Europlatform 2015
Total Cost of Ownership and
beyond
Copenhagen, 2015-10-07
DINO LEISTENSCHNEIDER,
EVP, SOURCING AND FLEET MANAGEMENT
What do you want to achieve by applying Total Cost of
Ownership models?
• Fact based analysis of a number of discrete investment alternatives? For instance:
• Different type of equipment but comparable productive output (e.g. scaffolding vs. mast
climbers)?
• Same type of equipment (e.g. scissor lifts) but from different brands?
• Evaluate your company’s exposure to Corporate Responsibility threats and
opportunities?
• From a rental company’s perspective: Manage total equipment spend and develop
strategic investment plans to optimize your company’s fleet from an ROI
perspective?
• Support your company’s overall business strategy by addressing stakeholder’s
outside of your company?
2
TCO model to support fact based decisions between
discrete investment alternatives (I)
The ERA model for TCO of equipment
3
TCO model to support fact based decisions between
discrete investment alternatives (II)
The ERA model for TCO of equipment (abstract of some key drivers)
Purchasing price
Acquisition
Process costs (e.g transports, admin.)
Costs of capital
Spare part costs
TCO per piece of
equipment
Operations &
Maintenance
M&R services costs
Warehousing and logistics costs
Inspection costs
Warranty
Divestment
Process costs (e.g. transports, admin.)
Second-hand sales price
4
What do you want to achieve by applying Total Cost of
Ownership models?
• Fact based analysis of a number of discrete investment alternatives? For instance:
• Different type of equipment but comparable productive output (e.g. scaffolding vs. mast
climbers)?
• Same type of equipment (e.g. scissor lifts) but from different brands?
• Evaluate your company’s exposure to Corporate Responsibility threats and
opportunities?
• From a rental company’s perspective: Manage total equipment spend and develop
strategic investment plans to optimize your company’s fleet from an ROI
perspective?
• Support your company’s overall business strategy by addressing stakeholder’s
outside of your company?
5
TCO model including aspects of Corporate Responsibility
and HSEQ into investment considerations to broaden risk
perspective
Purchasing price
Acquisition
Process costs (e.g transports, admin.)
Costs of capital
Spare part costs
TCO per piece of
equipment
Operations &
Maintenance
M&R services costs
Warehousing and logistics costs
Inspection costs
Warranty
Inspired by
the ERA model
Divestment
Process costs (e.g. transports, admin.)
Second-hand sales price
CR* & HSEQ**
related costs
Brand image
Sick-leave
Liability costs
6
*CR = Corporate Responsibility, **HSEQ = Health, Safety, Environment and Quality
The TCO model discussed so far today addresses mostly
issues upstream the rental Supply Chain with cost
minimization as its primary goal
Example of a typical rental Supply Chain
Raw material
Parts &
Components
Equipment
Rental
1. Tier
2. Tier
Most commonly TCO concepts are
applied upstream in the supply chain
7
Construction
Principal
Chosen levers to improve TCO in the upstream rental
Supply Chain
Scope
Description of chosen TCO improvement levers
Individual
rental
company
driven levers
Pan-industry
driven levers
• Systematically collect maintenance & repair data in central IT system (e.g. ERP)
• Use work orders to increase transparency within M&R services
• Utilize telematics to collect field data (e.g. to plan preventive maintenance)
• Strategic sourcing:
• Utilize TCO data or at least estimates (data availability?!) to support decision
making when creating category strategies (competitive tendering vs. demand
management; price vs. TCO focus)
• Building TCO data base and reports for chosen machine categories and utilize
these models in competitive tendering
• Deploy TCO data for defining the optimal maintenance & repair strategies
• Preventive vs. Predictive vs. Reactive vs. Run-to-failure
• M&R hub network
• Make vs. Buy
• Supply Chain Management
• Optimization of internal cycle-times and SLA definition at SCM interfaces to
reduce non-available fleet
• Balance demand and supply
• Definition of the ERA* TCO model and guidelines
2
• Cooperation of OEMs and rental companies in the ERA project ”Evaluation
framework for damage events in the equipment rental industry” to reduce costs and
personal injuries
= Specific examples will be described more detailed on the following slides
8
1
*ERA = European Rental Association
CHOSEN TCO IMPROVEMENT LEVERS IN THE UPSTREAM RENTAL SUPPLY CHAIN
Example 1 : Optimization of internal cycle-times and
operational costs for lifts at Ramirent Finland
Challenge/ Background
75% reduction
of non-available
lift fleet!
