Focus on Functions to Improve Performance

Machine management is a multi-tiered role. Applying expertise to each individual aspect can ensure optimum execution

Construction Equipment - August 1, 2006

Mike Vorster
Contributing Editor

Last month, we described six functions (illustrated as a hexagon) that must be competently performed in order to manage a fleet of construction equipment. We will continue with that theme and show how a focus on functions can help define roles and responsibilities to ensure that everyone knows what they are supposed to do.

Many companies define fleet management as a separate organization with responsibility for all six functions and accountability for the attainment of three goals: Equipment must be in the right place at the right time; equipment must achieve stated levels of reliability and uptime; and total owning and operating cost must be kept to a competitive minimum.

The six functions are combined or "bundled" within one organization that charges a single defined and agreed upon hourly rate for the equipment used by projects. Under the right circumstances, the system works well (see "When Centralization Makes Sense," December 2004). The devil is, as ever, in the details. The cost reliability and uptime of equipment is a constant source of debate. Accountability clashes with authority, and a stovepipe mentality soon develops with neither equipment nor operations recognizing the challenges faced by the other.

An alternative approach to a strongly centralized equipment organization can be developed by focusing on the functions and deciding which parts of the organization are best able to manage cost and achieve the desired results. The functions in the hexagon are split or "unbundled" and a separate cost control, budgeting, and cost-recovery system is developed for each. Principal stakeholders are identified and they work together to ensure that each function supports company objectives. Consider how it works, or could work, for each function.

1. Acquisition and Disposal. This is basically a procurement function. The individuals concerned must maintain relationships with manufacturers, dealers, brokers and finance houses, and they must be able to negotiate the best deal possible. They develop technical and commercial procurement contracts and acquire or dispose of equipment.
   Operations and equipment are both stakeholders in the process. The former ensure that the equipment is able to produce the required quantity and quality of work; the latter ensures that the equipment can be supported in the field and is consistent with fleet standardization policies. The function can reasonably be seen as a corporate overhead with budgets and control mechanisms established to suit.
2. Compliance and Risk Management. This is an administratively intense clerical function. The individuals concerned must be fully knowledgeable of all statutory requirements and must ensure that each machine is licensed, insured, inspected and certified as required. Their objective is to reduce exposure to risk and ensure that corporate assets can be legally operated wherever they may be. This function can also be funded and managed as a corporate overhead.
3. Transport and Logistics. Mobilizing and moving equipment is a project responsibility. This function is thus best managed by operations with costs charged directly to jobs. The cost of moving equipment as well as the cost of the people who apply for permits, track the current location of equipment, and manage the process should not form part of the equipment owning and operating rate. This function and its cost are best managed by the projects and operating business units responsible for fleet utilization.



An effective equipment-management strategy must include these six functions. How those functions are accomplished is a matter for internal debate.

4. Field Maintenance Operations. This is the first and, in many ways, the most important of the pure equipment-management functions. It includes fuel, ground-engaging tools, daily lubrication and fluids checks, inspections, adjustments and preventive maintenance. Operations and equipment are stakeholders in the process: Both want it done well, and both know it is the first line of defense against unplanned failure. Scheduling of the necessary work requires careful coordination, and field mechanics truly serve two masters.
   Large projects justify the full-time on-site presence of field mechanics integrated into the project team and responsible for all field maintenance operations. When this happens, a project-level account is established to receive the true cost of field maintenance operations. Costs are balanced against the "income" received from a component of the hourly operating rate, and the project is responsible for any over- or under-recoveries. This aligns responsibility and accountability, but it does, of course, require a clear definition of maintenance standards and policies and a mechanism to ensure that these are followed regardless of project cost or time pressures.
5. Shop and Yard Operations. This is the second of the pure equipment-management functions and covers the work needed to receive equipment; refurbish, repair or rebuild it; and make it ready for its next assignment. Shops and yards are easy to unbundle and are frequently managed as responsibility centers with costs allocated, managed and controlled using a standard work-order process. True costs are set against individual machines and compared with an "income" received from the hourly operating cost recovery rate.
   Some shops seek to balance their books by charging a fully burdened rate for mechanics and thus behave much like outside repair facilities. This seldom, if ever, leads to good results as budgets can be balanced by allocating time and efficiency easily becomes a secondary consideration.
6. Fleet and Asset Management. Unbundling this function and considering it a separate specialized function gives it the stature it deserves in the organization. The equipment asset in a heavy construction company accounts for about one-third of total corporate assets, and the cost of owning and operating the fleet is frequently larger than any other single project.

Fleet and asset management is a specialized function. It uses and processes data generated in other functions to make unit-level decisions about rebuilding or replacing machines, balancing fleet average age, and adjusting fleet size and composition to meet changing company demands.

There are three very clear stakeholders. First, the managers responsible for field-maintenance operations and shop and yard operations must be involved and contribute their knowledge of the mechanical condition of the assets. Second, project managers and production specialists must be involved and contribute their knowledge of the assets' ability to perform reliably and achieve production targets. Third, corporate financial managers must be involved and contribute their knowledge about capital investment targets, tax, financial structure, market opportunities and strategic planning.

Decisions made in this function define the size, age and composition of the fleet; drive repair, rebuild, replace decisions; and set requirements for acquisition and disposal. Success in this function is crucial to the success of the company as a whole.

Combining the six functions into one organization with clear objectives and a single revenue source based on the internal rental rate is simple and straightforward. Simplicity can be a strength. But it can also be a weakness. Splitting the functions, defining stake holders, objectives and revenue streams for each, emphasizes the many facets of fleet management and makes it possible to focus expertise on the task at hand.

To quote a famous advertisement, "There are no simple solutions. Only intelligent choices."