Lift Truck Tips: Flexible financing stretches further
To achieve the lowest total cost of fleet ownership, procurement and operations must work hand in hand.
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By now, it’s clear that purchasing or leasing lift trucks based solely on upfront cost can be a sure way to pay more in the long run. To avoid stepping on a dollar to pick up a penny, it’s critical to get procurement and operations to work together.
“Both parties have the same stated objective: to achieve the lowest total cost. But, they might go about it a bit differently,” says Mick McCormick, vice president of warehouse solutions for Yale Materials Handling Corp. “Procurement traditionally looks at acquisition price while operations looks at maintenance, uptime and productivity,” says McCormick. “What we’ve seen happening in a variety of ways is our customers trying to get both departments working arm in arm to educate each other. You can see the best results when they aren’t isolated from each other.”
The benefits of collaboration are further magnified for those companies grappling with the rapid growth of their e-commerce business. These operations are transitioning from distribution serving brick-and-mortar stores to a fulfillment profile, which creates challenges for the composition and utilization of a fleet. McCormick says flexible leasing strategies are a great way to manage those shifts, but they can only be successful when operations are fully involved in defining the package at the outset.
“Operations has the best insight into usage as compared to procurement,” McCormick says. “Otherwise it’s very challenging, though not impossible, for dealer partners or a leasing company to eliminate the ‘pay me later’ scenario or find some way to recoup the lost value of a truck that has not been planned for. The head-butting that occurs is from these unaccounted costs.”
When negotiation begins, any available data from fleet management or telematics systems will help define the use of an asset over the life of the lease term. McCormick suggests such data be broken into two sets: one from a maintenance and uptime perspective, and one concerning replacement, end-of life or end-of-contract terms. The first half helps ensure an asset is up and running and the second makes sure it’s the right piece of equipment for the job.
“By separating those data sets, you can minimize the impact of the ‘clock’ on lease terms and maximize the use of the product in line with your business cycle,” McCormick says. “The majority of customers use fewer hours than they bought since they base initial terms on potential hours not actual. But utilization fluctuates over time. If you tend to have a heavy three months, plan to pay more of the asset cost during that time, and approach a ‘power by hour’ scenario by tracking actual usage with fleet management. During slow months, pay a smaller amount.”
Some customers offer a variety of flexible leasing approaches. By crafting lease contracts with provisions for access to a rental fleet, for example, e-commerce companies can avoid coming up short during peak seasons, when rentals can be hard to find. Other programs are built with a plan to rebalance and refresh the fleet on a regular basis to ensure access to the latest technologies that can improve ergonomics, safety and productivity.
“Everywhere you look you can see more change, and the rate of innovation is not slowing down,” McCormick says. “The need to create a flexible fleet has never been more important than it is now.”
Josh Bond is Senior Editor for Modern, and was formerly Modern’s lift truck columnist and associate editor. He has a degree in Journalism from Keene State College and has studied business management at Franklin Pierce University.