• The equipment availability of Ramirent Finland’s large lift
fleet, which has substantial business impact, needed to be
improved
• Demand for aligned back-to-back process to measure
productivity
• Lack of transparency/ documentation from field-repairs
Solution
• Define transparent back-to-back process from function control
via maintenance/ repair to fleet capacity movements
• Define clear process governance, lead-time based KPIs and
related targets
• Anchor such targets in SLAs at process interfaces (internal and
with external M&R service providers)
• Move equipment physically to where the demand is
Benefits
• Coherent communication and cooperation along the whole
fleet management process, including interfaces
• Ability to plan M&R activities and workforces due to increased
transparency => Reduction of M&R costs
• Lift capacity is enabled to balance supply and demand (=>
increased customer satisfaction)
• Lower capex levels due to higher availability of existing fleet
• Harmonized equipment quality and increased safety
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CHOSEN TCO IMPROVEMENT LEVERS IN THE UPSTREAM RENTAL SUPPLY CHAIN
Example 2 : Cooperation of OEMs* and rental companies
in the ERA project ”Evaluation framework for damage
events in the equipment rental industry” to reduce costs
and personal injuries (I)
• Background/ Challenge
•
•
•
•
The mission statement of the ERA emphasizes the ambition of ”Making it safer, easier and cost effective for the rental industry
by working together with equipment stakeholders on (among others) the key drivers of the TCO (damages, accidents,
maintenance etc.)”
Beyond the pure description of TCO definitions and guidelines ERA started in 2012 an initiative, which involved OEMs in a
systematic and target oriented manner to approach mutually the challenges of cross-industrial TCO optimization
In June 2015 at the IRE in Rome the ERA presented the project ”Evaluation framework for damage events in the equipment
rental industry” and some first results
The project faced the challenge to identify and communicate in a structured manner product improvement opportunities,
which should motivate the OEMs to develop their products accordingly
• Solution
•
•
Development of a structured evaluation framework, apply the framework in brainstorming sessions with Fleet Managers of
some of European’s leading rental companies and prioritize all identified improvement ideas (based on damage events).
Run several rounds of face-to-face meetings with chosen OEMs from both, the Construction and Access Equipment sector, to
discuss product development solutions
• Benefits
•
•
10
List of top prioritized and pan-rental industry acknowledged damage events to counteract in order to reduce TCO and to
increase safety
First concrete actions from OEMs to improve the product design after this year’s face-to-face meetings (e.g. simplified user
manuals, clearer marking of tie-down and lifting points, more straight than curved windows)
CHOSEN TCO IMPROVEMENT LEVERS IN THE UPSTREAM RENTAL SUPPLY CHAIN
Example 2 : Cooperation of OEMs* and rental companies
in the ERA project ”Evaluation framework for damage
events in the equipment rental industry” to reduce costs
and personal injuries (II)
The evaluation framework**
The top 5 damage events
for Access Equipment
Business impact for rental companies
• Inappropriate lifting and tie
down points
• Lack of simplified user manuals
• Operator broken hydraulic
cylinders
• Operator hydraulic hoses
breakage
Risk for personal injuries
• Flat battery (power train for
electrical machines)
11
*OEM = Original Equipment Manufacturer; **In this picture the results of the product category “Boom Lifts” is displayed
What do you want to achieve by applying Total Cost of
Ownership models?
