Wednesday, November 21, 2012

Working Smarter: Getting Value from Your Capital Equipment

One day, on the two hour flight from Mount Isa (Queensland, Australia) to Brisbane, I sat next to a man who was the chairperson of the board of directors of Mount Isa Mines.

We got chatting when I asked him how Mount Isa Mines, Australia's largest lead, zinc and copper mine was doing. Among other things, we talked about capital equipment and how it needed to be used in the most economical way. That was apparently, why he had visited the mine that week.

His dilemma was that the company spent hundreds of millions of dollars on haulage vehicles that were only used for around 10 hours per day. There were two haulage shifts, he said. Truck operators would begin their shifts underground and drive their trucks to the locations they were working, some times a considerable distance from the plats (platform near the mine entrance). When they had a smoko or lunch break, they would drive the trucks to and from the plats. Thus, in an eight hour shift, the trucks were hauling for only about five. They were idle from midnight until 8 am each day and all day Sundays.

My confidante told me that the return on the company's investment in these trucks was well below what it should have been. In China, he said, these types of vehicles are rarely unused. He said that the Chinese never turn off the truck engines; when one shift ends, a driver beginning a new shift gets into the truck and is hauling within minutes. Chinese mines haul 24/7/365.

When trucks reach their use by date or are becoming too expensive to maintain, they get rid of them.

This raises a number of issues for all of us that include:
  1. Do you have expensive capital equipment sitting about you don't use? Should you sell it?
  2. Is there an opportunity for your firm to share the expense of capital equipment with another firm eg, harvesting equipment?
  3. Can you reduce expenditure on capital equipment by buying cheaper models or brands?
  4. Do you have routine, progressive maintenance programs for your equipment to ensure it is serviceable 24/7/365?
  5. Do you replace it when it has reached it's MTBF (mean time before failure)?
  6. Is your equipment leased wherever possible and economical?
  7. If you have equipment that is being used rarely, is there an opportunity to rent it to other organisations?
  8. Do you know what your return on investment is for your major capital equipment? If not, why not?
Capital equipment can consume a huge amount of a firm's finances and, if not used appropriately, lead to lower profit levels than might otherwise be achieved.

If your firm is capital equipment intense, when you do your planning for the 2013-2014 period, why not review the return you are getting on equipment and ask yourself some of the questions I have asked above?

How well does your firm manage capital assets? Share your thoughts with us.


1 comment:

  1. Just after I posted this, my five year old HP Laserjet printer died. Do you realise how inexpensive printers are now? For $54 I got a new Brother laserjet printer that works like a beauty. Talk about capital equipment. My first HP Laserjet cost $1340.


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