Copyright © 2018 by the Construction Financial Management Association (CFMA). All rights reserved. This article first appeared in CFMA Building Profits (a member-only benefit) and is reprinted with permission.
BY HERB BROWNETT & DAVID FLYNN
Best in Class heavy/highway contractors are defined as those having upper-quartile net income and perform at high levels in various fields. Estimating, field operations, financial management, and fleet management are all managed more effectively than at other companies. This article focuses on best practices in fleet maintenance and management and how Best in Class heavy/ highway contractors can leverage technology to maximize operational performance.
The Economics of Fleet Operations
The basic objective of fleet management is to run equipment as much as possible while operating the fleet more cost effectively than renting the equipment. Because of this, “When the yellow iron runs, we make money,” is a common adage among heavy/highway contractors.
To accomplish effective fleet management, it is necessary to keep equipment in good running order, minimize maintenance and repair costs, and deploy assets where they will be utilized the most.
For example, let’s say that a contractor owns a CAT D8 dozer. The ownership billing rate for the dozer is $30 per hour based on a planned utilization of 1,200 hours per year. If the dozer runs 1,000 hours per year – 200 hours less than its planned utilization – then $6,000 of cost is not recovered.
Likewise, if the dozer is run 1,400 hours per year, 200 hours more than planned utilization, the piece of equipment has covered $6,000 more than its cost – thus reducing overall fleet cost.
We will now address each of these objectives and the technology available to meet them.
Keeping Assets on the Job & Running
If a piece of equipment is not in sufficient working order, it cannot be operated or utilized. As such, a major profit killer for contractors is unscheduled downtime
The Negative Effects of Unscheduled Downtime
Unscheduled downtime creates two significant costs. First, operating hours needed to recover ownership costs are lost. An unscheduled downtime rate of 25% is common when equipment is not well maintained.
The case of the CAT D8 dozer mentioned earlier would mean an annual lost-cost recovery of $9,000. If the company had 10 pieces of equipment with similar results, the impact would cost the company a staggering $90,000.
Many companies, especially heavy/highway contractors, have hundreds of pieces of equipment, so the impact across a fleet can be substantial if unscheduled downtime is widespread.
Second, and most important, is that unscheduled downtime disrupts projects. Performing construction work efficiently and on schedule is impossible if the equipment required is not reliable or in good working order. As a result, onsite field labor may be idle, work production and schedules can be disrupted, and job margins can take a direct hit.
The Impact of Reactive Maintenance on Fleet Overhead
Poor, reactive equipment maintenance processes also impact fleet overhead. Just as delaying repairs and maintenance will decrease the useful life and value of a vehicle, the useful life of construction equipment is also affected. Extending the useful life and adding run hours to equipment increases cost recovery. Delayed repairs and maintenance will almost always cost more than when routinely performed and maintained.
For an equipment fleet of any size, establishing good maintenance processes that maximize uptime and minimize maintenance costs requires a technology solution
Increase Preventive Maintenance
Specialized maintenance management software centralizes information about assets, including repair history, and allows contractors to streamline and standardize maintenance processes. With everything in one place online, contractors increase process efficiency and can better use data to drive maintenance key performance indicators (KPIs).
The opportunity to automate preventive maintenance and shift to a more proactive mode of operating may be the most important advantage that specialized software brings to a maintenance department.
Maintenance managers understand that adhering to preventive maintenance schedules allows them to do more work proactively and efficiently and less reactive work that increases costs and downtime. They also know this can be easier said than done when fleets are large, jobs are spread out geographically, and operational needs in the field are constantly changing.
Specialized maintenance software introduces automation and coordination. Instead of relying on spreadsheets, paper forms, and calculators to determine when to perform preventive maintenance, managers can rely on the software. Based on meter readings entered manually, telematics, and/or calendar dates, software can calculate maintenance intervals and alert the maintenance team.
This process alone can dramatically increase adherence to preventive maintenance schedules, but such software can deliver follow-on advantages that are equally significant.
