Construction Equipment magazine’s Post

Transcript

Today I'm talking with Mike Vorster and John K Mike is author of Construction Equipment Economics and a contributing editor to our Equipment Executive column. John is Vice President of Equipment and Information Technology for Miller Brothers Construction and he is a member of our 2023 class of under 40 in construction equipment. So the price of construction equipment has risen 30% since the month prior to the pandemic. Although the rate of increase has started to level off, those higher costs continue to strain equipment budgets for both acquisition and maintenance. Mike, I'd like to start with you. How would you advise a fleet to respond to these inflationary pressures? The most important thing I think to realize and if I just sort of say 11 simple thing as a as a starting point and that is you're maintaining assets which are now more expensive and more valuable than they've ever been. OK. And therefore the very, very last thing to do is to cut down on your maintenance budgets and to stop looking after this stuff you've got. But what some of the things that Miller Brothers has done over the past couple of years and in preparation for next. Yeah. I think one of the most important things, and this might paraphrase something Mike has said, which is to know our cost. And as we went through this, I'll call it a transformation and I think we're still experiencing it, hence why we're talking today. It was hard to know in the beginning during the pandemic how much of it was a blip on the radar versus how much of it was extended. And what we've learned is to Mikes Point it, it is extended, it's extending it and it's not going down. So what I see happening now to myself and peers I discuss is we're still playing catch up for the last couple of years. So although costs are starting to, the cost inflation starting to soften, we're still correcting our rates to reflect the last couple years inflationary pressures if tariffs come to play in 2025. What sort of thing? How have you factored that into your planning? You know, rather be honest. I wouldn't say a factor tariffs in specifically to my planning at this point. What I have factored in is a continued inflationary environment bits. If it's inflation driven by tariffs or anywhere else, you need to react and react immediately. Keep your eyes and ears open with regards to the impact these tariffs might have on the supply chain. That's a really good point. I honestly something I hadn't considered. Because you're right, cost is, is one thing and as long as we react we can get that into the price eventually. But yeah, going going back into an environment where we don't know if, you know that undercarriage we need will be on the shelf or if it's a six month wait and that would be a bad environment operated again. What are what are some things that fleet manager needs to be aware of with that relationship between costs and equipment rate? Point it's, it's a real fact and it's there. And I think we've got to learn how to work in a in a growing cost environment when the cost of your resources goes up, be those resources parts or labor or the resources, the machines themselves doing the work. There's only one way to really combat that, and that's by increasing your efficiency and and reducing waste. I think the important thing to do to sort of combat or to handle this thing is yes, get your systems right, get your information right and make the right decisions. But but to me, the most important is to eliminate waste and improve efficiency because you are now improving the efficiency of ever more expensive stuff. OK. And don't just think. But because your costs are going up, your price can go up. Jan, you mentioned that, that you, that was some of the work you did when you first joined Miller Brothers. Can you, can you give us an example of, of a way that you've been able to cut costs and, and get them more under control? The most important thing we can always do is make sure we're giving the right tools to the jobs. You know, we're not, we're not providing them equipment that's oversized or not suited for the task they're doing. And the only way to get that information is to build a relationship and partnership with your project teams. Make sure you understand. What they need to actually build the job and then get those, get the correct tools in their hands to do that. You know, we see a lot and I talk a lot with OEM's about, you know, kind of paired offerings within their going flagship machines where, you know, I, I really need the best digger because I'm a mass excavating today. Well, I don't necessarily need the technology that goes with that. So am I paying for options that don't benefit my use case today? This kind of situation where where costs are going to go up and it's going to affect. Profitability, it's going to affect operations. How important is it that that a fleet manager have what we call a seat at the table so that that communication is, is clear? John just touched on it and it says business of getting up with the, with the operating groups and getting on to the job sites, looking at the equipment, understanding how they, where the equipment is and how it's being applied. And, and when it comes to the application and the actual designing the productive teams and looking very, very carefully at what is the right tool for the right job. There's no way that that can't be a cooperative effort. Thank you. Is one of the benefits of building that relationship, that bridge to the operating team is when you look at equipment utilization, you know that's driven by the operating group. I'm here to meet their needs and most companies, the site that Operation guys are responsible for for utilization. But the agony and the pain of underutilized equipment lies in the equipment account with