For construction companies that provide their job sites with tools and equipment from corporate warehouses and equipment facilities, hoarding is a common problem. Once a job site has something on site, it’s very tempting to simply hold on to it and claim it’s still being used, regardless of reality. This article explores the top three reasons for hoarding and suggests some alternative ways of tackling the problem.
Reason #1: Charging for tools based on craft hours or labor hours rather than individual items
It’s really tempting to simplify your internal tool charges to job sites based on a lump sum calculation. Rather than working out how many tools are on site, or whether they are being used, you simply work out a percentage of the number of craft or labor hours worked per day, week or month and call that a cover charge for tools. There is absolutely no incentive in this scenario for the job site to do anything other than hoard tools. There is no penalty for having unused tools on site, and since the project owner sees an amount which reflects the number of hours of labor performed there is absolutely no challenge from any external party who might be looking at the budget.
The problem, of course, is that the number that is being charged is relatively arbitrary and based on replacement costs rather than actual costs. Losses are often ignored and not charged back and repair costs have to be covered within the revenue from the lump sum. More importantly, because utilization is not a factor in this equation, you may end up buying three times as many tools as are actually being used.
Consider period-of-time charging.
Period-of-time charging can be managed by defining rate per hour, day, week, weekend and month. These can get as granular as necessary, specifying rates to an individual project or standard rates–even vary by equipment type. This method simplifies to bill not on a lump sum, but rather a time period–incentivizing job sites to return equipment when it’s no longer deemed required. Depending on how long the equipment is on site, the system will automatically calculate and create an invoice each month based on when the equipment was assigned to the site. Not only are you now able to ensure coverage for cost and maintenance, but you can also capture utilization for more accurate fleet and tool purchasing.
Reason #2: Capped charges
There is a lot of pressure from job sites to cap internal charges, particularly on tools. More and more frequently, we see companies where equipment facilities and job sites negotiate caps based on a percentage of the tools value. For example, once charging reaches 200% of the replacement value, stop charging the job site.
This is a better option than lump sum billing–at least for short term projects–but once you start looking at long projects, the cap becomes a serious liability. Essentially the tool is now free, so there is no incentive to return it even if the likelihood it will be needed again on this project is slim. The potential of returning the item and resetting the charging back to 0.00 means that, cost-wise, retaining the tool has more benefits than not.
Cap charges, but include maintenance fees to cover costs.
Instead of defining a cap and at that point charging nothing, make sure once it hits a cap that you charge a monthly maintenance fee to, at the minimum, cover costs. The older a tool gets, the more it’s going to cost you to maintain. In addition, it’s possible to charge for the equipment based on usage. For example, if you have a piece of equipment out on site and it reaches its cap, the monthly charge is now dropped and now a maintenance fee is charged. You could also define that at this point if the equipment is used more than X number of hours, or driven more than X miles, then that it will start to charge as general wear and maintenance costs will increase. This information can be feed directly in the system for using for billing.
In addition, having a strong preventative maintenance schedule or maximum life span can also help with avoiding this issue. Define a period of time that the equipment has to be returned after for service, effectively putting an end the cap.
Reason #3: Project stoppages and delays leading to suspended billing
If you rent a piece of equipment from an external rental company, you’ll probably get billed for it irrespective of whether it’s being used. You might occasionally be given a stand-by rate, but in general terms: if you have it, you pay for it.
This isn’t always the case for equipment supplied from your internal facilities. Instead, job sites can ask for billing to stop on all or part of the tools that they have on a project because of a project delay or project suspension. The chances are the equipment facility won’t pick the equipment up and bring it back to the facility, instead it will be left, sitting idle on the job site. In some cases this may be just a couple of days, but we’ve seen examples where the idle, non-billing, stopped clock can go on for weeks or even months. This is another reason why job sites hoard… there are no consequences if they do.
Utilize a software to track equipment on suspended contracts.
It’s possible to keep track of equipment usage in a system, such as mileage or hours used, so you can keep track of if the equipment is being used and react to this. If, during a period of suspension you realize that an equipment’s meter is increasing, you can end the suspension and resume your typical billing.