• Fact based analysis of a number of discrete investment alternatives? For instance:
• Different type of equipment but comparable productive output (e.g. scaffolding vs. mast
climbers)?
• Same type of equipment (e.g. scissor lifts) but from different brands?
• Evaluate your company’s exposure to Corporate Responsibility threats and
opportunities?
• From a rental company’s perspective: Manage total equipment spend and develop
strategic investment plans to optimize your company’s fleet from an ROI
perspective?
• Support your company’s overall business strategy by addressing stakeholder’s
outside of your company?
12
Manage total equipment related spend in rental (I)
An extended TCO value tree that forces to widen perspective
Number
of units of
equipment
Equipment
related
spend
Equipment
turnover
(=replacements)
Targeted average fleet age from
a marketing perspective
Targeted HSEQ profile
TCO per piece of equipment
Equipment
usage (=Utilization)
Purchasing price
X
Acquisition
Process costs (e.g transports, admin.)
Costs of capital
Spare part costs
TCO per piece of
equipment
Operations &
Maintenance
M&R services costs
Warehousing and logistics costs
Inspection costs
Warranty
Inspired by
the ERA model
Divestment
Process costs (e.g. transports, admin.)
Second-hand sales price
CR* & HSEQ**
related costs
Brand image
Sick-leave (mostly on customer’s side)
Liability costs
13
*CR = Corporate Responsibility, ** = Health, Safety, Environment and Quality
Manage total equipment related spend in rental (II)
Equipment spending in itself is useless to optimize Fleet Management in rental
• The amount of the actual spending volume can of course provide leverage in competitive
tendering and negotiations towards the supplier market
• But what is actually the right spending or investment volume from a company strategy
point of view?
• Subsequently, what is the right fleet capacity to operate at for a rental company?
• With a too low capacity one risks to miss on business opportunities, which might get lost to
competition.
• With a too high capacity one risks generating higher running costs and depreciation and creating
artificial buffers/ stocks that hide operational inefficiencies
• Hence, the level of equipment related spending and investments has to be assessed
and determined in relation to operational and financial KPIs (rental revenue,
product profitability, utilization, rental rates, service revenue etc.) regardless which
overall strategy a rental company pursues
14
What do you want to achieve by applying Total Cost of
Ownership models?
• Fact based analysis of a number of discrete investment alternatives? For instance:
• Different type of equipment but comparable productive output (e.g. scaffolding vs. mast
climbers)?
• Same type of equipment (e.g. scissor lifts) but from different brands?
• Evaluate your company’s exposure to Corporate Responsibility threats and
opportunities?
• From a rental company’s perspective: Manage total equipment spend and develop
strategic investment plans to optimize your company’s fleet from an ROI
perspective?
• Support your company’s overall business strategy by addressing stakeholder’s
outside of your company?
15
Ultimately, focusing on the rental Supply Chain
downstream, instead of upstream only, expands the TCO
concept from cost reduction focus to general value creation
Example of a classic rental Supply Chain
Raw material
Parts &
Components
Equipment
Rental
1. Tier
16
Construction
1. Tier
2. Tier
2. Tier
Upstream TCO has been
addressed so far in the discussion
What about downstream
TCO?
Principal
Ramirent deliberately addresses the supply chains of
customers and customer’s customers in order to reduce
inefficiencies and hence their TCO
Ramirent’s Solution approach:
Simplifying business in four steps
Pre-conditions to success
Get involved early
Map customer's needs and
goals
Understand customer's
process
Suggest solution
Quantify benefits
Give service promise
Ensure project
management
In the following three cases are described how Ramirent managed to decrease TCO for its customers by a systematic
Solutions approach…
17
CHOSEN TCO IMPROVEMENT LEVERS IN RENTAL
Case 1: Lift capacity optimization with electronic
attendance registration on complex hospital site
Challenge/ Background
20% reduction of
lift fleet on-site
for customer!
