Tips on forecasting liff truck replacemenf

By Jock Rolf Industriol truck div. Allis-Cholmers Corp.

\Xf HATEVER your formula for v v determining when to replace lift trucks, the interaction of costs provides the only certain means of making the decision. Technological gains are not the only consideration. In brief, a truck should be replaced when a new truck will cost less per load handled than does an existing truck.

A truck which is operating safely at or near its specified performance is probably the most efficient piece of equipment to use. If it matches the job?s needs and as long as it continues to produce, it should not be replaced.

The indicator of when to replace becomes the demonstrated higher cost per load handled, proved by the frequency of major repairs needed. Yet. the trade-off of a new machine

Sfory dI d Glonce

Corefully kepl moinlenonce records con form the bosis for o simple formulo so you'll know when is the best time to reploce currenl equipment.

must be its greater productivity, its capability for reduced maintenance expense, and its capability for re. duced downtime. To obtain this benefit, the buyer must be willing to employ additional capital; the tradein allowance covers only part of a purchase,

The presence of these financial fac. tors permits a valid comparison of the old truck with any new one being considered. Which will cost more per Ioad handled or per operating hour?

Only records created for such comparison and maintained diligently will permit such evaluation. In addition, there must be a complete understanding of the benefits. Any user can maintain records and benefit by analyzing them.

Productivity Benefit

Will a new truck really offer greater productivity? If a purchase is a true replacementthat is, a new truck with the same specifications as the old one, the same floor geometry, the same speeds, the same general type of front end equipment, and attachmentsproductivity increases may not occur significantly.

If the old truck has been maintained properly, it is likely to handle just about as many loads per hour as a new truck. A change in specifications, such as the addition of attachments, may well improve productivity by increasing capacity, or stacking higher, or eliminating pallets. If the old truck is not operating at its specified performance, if it is slow or unsafe, the improvement in productivity is a real savings and should be taken into account.

Cost Of Maintenance Benefit

The second benefit is a reduction in the cost of maintenance. As a truck gets older in terms of operating hours it becomes increasingly expensive to maintain. Because the major components of a truck have differing useful lives, the time at which you face a major repair bill is usually when major components wear out at the same time. Repair needs coincide for two major components. The decision is either to repair the componenls or to buy a new truck. It is at thisYime that the old truck's maintenance cost will increase sharply.

Therefore, keep records on repair cost by major components. In this way, you can see the frequency of major component repair in your operation and have a basis for predicting when the coincidence of repairs will require a major outlay. This data can be applied to the cost of both new and old trucks in your operation.

Down Time Reduction Benefit

An old truck will be down frequently and will require costly back up. How much more again depends upon your operation. If absence of a lift truck will shut down a process operation, downtime cost can be very high indeed. If, on the other hand, a truck which is out of operation causes no more than a minor inconvenience, the cost will be more modest. The minimum cost of downtime is the operating cost of a standby truck.

These benefits must be weighed against the higher cost of ownership of a new truck. Regardless of what type of accounting treatment is given lift trucks in your operation, your real cost of owning a lift truck for one year is the difference in its market price or wholesale price at the beginning and end of the year. Your accountant may use different schedules in depreciating the cost of a truck, but you should make your decision on the cash you forego by using your truck for another year instead of selling it. One year definitely changes wholesale value.

An Exampte

In order to better understand the replacement decision, let's work an example together. Let's say you have a 4,000-lb. gas truck with a power shift transmission and a two.stage mast. The truck is six years old and has been maintained at or near its original condition.

You operate a clean warehouse two shifts a day, averaging 930 engine hours per shift per year. You augment your fleet with a seven-year.old standby unit which takes over when any regular truck is down for maintenance. Last year you overhauled the engine; the year before you had major repairs to the transmission. An inspection of the truck reveals that $250 worth of repairs to the steer axle is required.

Let's say your maintenance history looks like this: (see accompanying ch,arttop) Your cost this year rshen the truck is six years old is $400 to $500 less than last. but rhe expense trend is increasing. Further, your records show the truck was out of service 210 hours last year, and is down more and more frequently as it gets older. Your local industrial truck dealer quotes you I price of $8,575 on a new truck of the same specifications, allowing you $1,700 on the trade-in. The question is: should your old truck be replaced?

To make an intelligent decision you have to predict your future costs for each alternativeeither plot total maintenance and downtime and project it into the future, or schedule and plan out future major repairs remembering that the frequency of repairs increases as the truck sgessee hwer chart.

Let's say your projections for the next nine years on your six-year-old truck looks like this. You now have available the cost of maintenance. Figuring the downtime cost as the operating cost of your seven-year-old standby at $1.43 an hour, you have your downtime costs, too. For the third major cost item, the cost of ownership, you need some facts about the wholesale prices of used trucks. Accurate wholesale values can be obtained from your industriol truck dealer, but let's assume a cushion-tire gas truck 1000-lb. capacity or below has a wholesale value of a little less than one.half of its list price at the end of the first year. At the end of the second year, it loses another l2lp of its list price, so that it is now only worth 35/o of list, and so on. Notice that the highest cost of ownership occurs in the first few years of operation. The efrect is about the same tAll{IEllAllCE costs ftop) are revealing yoar by year. The severity of costs (lower chart) increases graphically. for pneumatics and heavy trucks; electric trucks depreciate a little faster due to shortened battery life. Adding these costs yields your best esti' mate of the future costs of your old truck.

Now comes a key assumption, because it represents an accurate cost history in aciual operations. Your data is also a best estimate of the op' erating cost of a new truck, and if you know how to read tihe accumulated cost history, it can tell you when to replace.

First, accumulate the total operating costs per year, adding each year's costs to the total cost of all preceding years.

Second, divide each year's accumulated total by the accumulated total operating hours on the chart.

For example, if your projection shows that by the end of its 8th yearn a truck in your operation will have -operated=l488L) hours and will have cost a total of $21,755 in depreciation, downtime and maintenance, its average cost over the entire life to date is $1.46 per hour.

I7hen should a truck be replaced? The answer is when its average cumulative cost is at a minimum. Your figures show that the optimum replacement period for a truck in your operation is seven years. If you replace before that time, your costs of ownership will be higher than necessary. If you replace after that time, your costs of maintenance and downtime will be excessive. Because your data represents the probable operating costs of both new and old trucks in your operation, the proper replacement cycle is the point which yields the minimum total cost per hour taken over the entire life of the truck.

Accordingly, you should not replace your six-year-old truck at this time. You should make the necessarv repairs. Keep your charts on file ani update them each time the truck is in for repair work.

The replacement decision depends upon accurate record keeping, this forms the basis of predicting the fu. ture operating costs of both a nelr truck and an old one, and comparing those costs over the proper period of time.