When should I get rid of my heavy equipment?
Ideally you will want to retire your piece of heavy equipment when it reaches its lowest cost of ownership. This applies equally to all your heavy equipment such as Skid Steers, Forklifts, Backhoes and Compact Track Loaders.
Your capital costs are highest when you acquire your new or used piece of heavy equipment. Your capital costs include purchase price, cost of purchasing process, and cost of capital. These costs all come down over time. Your operations costs will rise over time. These include maintenance, fuel, downtime, and the cost of costly risks such as accidents or damage. Charted against each other you can add the two lines of cost together and visually see that at some point the cost of operations or marginal costs and the capital costs will reach a point of Lowest Cost of Ownership shown on this graph as “Optimal”. Forecasting this point is not an exact science. The point of Lowest Cost of Ownership is influenced by how hard you use the equipment in terms of hours, harshness of operation by drivers, environment, work load on hydraulic systems, how well maintenance is performed and application the equipment performs.
Make no mistake there is a functional life to a piece of heavy equipment and there is an economic life, too. The economic life is where the chart above is at optimal. The functional life will most likely go well beyond the economic life. Older equipment may continue to plug along, but his does not mean you are getting cost effective performance. Try to avoid not deciding to retire a piece of equipment then spending the big bucks to repair a power train and feel like you need to keep it even longer to get your return on the cost of the big repair. Waiting too long will cost you in the long run. Analyze the cause of the big repair. Could it have been prevented had the regular maintenance been performed adequately? Was the cost due to a one-time accident?
My experience is that many of us get off to a good start to measure these key performance indicators (KPI’s). We start with measuring maintenance cost per hour. We immediately run in to some challenges such as tracking multiple service providers as well as our own efforts to save a buck and do the little fixes ourselves. We fail to capture all maintenance costs or value them equally. If you change the oil yourself you should factor in your labor as well as the lost opportunity cost and the cost of the filter and oil. Many heavy equipment owners have very impressive systems to capture and measure cost per hour. If you do not and do not see that being implemented any time soon, then I can offer some rules of thumb to follow.
- If you have two trucks for every application because your fleet is constantly down for repairs. Trade in your truck or scrap and get one good truck. It will cost less in the long run. Experience, also, tells me your back up truck will invariably be down when you need it. You will pay to maintain two and have the use of none. If this sounds like your situation, but you say I hardly use the truck, but I need it occasionally. I suggest you get rid of the equipment and simply rent equipment when you need it. The cost of rental and transportation will be less than the risk of unexpected ownership costs.
- If you have an application with high hour utilization and relatively modest maintenance costs, then trade the equipment in well before 10,000 hours or 7 years old and get a new truck. Keep in mind electric equipment will typically have a longer life cycle.
- If you accept higher maintenance cost when purchasing used equipment and enjoy the lower upfront acquisition cost, then look for acquiring equipment well before 14,000 hours or 10 years in age. In less demanding applications you will still have a serviceable piece of equipment.
- Remember there is a cost to older equipment that does not have the latest safety features.
- Never use heavy equipment with dangerous defects. Failures from substandard equipment can result in dropped loads, fluid leaks, jerking motions, loss of power, functions freezing up.
- Consider retiring your equipment if you have had four repair orders in the last 12 months. Obviously do not include events such as regular maintenance costs, tires, load wheels, belts and electric battery replacement. Equipment requiring frequent repairs will be less productive and can frustrate your drivers and staff. If repairs are occurring at shorter intervals the next big repair may be just around the corner. Retire the equipment before it takes a big bite out of your budget.
- Consider retiring your equipment if you have seen your maintenance costs double in the last year.
Good luck with your equipment management. Remember productivity and efficiency will suffer with unreliable equipment. Use this information to know when to get rid of your old forklifts, skid steers, backhoes and other heavy equipment.