• Construction of 3 hospital buildings (6-12 stories high)
• Customer requested up to 220 mast lifts over a 12-month
period for installation purposes on multiple locations
• Planning of the installation schedule, the lift usage and the
operators was the customer’s main challenge on the complex
site
Solution
• Installation of an electronic attendance registration system
(readers on the lifts, central ID management software etc.)
• Operators register when using lifts and provide transparency
regarding usage and productivity
• Central fleet management via ID management software on-site
(right lift with right operator on right task at right point of
time)
Benefits
• 175 lifts delivered the targeted assignment instead of 220
(reduction of more than 20%)
• Improved alignment with production schedule for the
customer => shorter project lead-time
• Improved workforce management and efficiency for the
customer => lower production costs
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CHOSEN TCO IMPROVEMENT LEVERS IN RENTAL
Case 2: Productivity increase for mounting steel wall
panels around ice hockey arena* by choosing scissor
lifts instead of mast climbers
Challenge/ Background
~20% reduction of total
costs for customer and
~25% of production
time reduction!
• An outdoor ice hockey arena ought to be converted into an
indoor ice hockey arena by building steel wall panels around
the area (L: 140m, W: 80m, H: 14m)
• The customer requested a solution with 4 mast climbers to
facilitate the mounting process, where both, material and
people, needed to be moved up and down and laterally.
Solution
• Ramirent proposed a solution with 4 scissor lifts instead
• The scissors had lower weight capacity (680 kg instead of
1.000 kg for the mast climbers), which meant less wall panels
could be carried
• But the key element of the solution with scissors is increased
agility and speed for lateral movements, which compensates
the lower bearing capacity. Moving mast climbers is a much
more tedious and time consuming task.
Benefits
• Although the lifts have a substantially higher rental price than
the mast climbers the lift solution has been proven less costly
for the customer due to the fact that the overall production
time was so much shorter
19
*Note: the picture is a random example and doesn’t show the real project
CHOSEN TCO IMPROVEMENT LEVERS IN RENTAL
Case 3: Heights-flexible mast climber solution for
highly demanding production process of world’s
highest wooden apartment building
Challenge/ Background
Enablement of the
entire project to be ontime!
Ability to operate at any
working-height!
• To build the world’s highest wooden apartment building
(44,5m, 14 stories high) required innovative static solutions
• The stories and apartment spaces within each story are based
on wooden modules, which are re-enforced by a glued timber
construction, that required numerous vertical adjustments of
the working heights during the entire production process
Solution
• The customer set out an RFP for a scaffolding solution that
should meet these requirements.
• Ramirent deemed a scaffolding solution to be too static and
offered a mast climber solution in a ring around the entire
building.
• Ramirent was chosen since the mast climber solution was both,
more cost efficient and more flexible than any scaffolding
solution
Benefits
• Capacity for both workers and material on the platforms
• The modular construction with additional glued timber
structures required highest flexibility to facilitate the project
schedule. The mast climber solution enabled operation at any
demanded working-heights seamlessly
• Without the mast climber solution the project wouldn't have
been completed on-time
20
*Note: the picture is a random example and doesn’t show the real project
To summarize…
21
Applying the features and the principles of Total Cost of
Ownership beyond the typical equipment-centered cost
reduction approach through…
…expanding the scope by
…can lead to…
• Including Corporate Responsibility and
HSEQ parameters into equipment
investment decisions
• A solid and more business oriented
anchoring of CR & HSEQ objectives
• Discussing pan-industrial TCO levers on
industry sector level (rental industry
with OEM industry)
• Sustainable changes how customers and
suppliers in the supply chain can mutually
increase value beyond single transactions
• Assessing equipment related spending
and investments versus operational and
financial KPIs
• An increased capital and operational
efficiency through allocation of funds on
value creating items
• Addressing the rental supply chain
downstream
• Reduction of customer’s and customer’s
customers TCO and generation of lucrative
income streams for the rental industry
Hence, taking this ”360 degree” perspective on TCO leads me to…
22
Total Value
Cost of Ownership
Thank you!
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