TWIA Commercial Property & Casualty
How tech can solve the buying vs. renting riddle
Aug
Rob Coakley is equipment manager for West Chester, Ohio-based Lithko Contracting. Opinions are the author’s own.
Should you rent or buy construction equipment? That question often sparks a lot of conversations and, no matter the decision, there is always a nagging feeling that a better deal could have been made.
But as construction executives, we might be asking the wrong question.
Rob Coakley
Permission granted by Lithko Contracting
A better approach might be to take a holistic perspective and ask, “Do you know enough about your business, equipment needs, renting contracts and projects to come up with a cost benefit analysis you’d feel comfortable putting in front of anyone for scrutiny?”
If you know the answer to that question, you could be on your way to making your equipment management and cost strategy a competitive advantage for your business.
Cracking the renting code
A good start is recognizing that equipment renting companies are not unlike specialty subcontractors hired for electrical or mechanical aspects of a job. The renting companies have expertise that enables them to know the most profitable buy versus rent formulas for every piece of equipment under any terms. What if you had the same knowledge?
That’s been our focus at Lithko, one of the nation’s largest concrete contractors. We asked, how can we crack the renting versus buying code, and by doing so reimagine our approach to renting equipment across every project and become a rent-first company? To do this, we identified two primary areas to address.
Burn paper, zap spreadsheets
One was simply getting away from paper-based processes, and even spreadsheets. For Lithko, a $1.8 billion company on an aggressive growth path, paper is a rabbit hole and spreadsheets are limited because they are not flexible or easy to join together to get a big picture view of each project.
It’s no wonder a recent productivity survey by Quickbase found that 45% of construction pros are spending 11 or more hours a week on these kinds of tasks, a.k.a. Gray Work.
To buy or rent?
The second area was looking at the mindset associated of owning versus renting. It is easy to trick yourself into believing that owning equipment is not as expensive as renting. One way this happens is when times are tight, equipment cost is not factored into the bid. It results in a lower bid that is often won, but at some point, the bill will come due for maintenance, parts and storage.
But that’s not the only downside to owning. For example, when equipment is rented, there tends to be a greater sense of urgency in keeping on task from a schedule perspective.
If you are renting a piece of equipment for two weeks and one day, that is one set of rate value versus keeping it for a month. The key is to understand when two weeks and one day may tip into the renting company’s monthly rate. To maximize the rental, you need to line up projects to make the most of that piece of equipment for the rest of the time.
Finding the answer
That kind of insight isn’t easily gleaned from a spreadsheet, so we pooled our various sources of information into a dynamic work management platform.
The terminology may sound complex at first, but it represents how many companies work today, juggling multiple projects, plans, deadlines, and other variables across a project portfolio. Examples of these platforms include Asana, Trello and Jira. At Lithko, we use Quickbase.
Our dynamic work management platform now simplifies and centralizes all our data, connecting information in our ERP system to frontline applications like Word or email.
And anybody who has ever touched a computer or smartphone can figure out how to navigate the platform and add their own information. For example, we didn’t need IT or any technical skills to set up automatic notifications from the field to keep everybody, including outside contractors working on the project, up to date on the status of a project, including the equipment.
Lithko was started 30 years ago and with each acquisition, we inevitably have conversations with those new employees about renting versus buying. These companies have smaller operations, work locally, and — for them — buying equipment makes sense.
However, if you are scaling your business and working on multiple projects in various locations, renting is often the best path. Having a capital constraint, along with a scalability issue in terms of buying all this equipment for each site, did not make sense when we ran the numbers from a broader perspective. And we would not have known that if we relied on spreadsheets.
For any contractor, the right decision about buying versus renting can only be made once you have all the right information and the ability to line up each project to maximize each rental. That data will not come from spreadsheets alone; it requires a bigger picture view from a dynamic work management platform.
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