balancing act between finding the right tool for the job, an acceptable financial impact to the company and the support of the dealer. “A cheaper machine may not get the dealer support or hold its value,” adds Williams.
3) Work with your partners
“What has really helped us be competitive is having real conversations with our partners at the beginning, before you even have work,” says Stephens. He believes that by sharing pain points with dealers and manufacturers, contractors can improve service and support. “All equipment dealers aren’t created equal, but with good communication you can get them there,” says Stephens. By consolidating equipment operations under one entity, Superior was also able to better leverage its buying power with manufacturers and dealers.
4) Involve others in the decision
Vorster believes it’s important for equipment managers to involve finance, maintenance and operations in buying decisions. “We look at operations’ needs and supply them with what is most cost-effective at the time,” says Stephens. “We will take their input, especially on specialty equipment.” He recommends doing the homework on new technology and requesting a demo before purchase. Williams also solicits feedback from operations and maintenance, and works closely with finance.
5) Take a long-term view on capital expenditures
As much as possible, equipment managers should take a long-term view on capital expenditures. Planning for purchases helps the company avoid unexpected expenses and better monitor cash flow and debt. “The number one thing you need to do is communicate and have a good partnership with the CFO,” says Stephens. “I am the eyes and ears of the CFO, identifying what’s out there and what we need. You need to work closely with the CFO to ensure purchases are in line with the company vision.”
6) Don’t forget the warranty
Stephens advises equipment managers to purchase a warranty that covers them against unexpected problems beyond the first year. “Anything can happen after 12 months,” says Stephens. “The more technology, the more electrical issues that come up.”
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