When a manager assigns a mechanic to a jobsite for one specific maintenance requirement, software can indicate additional preventive maintenance requirements coming due or repair requests for that particular asset. The manager can also see other assets in the area that may need maintenance or repairs in the immediate future. This data makes it easier to maximize the mechanic’s time and limit the number of times an asset has to be taken out of service.
Work orders generated by such software can also automatically alert a mechanic that a piece of equipment, a part, or a component is covered under warranty. In a fast-paced environment, such warranty coverage is easy to overlook when someone has to sort through paper files to verify it. A potential warranty may not be one’s first priority when a repair is required, but having easy access to the warranty information can help facilitate this review process and generate significant cost savings.
Where Equipment Is & Where It Needs to Be
To optimize utilization and therefore minimize the cost of ownership for equipment assets, it is important to recognize that maintenance is not an isolated activity or workflow.
A software solution that makes maintenance processes more efficient, proactive, and preventive is the first step. Connecting that system to the solutions for scheduling and dispatching, field operations, telematics, and electronic forms can compound the advantages.
In order for equipment to be utilized, it must be deployed where it is needed. In most companies, this function is carried out by a scheduling and dispatching department. This team constantly tries to balance the equipment needs of jobs while also maximizing the utilization of owned equipment.
For a construction company with more than a few jobs and a few pieces of equipment, this can be very challenging.
To succeed, schedulers and dispatchers need to know the exact location of each piece of equipment at all times. This may sound simple, but without connecting GPS-tracking technology to the maintenance and dispatching solutions, it is very easy to lose track of a piece of equipment. It is not uncommon for equipment moves to be made by field operations without the schedulers and dispatchers knowing about it.
Such lapses in communication can lead to cost increases – for example, a given piece of equipment could be erroneously rented on one job while the same piece of equipment stands idle on another. This doubly impacts costs, as the contractor is not only losing utilization hours on the owned piece of equipment but is also paying rent.
Considering again the CAT D8 example, every day of lost utilization is $240 of unrecovered ownership costs. Currently, a one-day rental for a CAT D8 is about $650. Therefore, the total loss to the company is $890 per day. Without a technology solution in place, this situation could continue for weeks or months before anyone notices.
Staying Connected with the Field
Most heavy/highway contractors have geographically dispersed work, sometimes in remote areas, making it difficult to keep the maintenance operation in touch with what is required in the field.
Unified software systems bridge that gap. For example, managers in the field can report equipment hours in a timely and accurate manner with electronic field logs. They can also make requests for a piece of equipment or a repair in the software program they use to manage field operations.
Those requests are then communicated through the software programs used by the maintenance team, schedulers, and dispatchers. Since they automatically and immediately become visible, the lag time, errors, and ambiguity of phone calls, text messages, and paper forms are eliminated, along with any confusion about what is needed. When repairs or maintenance are required, the maintenance team finds out and can respond more efficiently – minimizing costs and downtime.
From the perspective of the schedulers and dispatchers, this cohesion has clear advantages. They can see the requirements from the field, the location, and maintenance status of each asset – all in real time.
Equipment inspections are another critical component of the maintenance process, and many contractors are realizing benefits by taking paper forms out of the equation. Electronic inspection forms can be customized to capture the right information for each specific piece of equipment. They can also capture richer data like photos and videos that can be transferred to the work order to assist mechanics.
Most important, electronic forms can be submitted instantly, minimizing the costly interval between when a repair requirement is identified and when it is corrected.
Telematics technology and the opportunities to leverage it have advanced considerably over the past decade. The challenge for construction companies lies in managing a deluge of valuable data, which often comes from multiple sources in multiple formats at multiple times. Aggregating and analyzing it manually takes too long and requires too much effort. Ideally, data should flow automatically to the maintenance software where it can drive preventive maintenance intervals.
Connectivity between the field, the office, and the shop relies on a mobile component to software solutions. Mobile technology allows personnel in the field to capture and communicate important field log and form data where and when it occurs. This is important for immediacy as well as accuracy.