the equipment manager. And that's one of the one of the things we've got to get out of the system if we truly are going to maximize utilization and reduce waste. You work directly with the executives at Miller Brothers. You have a very good relationship with them. How do you go about communicating the effects of inflation, especially when it comes to planning for next year? Yeah, I mean, I think it's just having open and honest dialogue with the team, like MM said, you know? I don't control price, but I control cost and really I don't control costs. I just tell the teams what cost is at the end of the day. But the more I can bring them data on why costs are moving, the important and I think the operating team is value that. So if we're talking, you know, price of inflation like you mentioned 30% on new equipment, you know, since the pandemic and we're seeing, I personally think we're seeing cost on parts, replacement parts even greater than that. But I think these are all conversations we need to bring to the table. So yes, our costs are moving, but it's in line with what the industry seeing. And here's also the things we're doing to help mitigate it. And here's the ask from you. And we can only do so much. You know, back to our previous conversation, here are some things the operating teams can help with, right? If we get lower idle time, if we can utilize our equipment more, if we can maintain it better, treat it better, do better daily inspections, these are all things that eventually will help drive costs down. What sorts of technology can can be used to increase efficiencies? For us at Miller Brothers, we really unlocked the benefit or saw the benefit of telematics once we employed a telematics integrator. So we could look at all of our fleet in one system and not rely on the different OEM dashboards. So we had a single place to go and say, OK, let's look at idle time across a class or just look at utilization, give our mechanics the ability to access fault codes regardless of OEM. And things like that, Dr. utilization work, the work order process for mechanics and how you do that digitally and how much visibility is given to, you know, whoever supervises your mechanics is very important. We all work with honest people. We we all want to believe the best in people. But when you have people out there that feel like they're not being watched even just a little bit, there's inefficiency there, right? You know, I know I perform better when I know my bosses eventually going to ask what I did today. And now I want all my mechanics to have that same pressure. Not not because it's a trust thing, just. Because I think humans perform better under a little bit of pressures. And so can we use these technologies to to better improve the routing of our technicians to better improve the, the wrench time. It's much more important to save an hour of somebody's time when the cost of that hour has gone up a whole lot. You can get that come through or things that can be reviewed with our shop supervision and, and a call to the operator can actually say, no, this is OK to run until its next. But we've also had instances where we believe we've avoided catastrophic failure, where we see a low level fault code come through followed by a mid tier fault code and the operator still running the machine in a condition that eventually was going to lead to to failures. Saving the need to replace this part becomes much more important when the cost of that parts going up by 30%. You can invest more in the things that make you efficient when the things you say. Two or more expensive. Let's turn the let's turn the dealer partnerships. John, you have, you have really strong relationships with your dealers and I'd like to know what some of the things are that you folks have been working on when it comes down to. Battling this inflation beast with our dealer partners, I think I'm as much communication as you can give them and include them in our business because they are part of your business. The more beneficial that can be, the more we can involve. The OEMs and the dealers in our teams much improved, many improvements will become and and many efficiencies in different ways of doing things will be found if we restart trusting and working with each other at a personal level. Road, one of the things we didn't talk about it, John alluded to it when he spoke about increased residual values on our machines is the impact of inflation on the economic ownership period on the on the lives of our machines. And are we going to be tempted into saying, well, the new stuff costs so much, we've got to hang on to the old stuff. New stuff is getting more expensive to buy, but so are the spare parts. None of my statistics show that there's a sort of a blanket. Relationship between inflation and the need to extend lives if you're if you've been looking after your staff and your residual values are good, maybe even the inflation should cause you to reduce the lives of your staff and harvest those gains and move on to the newer, more productive state. We've seen some of our best performing categories are the ones that have trended younger over the last couple of years, and I think that might that speaks. Do it one we're reaping better availability and better reliability on the machines themselves. I agree with Mike. Keeping it when you can, when you have if you have a company that has, you know, the capital allotment to do that. Keeping younger fleet age. I'd much rather spend on new machine than banding band aiding together an old machine. There and there is a a gem dropped into the into the conversation if you have the capital resources because of course as we enter inflation or as inflation increases, so will the cost of money. And so you have to make your viboral lease or rent decision very, very, very much more carefully.