Upgrade Your Fleet Replacement Strategy

In today’s rapidly evolving business landscape, efficiency is the name of the game. Companies strive to remain competitive, cut costs, and enhance productivity. One often-underestimated tactic in achieving these objectives is a fleet replacement strategy. According to a study by McKinsey, companies that invest in upgrading their equipment fleets can experience up to a 30% increase in operational efficiency.* In this blog, we’ll explore the critical aspects of fleet replacement, focusing on cost savings and results-driven strategies.

Assessing Your Current Replacement Strategy

Evaluating your existing equipment for a more efficient fleet is imperative. Is your fleet performing optimally, or are breakdowns and downtime becoming all too common? Identifying underperforming assets is the initial step toward an upgrade. According to a report by Aberdeen Group, equipment breakdowns cost businesses approximately $260,000 per hour in downtime.*

Now, you’ll have to consider whether investing in new equipment is better than the potential breakdowns that older equipment is more prone to. Weighing the pros and cons of new vs. maintaining older equipment starts with identifying if you have a problem first. If your older equipment operates just fine, there is no real reason to replace it. But if, on the other hand, your equipment experiences frequent breakdowns, those can add up to exceed the cost of investing in new equipment.

Downtime is the mortal enemy of productivity. Scrutinize your maintenance expenses and downtime records. Are they on a steady incline? This may signal that your equipment is aging and in need of replacement. While newer equipment can reduce downtime, you will have to weigh the initial investment against potential long-term savings. Is the downtime and maintenance cost more or less than what you would pay for a newer piece of equipment? The Equipment Leasing and Finance Association reports that equipment maintenance costs can consume up to 40% of an equipment’s lifecycle costs.* Imagine almost 50% of the costs incurred on your equipment are due to maintenance. Without proper maintenance, that percentage would increase due to more problematic issues.

Technology evolves at breakneck speed. If your equipment lags in technological advancements, it could hinder your operations. A survey by PwC found that 86% of industrial manufacturers believe that adopting new technologies significantly improves productivity and efficiency.* As equipment evolves and adapts, you’ll need to adapt. Although the latest and greatest technology improves efficiency and productivity and provides your company with a competitive advantage, it may require significant upfront costs to do so.

Defining Replacement Requirements

Clearly defining your operational requirements is paramount. What specific tasks must your equipment perform? Understanding your needs is crucial for selecting the right equipment for your fleet. Conducting a thorough evaluation of your current fleet and its processes will help you determine what features are essential to your operation how many assets are needed to perform the job, and provides you with a comprehensive knowledge of how your fleet can be optimized. According to the US Bureau of Labor Statistics, companies that align their equipment with their operational needs experience an average 20% reduction in operating costs.

Efficiency often hinges on finding the perfect fit. Ensure your new equipment can handle anticipated load capacities and is appropriately sized for your operations. Larger equipment may not do the job as effectively or efficiently as smaller equipment. Just because it’s large doesn’t mean that it fits your operational needs. A report by the Construction Industry Institute found that using equipment that matches the project’s size and scope can lead to a 15% reduction in project duration.*

In an era of heightened environmental awareness, consider the ecological impact of your fleet. Some states and countries require that your equipment meets environmental requirements to operate. With various alternative resource options available on the market, you can find equipment of similar make and model to your current equipment that uses more sustainable energy sources, from lithium-ion batteries to lead acid batteries and hydrogen fuel cells. While environmentally friendly options may have higher upfront costs, they can also lead to long-term savings and a positive public company perception.

Prioritizing safety measures to protect your employees and assets can do wonders for your old and new fleet. According to the Occupational Safety and Health Administration (OSHA), companies that invest in safety measures can reduce injury and illness costs by 20%.* This doesn’t factor in the cost of damage that inefficient operations can cause your fleet. Newer equipment often requires less manual labor, reducing the risk of human error and further contributing to cost savings. With properly trained operators, you’ll have fewer manual processes, reduced human error, and improved safety measures, leading to reduced damages that contribute to cost savings.

Exploring New Equipment Options

The choice between traditional and automated equipment is pivotal. While many companies utilize traditional equipment, more are moving to automated guided vehicles or AGVs. The International Federation of Robotics reports that adopting industrial robots can result in an average 22% increase in productivity.* Considering the labor capacity tradeoff for AGVs, you’ll no longer need to hire operators for your equipment. This can increase productivity, as AGVs don’t need breaks, training, or benefits but typically require significant initial investment and maintenance. Delve into both options more thoroughly before determining which aligns best with your fleet replacement strategy.