For mechanics, a mobile app is essential to efficiency. Tablets give them the agility to adjust their schedules as requirements change and manage work orders in the field.
They can also access important documentation, including equipment manuals and warranty information, and submit time cards remotely.
You Can’t Improve What You Don’t Measure
Given the complexity of fleet management and the number of people involved, it is critical that company management have easy access to the data regarding various activities and metrics. A final, critical advantage of moving away from spreadsheets and offline tools to a specialized equipment maintenance software is the ability to track KPIs.
Improving maintenance processes is difficult unless a contractor knows how to measure current results and how those results compare to industry standards. Pulling the necessary data from spreadsheets and paper forms, however, is extremely time consuming and labor intensive. Unstructured, inconsistent information compounds the challenge of getting accurate results.
Specialized software can bring automation and structure to the data capture and analysis process. Contractors get better data with more immediacy. The top equipment maintenance KPIs tracked by Best in Class construction companies, and the industry benchmarks or targets for which they should aim, include:
- Maintenance Costs as a Percentage of Total Revenue – The most efficient and effective contractors get this number below 5%, while many companies spend 10-15%, and many companies without effective software have a hard time even tracking the number.
- Preventive Maintenance Hours – Heavy construction companies with proactive maintenance programs should spend 50% or more of their maintenance labor hours on preventive work.
- Planned & Unplanned Hours – Using maintenance labor hours as the measurement, construction companies should aim to schedule and plan 80% or more of work in advance. This maximizes the efficiency of their mechanics and minimizes disruptions to production in the field.
- Emergency Maintenance Hours – Some breakdowns are inevitable, but a good preventive maintenance program should limit the hours that mechanics spend on emergency maintenance to less than 10% of their overall hours.
- Maintenance Labor vs. Materials – As a company optimizing the efficiency of its maintenance team, labor should account for less than 75% of the total parts’ costs.
It is important to note that this is a partial list. Additional KPIs that can and should be tracked with the assistance of a maintenance software solution include:
- Mechanic overtime hours, asset uptime;
- The mileage mechanics drive to get to jobsites;
- The time it takes to complete repairs once they have been identified;
- Maintenance costs as a percentage of the estimated replacement value of the fleet; and
- The percentage of work orders completed on time.
The exact return on investment (ROI) from deploying a unified fleet management software solution varies by company. For example, heavy construction contractors using these types of solutions report such results as reducing four lowboy trucks and drivers to three, reducing unscheduled downtime from 20-30% to less than 5%, and cutting mechanics’ average downtime almost in half.
Adopting best practices in fleet maintenance and management is a key component to achieving Best in Class net income results.
Deployment: placing a piece of equipment at a worksite where it is available to use.
Utilization: operating a piece of equipment at the worksite.
Equipment Billing Rate: the rate required to cover the ownership costs (depreciation, insurance, etc.) and the operating costs (fuel, maintenance, etc.) of the asset if it is operated at a planned number of hours. Best practice is to have separate rates for ownership and operating costs.
Unscheduled Downtime: the time an asset cannot be operated when it is deployed and needed on a worksite due to maintenance issues.
About the Authors
HERB BROWNETT, CCIFP, is the President of Brownett & Associates, LLC, a construction financial management consulting firm in Philadelphia, PA. Previously, he served as Executive VP of Textura Corp, as well as CFO, Senior VP, and VP of Finance for a variety of construction companies. Herb is a longtime member of CFMA, has served in numerous roles including CFMA’s Chairman, and is currently Chairman of the ICCIFP.
DAVID FLYNN, CPA, is the CFO of B2W Software located in Portsmouth, NH. B2W Software has been serving heavy civil construction companies for over 25 years. David has been involved with CFMA for several years, is a founding member of the New Hampshire Chapter where he currently serves as Vice President, and participates on CFMA’s Heavy/Highway Committee and Talking Heavy Task Force.