Sustainability is no longer a buzzword but is becoming a driving force in many companies. Whether due to laws or wanting to impact the environment positively, businesses are looking for sustainable solutions, and their equipment fleet is one area they may have yet to consider becoming eco-friendly. Assessing energy efficiency and sustainability features of potential replacements is becoming more pressing as more and more states and countries turn towards eco-friendly opportunities to impact both their business and the planet. When greener technology can offer long-term benefits, such as reduced fuel consumption, the equipment may come with higher upfront costs. Weigh your options; you can have traditional equipment that consumes fuel, where your equipment may be less expensive, but you’ll have to factor in the cost of the fuel consumed over the asset’s lifetime. The Environmental Protection Agency (EPA) states that energy-efficient equipment can reduce energy costs by up to 30% on average.* On the flip side, you can purchase more sustainable equipment at a higher cost but would incur less fuel. Weighing the pros and cons of each option will help you decide which is best for your business.

Analyze Costs When You Upgrade

Upgrading your fleet necessitates an initial investment. Like any other purchase, there are different options for obtaining new equipment. Whether you buy, lease, or finance your equipment, you will need to consider the total cost of ownership throughout the equipment’s lifecycle. The Association for Manufacturing Excellence reports that businesses investing in new equipment often experience a 15% reduction in operational costs within the first year.* Factoring in downtime, maintenance, fuel consumption, etc., will help you determine the total cost of ownership for each piece of equipment.

A study by Deloitte found that companies investing in equipment upgrades saw a 35% reduction in operational costs over five years.* Newer equipment often translates to enhanced efficiency, resulting in significant long-term savings through reduced operational costs. If the new equipment is used correctly and maintained regularly, you should expect cost savings that directly impact your bottom line. How long will it take for your company to recognize those savings? Utilizing a data analytics platform to track historical and real-time data can give you an accurate perception of when you can expect a return on your equipment.

Make sure to pay attention to maintenance and training costs in your analysis. While there might be initial expenses, these investments can pay off over time. Investing in proper training and maintenance can prevent unexpected breakdowns and improve efficiency. The American Society of Training and Development (ASTD) found that companies that invest $1,500 per employee per year on training and development experience a 24% higher profit margin than those that invest less.* So always remember that training and maintenance are investments in your operations, not an expense.

ROI is the ultimate metric for success. To find the ROI on your equipment, calculate the total cost of ownership (TCO) to understand how your fleet replacement strategy will impact your bottom line. TCO is the purchase price of an asset plus the costs of operation. Assessing TCO means taking a more extensive look at what the product is and what its value is over time. The biggest caveat to this metric is time. It will take time to realize the true impact that a piece of equipment has on TCO. According to a survey by Ernst & Young, 82% of executives believe that ROI is an essential metric for evaluating equipment investments.* So be patient and make sure to track TCO!

Fleet Replacement Strategy

Consider whether a phased approach or an entire fleet replacement suits your operations. Both have their advantages and challenges, so careful consideration is heavily advised. With a phased approach, you can minimize disruptions, but you’ll also prolong the transition period. A study by The Project Management Institute (PMI) found that phased project implementations are 27% more likely to be delivered on time and within budget.* With a total fleet replacement, you are more prone to disruptions in your operations, but the transition period will be shortened drastically. Either way, expect operational disruptions during the transition. Make sure to plan carefully to minimize these interruptions and maintain business continuity.

Overcoming Challenges

Henry Ford said it best, “If you always do what you’ve always done, you’ll always get what you’ve always got.” If you know that your fleet needs to be replaced, you need to make a change. The problem with change is that often, it is met with resistance. A study by McKinsey found that 70% of change initiatives fail due to resistance from employees.* To avoid this resistance, develop strategies to address resistance and gain buy-in from your team. Need help creating strategies that work? We help companies of all sizes develop strategies tailored to their business needs.

When you replace your fleet with newer models, you’ll need to maximize the lifespan of your new equipment by following best practices in maintenance and care. According to the Equipment Leasing and Finance Association, proper maintenance can extend the lifespan of equipment by up to 20%.* Ensure you are implementing a preventative and proactive maintenance plan that works for your equipment—determining whether contract or managed maintenance will benefit your company in the long run. Not sure which is a better option? Check our blog – QUIT GAMBLING WITH YOUR REPAIR AND MAINTENANCE! to learn more about both options and which will work best for you.